Monetary system analyst Rafi Farber makes a pretty convincing case that a recession is imminent, based on some recent action in the banking system and also by looking at the inverted yield curve (short term interest rates above longer term rates). In a nutshell, the recession occurs not when the yield curve inverts, but after it un-inverts and goes back to its normal upward slope. We’ll know if he’s right or not within a few months. Interestingly, he doesn’t see us bouncing back from this downturn.
“…we had an inverted yield curve until… June 2007… and from there it uninverted fully and we were in a recession by January 2008… 6 months…now we’re about to cross the threshold here again we’re at… four basis points below 0.04% means we could cross into positive territory any day….we’ve been negative since June 2022 right that for over a year now which is the longest we had a negative yield curve ever… we have a few months before this fully un inverts and we are back into the final recession of this monetary system…”
If we go into a deep recession we will never hear about it until after the US election.
Recessions are always knocking. They usually don’t come in.
This is not the most convincing argument. Basically it says that certain statistics are in a pattern that resembles a pattern from 2007, but every recession is different.
The current inversion of the yield curve is the longest in decades and it can’t stay that way forever. It is, however, difficult to predict when it will un-invert and remain that way, and Rafi admits that. We could see it bounce around that border for some time.
I find this line of reasoning a lot more convincing than the typical analysis which claims that markets must decline simply because they are making record tops.
Every recession is different, like thunderstorms….they are all different but their causes are the same.
What is the cause of recessions?
In most cases they are caused by governments causing inflation and then trying to clamp down the problem of their own making.
Defensible, but next time say “they are all different but their causes are often the same.”
The recession of 2020 was caused by a shuttering of the economy due to COVID restrictions. The great recession of 2007-2009 was caused by a housing bubble collapse and loose lending practices causing a global financial crisis.
Their causes are ALWAYS the same….government policy of some type.
That’s a ridiculous statement.
Oh, come now. At worst it’s an inadequate statement. Now how about this? “Recessions are caused by receptions.” That’s what I call a ridiculous statement.
And yet, you can’t really have a recession if no one’s receiving, can you? Something to ponder:
https://youtu.be/eYDBTYfn9D8?si=i6gtC8pP3ygmR7-v
Well I bet the downturn won’t be pretend like the last decade of “wealth” has been.
GDP per capita has fallen for two years. We would be in a recession but for the massive increase in population which keeps the gdp number positive. The country is getting richer as each of its people get poorer.
Short term rates LOWER than long-term rates? This is the NORMAL yield curve. Longer rates should be higher than short rates, because of the time value of money. An inverted curve is when short term yields are HIGHER than long rates. As for recession, GDP per capita keeps shrinking, so everyone IS indeed getting poorer. And inflation, BTW, is caused by government excess and currency debasement, not by greedy grocers.
Sorry about the error. I got that reversed. Should have read short term rates higher than longer.
Makes sense to me. Further, when he talks about a dropping money supply the red line didn’t seem to have much, if any, inflection. So does the data presented support the argument? It’s not obvious to me. Also, how much will politics influence the start of an official recession if Trump wins bigly? My gut tells me that will cause massive inversions all its own. For example with the massive hedge fund record shorting of energy which would need to unwind quickly. That doesn’t seem recessionary, right? Lots of fun and games ahead.
Here’s my argument for a recession … I just paid the NEW homeowners insurance bill for my run of the mill bottom of the valley neighborhood meh. location … and it’s gone up $400 over last year. Uh … that’s NOT 3.2% inflation or whatever idiotic number the Deep State bureaucrats keep shoving down Americans throats. And it’s emblematic of EVERYTHING on my debit ledger sheet. Yes, my Automobile insurance just went up $400/yr too. Everything keeps going up, up, up … still now … after The FED has been squeezing us with unaffordable interest rates for years.
Why do you think The FED hasn’t backed off their rates yet? They know what’s REALLY happening out here and it’s UGLY … way UGLY. Americans are getting hammered with spiking prices in everything imaginable.
And Americans are plumb OUT of money. They’ve papered-over the inflation with credit cards and borrowing from their IRA’s and 401k’s … but that’s been tapped out. The music is about to STOP … and if you can’t find a rickety old chair to settle in … you’ll be living in a tent, down by the river … at least until Gavin is shooting another documentary on how he is “cleaning up homelessness” …
Well to be clear, costs aren’t going up….that is an illusion. The reality is that the value of currency is FALLING due to the cranking up of the printing presses. The more of something there is, the lower its value.
That would all be well and fine if I were actually GETTING MORE of those now – worth – less dollars into my bank account … but I’m not. So the inflation is severely eroding my standard of living.
It’s always important to look at these things … like economics … at the ground level … and not from some lofty academic perch.
Yes….inflation does erode your standard of living. But it’s the drop in the value of the currency. It is important to make the distinction between the cost of things going UP versus the value of what you are using to buy those things going DOWN. It focuses the mind. It also gets rid of the nonsensical swill like we are seeing from the left that inflation is caused by “greed” of corporations.
We went into recession in the early part of 2022 and then again in early 2023. Since then growth has been mainly inflationary. Here we are now with inflation dropping and growth stalling. Surprise. Add to that people heading to the sidelines before an election. Get some clean underwear ready for September.
Fundamentally, we ARE in a recession, and will continue so as long as we have idiots in power in Ottawa. The Bank of Canada focuses on CPI (using one of it’s own esoteric measures like Trimmed-mean CPI, or CPI ex food & energy) exclusively, and gets all complacent and happy when CPI drops from it’s peak (Look, our central planning is working!), but CPI is just the DELTA, the change in the rate of inflation. If CPI drops, yay, prices are not going up as fast as they were, but they ARE still going up, and the absolute level of prices never goes down. Plus, none of us live in an ex-Food and Energy world.
The fundamental problem is that, in the same way that we ended centuries of wars and suffering with the separation of Church and State, what we need now is the Separation of Money and State. We need a medium of exchange that Government can’t f*ck with. Ever since the invention of money, governments have been debasing it for their own ends. Back in the day, they used to have to recall all the silver coins, and then add lead to the mix and remint them, with the King skimming off the excess silver to fund things like Versailles. That sparked the old practice of people biting coins to see if they were real or soft lead. Ands with their rulers debasing the currency willy nilly, there was little to stop Joe Peasant from doing the same, so merchants routinely clipped a little snick off the rim of a silver or gold coin for themselves (Which is why ancient coin are all different sizes). That practice – clipping – ended in Elizabethan England when Isaac Newton became Lord of the Royal Mint and started making coins with knurled edges (like our quarters and dimes), though he also made clipping a hanging offence, which likely helped.
We have governments which – if they are not outright Socialists – all hew to Keynesianism, which is best described as “Government is your Daddy”, and was grasped with both fists by politicians who realized that this kind of stupid economics (As Bernanke used to say, “We’re all Keynesians now”) was just the ticket, as it allowed them to buy votes today while sticking future voters with the bill.
The Bank of Canada is highly regarded, because it is supposedly an “Inflation-fighting” central bank. It has a target of 2%-3% inflation annually, in order to “preserve” the purchasing power of the Canadian dollar. At 2% inflation, the purchasing power of the Loonie is cut in half every generation, every 36 years. At 3%, the purchasing power is cut in half every 24 years. That’s not preserving anything. Inflation is THE MOST pernicious form of taxation there is, and the reason we have it is because it works very nicely for Zoolander and co, who create it ON PURPOSE.
There was an old punk song back in the day with a lyric saying “there’s only one destination in the final taxi.” That destination is Venezuela, the most recent country to be destroyed by socialism and out of control government spending. The only difference between Justin and Jagmeet is the speed at which their policies will take us there. And frankly, with Poilievre all of a sudden making tariff noises, it’s starting to look like he’ planning to take us to Caracas, too, albeit on a slower boat. There’s an old economist line about a tariff being your trading partner slapping in the face, and a retaliatory tariff being you slapping yourself just as hard on the other side of your face, to make things even.
Anyway, don’t get me started. I spent 30 years trading bonds and having to hang on every word from central bankers and imbecilic finance ministers and am now fortunately retired and can watch the world go to hell without having to help fund it. And if you wanna learn about finance and economics, less Marx, more Mises!
PS- Read Dominic Frisby’s “The End of The State” for more on the separation of money and state. Plus. it’s hilarious.