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Comment by whatshisface | Hacker News Reader

>Six month ago, the yield curve inverted. People who should have known better said "this time is different."

How does your story jive with the fact that the yield curves went back to normal? Either they are an indicator or they aren't.

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According to Planet Money/The Indicator the normalization of the curve is part of the pattern that happens prior to recessions if I remember correctly

The indicator is that it stays inverted for a quarter. It going back is not part of the indicator.

>Either they are an indicator or they aren't.

Third option is that it is an indicator as long as people aren't treating it as one, but once people react to it then it ceases having the power to indicate what is happening.

For the curious, this is known as Goodhart's Law.

also applies to psychohistory in asimov's foundation

>Either they are an indicator or they aren't.

Because after the inversion the market (and Fed) reacted? No indicator is infallible or static.

I've been skeptical of the whole yield curve as metric thing because it's not directly tied to the actual state of the economy directly just to the sentiment about the market X years in the future. Given how much we know the whole market is prone to group think, self delusion, and outright manipulation I've grown very skeptical of any indicator about the market that comes directly from the market.

But the actual economy _is_ still about sentiment, no?

From consumers and suppliers (to some degree), not so much from buyers of treasury notes.

In most places yeah which is why the kind of highly instrumented self reflection of the sentiment like the yield curve inversion can be dangerous. It's not a sign that says there's going to be a recession it's just a sign the people in that market think there will be one.

I always wonder how much of a self-fulfilling prophecy it is, especially now the yield-curve-inversions-precede-recessions thing is so well known, i.e. people see the yield curve inverts and therefore believe the market will drop, therefore it does. Markets are just a reflection of aggregate human beliefs after all.

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