The Next Recession - What could Trigger it?

What Will Cause the Next Recession? A Look at the 3 Most Likely Possibilities

Excerpt:

The economic expansion in the United States celebrated its ninth birthday last month. If it survives another year, it will be the longest on record. But eventually something will kill it. The question is what, and when. While it’s impossible to predict the details or timing of the next recession with any confidence, we can identify some emerging threats to the expansion — and with a bit of imagination, picture how the recession of 2020 (or 2022, or whatever year it ends up being) may unfold.

1. The Fed: "The risk that the Fed will miscalibrate interest rate policy and cause a slowdown or a recession is rising, in part because of the timing of the tax cuts and spending increases enacted this year"
2. Debt: "Corporations have loaded up on debt over the last decade, spurred by low interest rates and the opportunity to increase returns for shareholders. The value of corporate bonds outstanding rose by $2.6 trillion in the United States between 2007 and 2017, according to data from the McKinsey Global Institute — rising to about 25 percent of G.D.P. from about 16 percent."
3. Trade War: "For the trade war to trigger a recession, then, it would need to escalate to a much larger scale than the limited tariffs on steel, aluminum, solar cells, washing machines and $34 billion in Chinese products currently covered. Even if it were to expand to encompass hundreds of billions of dollars worth of imports, as President Trump has threatened, in order to cause a recession it would need to prompt a broader crisis of confidence."

Comment: What else?

• Real war: China ... Iran ... North Korea ... Russia ... Middle East
• Political turmoil at home
• The national debt

Related:

Federal Reserve holds rates steady, says economy is strong https://t.co/JGtW47sUxW via @WSJ

— James Peet (@jrpeet) August 2, 2018

Real Time Economics: U.S. Ratchets Up Pressure On China; What to Watch in the July Jobs Report https://t.co/3GrOjGaeRv via @WSJ

— James Peet (@jrpeet) August 2, 2018

Answering the latest Trump administration tariff threats, Beijing suggests ‘the U.S. take the right attitude’ https://t.co/O1hfSBcptb via @WSJ

— James Peet (@jrpeet) August 2, 2018

U.S. Treasury plans increased auctions to fund looming trillion-dollar federal deficits https://t.co/qptFuU6hTk via @WSJ

— James Peet (@jrpeet) August 2, 2018

The Fed will keep on hiking rates until it has 'done damage' via @tdgraff https://t.co/wgZyn4Aa6g pic.twitter.com/yHGuiGlJKC

— Jim Cramer (@jimcramer) August 2, 2018

My money is on this one (below):

"Washington is responding to trillion-dollar deficits by increasing them further with more plans for tax cuts and spending, with nary a peep about how to pay for them." https://t.co/eGx5825FKK #fixthedebt

— Fix the Debt (@FixtheDebt) August 2, 2018

Shopping: From "fugue state" to "essentials-only mode"

Recession Can Change a Way of Life

Excerpts:

Many studies have shown that when a job is harder to find or less lucrative, people spend more time on self-improvement and relatively inexpensive amusements. During the Depression of the 1930s, that meant listening to the radio and playing parlor and board games, sometimes in lieu of a glamorous night on the town. These stay-at-home tendencies persisted through at least the 1950s.

In today’s recession, we can also expect to turn to less expensive activities — and maybe to keep those habits for years. They may take the form of greater interest in free content on the Internet and the simple pleasures of a daily walk, instead of expensive vacations ...

..

Recessions and depressions, of course, are not good for mental health. But it is less widely known that in the United States and other affluent countries, physical health seems to improve, on average, during a downturn. Sure, it’s stressful to miss a paycheck, but eliminating the stresses of a job may have some beneficial effects. Perhaps more important, people may take fewer car trips, thus lowering the risk of accidents, and spend less on alcohol and tobacco. They also have more time for exercise and sleep, and tend to choose home cooking over fast food.

...
In addition to trying to get out of the recession — our first priority — many of us will be making do with less and relying more on ourselves and our families. The social changes may well be the next big story of this recession.

Comment: Maybe some of these changes will be good in the long run! Next article highlights the Mall of America (from the NYTimes):

Our Love Affair With Malls Is on the Rocks

Excerpt:

... [The] Mall of America [is] a convenient starting point for rethinking the 50-year marriage between the American shopper and the American mall.

...

Here, ladies and gentlemen, is the crux of the problem: We are reliably informed that whatever part of the economic crisis can’t be pinned on Wall Street — or on mortgage-related financial insanity — can be pinned on consumers who overspent. But personal consumption amounts to some 70 percent of the American economy. So if we don’t spend, we don’t recover. Fiscal health isn’t possible until money is again sloshing into cash registers, including those at this mall and every other retailer.

In other words, shopping was part of the problem and now it’s part of the cure. And once we’re cured, economists report, we really need to learn how to save, which suggests that we will need to quit shopping again.

...

At Web sites like deadmalls.com, the carcasses of these abandoned buildings are photographed and toe-tagged, along with tributes from former shoppers. All this as the worst retail environment in decades continues to sag in a sickly economy.

...

The economic crisis has caused shoppers to go into an essentials-only mode. But the mall has never trafficked in essentials. You can’t, for instance, fill a prescription at the Mall of America, because it doesn’t have a pharmacy. You can, however, buy a vanilla hazelnut fragrance candle in the shape of a miniature cooking skillet. Or a $13 baseball hat that looks as though it’s made of cheddar cheese. A store called Corda-Roy’s sells a variety of bean bags that convert into beds. Magnet Max sells a battery-operated guinea pig that runs continuously on a spinning exercise wheel.

...

SPEND enough hours in the Mall of America and you wind up in a sort of fugue state in which the specifics of time and place turn fuzzy. The hope, one assumes, is that you’ll spend more freely in this alternative universe of nonstop distractions.

Comment: From deadmalls.com view the story of Western Woods Mall (Cincinnati) where I worked as a shoe salesmen at Bakers Shoes in the late '60s. Re: "shopping was part of the problem and now it’s part of the cure": A low savings rate is the problem. Tax policies that "disincent" (deter) savings and investment hurt individuals and our society in the long run. This article is somewhat dated (January 2006) but discusses that issue: U.S. savings rate hits lowest level since 1933 - Consumers depleting savings to buy cars, other big-ticket items: "The Commerce Department reported Monday that the savings rate fell into negative territory at minus 0.5 percent, meaning that Americans not only spent all of their after-tax income last year but had to dip into previous savings or increase borrowing. The savings rate has been negative for an entire year only twice before — in 1932 and 1933 — two years when the country was struggling to cope with the Great Depression, a time of massive business failures and job layoffs."

Recession half way over?

Forecasters: U.S. in 14 month recession

Excerpt:

... the U.S. economy entered a recession in April and that it will last 14 months, which would make it one of the longest recessions since the Great Depression of the 1930s.

Comment: Doesn't sound too bad!

"It's a recession when your neighbor loses his job; it's a depression when you lose your own." Harry S Truman

"Recession is when your neighbor loses his job. Depression is when you lose yours. And recovery is when Jimmy Carter loses his." Ronald Reagan

Another Reagan quote (that would apply it seems to GM, Ford and Chrysler): "Government's view of the economy could be summed up in a few short phrases If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it"

Yet another that would apply to President-Elect Obama's plans (for large government): "Government is like a baby. An alimentary canal with a big appetite at one end and no sense of responsibility at the other."

Cusp of harsh recession?

US faces worst recession in 26 years

Excerpts:

The US economy appears to be plunging into what many experts believe will be its worst recession since 1982.

Senior officials at the Treasury and Federal Reserve are confident that the rescue plan for US banks will succeed in preventing a financial system meltdown and ensure there will not be a repeat of the Great Depression. But they know that a sharp economic downturn is already baked in the cake. They do not,however, know how deep or protracted it will be.

...

“The actual deterioration in the data in the last few weeks has been much more severe than anyone was expecting,” said Frederic Mishkin, a professor at Columbia university and former Fed governor.

Consumers, who account for 72 per cent of the US economy, are pulling back amid a brutal tightening of credit conditions on everything from car loans to credit cards and home equity lines. Meanwhile, foreign demand is also weakening.

Alan Blinder, a professor at Princeton and former Fed vice-chairman, said: “It looks to me like the economy has fallen off a cliff.”

He said it was all but certain the US would face a recession worse than in 2001 or 1990-1991.

“The game is now about making sure this recession is less deep and less long than the 1982 recession.”

Many experts expect unemployment will soar from its current level of 6.1 per cent and worry it could go above 8 per cent.

The Fed now thinks that unemployment will rise above 7 per cent and is likely to peak at about 7.5 per cent – a level last seen in 1992.

“We may be talking about one of the most severe recessions in the post-war period,” said Larry Meyer, chairman of Macroeconomic Advisers and a former Fed governor.

Comment: Wiki article on The early 1980s recession

A combination of deficit spending and the lowering of interest rates slowly led to economic recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984

Comment: The problem is ... how much more deficit spending can the Federal government do? And that debt clock keeps a clicking!

In a recession, prices should be falling

An Inflation Indicator Leaves the Fed in a Tough Spot

Excerpt:

A gauge of prices paid by American producers jumped 1.1 percent in March, the Labor Department said on Tuesday, sharply accelerating from a 0.3 percent increase in February.

The increase, led by a surge in gasoline and home heating oil prices, was twice what economists had expected.

The higher prices put pressure on businesses to pass on costs to consumers, though some economists said the housing slump and weakening job market could discourage businesses from raising their prices.

“Given the weak nature of domestic demand now and going forward, it is unlikely that businesses will have as much success raising prices at the consumer level as they did in the not too distant past,” Joshua Shapiro, an economist at the research firm MFR, wrote in a note to clients.

The increases did not spread to popular products like automobiles and clothing. The closely watched core measure of the Producer Price Index, which excludes volatile costs of food and energy, rose 0.2 percent in March, falling back from an unexpected 0.5 percent rise in February.

The low core rate could take some pressure off the Fed as it tries to balance rising inflation with the overall slowdown in growth. Fed officials have acknowledged that inflation remains a serious concern, but they have signaled they will continue to focus on staving off a prolonged recession.


Comment: Prices are going up because the dollar is going down! Thus all that we import goes up.