The Recession Megathread

[crazy canuck]

German GDP growth was -0.1% last month, and the US yield curve has apparently inverted, for the first time since 2007. The UK one followed suit as a good vassal state should.

The US yield curve has been inverted for months, IIRC since March.

True, but I think what everyone is talking about is this:

On Wednesday morning, the signal being sent by the bond market worsened further, as the yield on 10-year Treasury bonds plunged to about 1.60 percent as of 11 a.m. At some points, that rate fell even below the equivalent rate on two-year bonds.

https://www.nytimes.com/2019/08/14/upshot/global-economic-trouble-is-brewing-and-the-trade-war-is-only-part-of-it.html?action=click&module=Top%20Stories&pgtype=Homepage

[Syt]

Well, we finally know who's responsible!

Donald J. Trump
@realDonaldTrump
·
17h
The Fake News Media is doing everything they can to crash the economy because they think that will be bad for me and my re-election. The problem they have is that the economy is way too strong and we will soon be winning big on Trade, and everyone knows that, including China!

[Tamas]

Well, we finally know who's responsible!

Donald J. Trump
@realDonaldTrump
·
17h
The Fake News Media is doing everything they can to crash the economy because they think that will be bad for me and my re-election. The problem they have is that the economy is way too strong and we will soon be winning big on Trade, and everyone knows that, including China!

It is incredible how low the office of the POTUS and with it world politics have sunk, and so quickly. Can you guys remember that Obama was this idiot's predecessor? And to think I was fairly lukewarm on that guy because he couldn't achieve the sweeping changes he promised? Now he seems like such a high standard that we may not see for decades, maybe not even in my lifetime.

What a shame.

[Valmy]

Yes the news media absolutely wants the economy to crash. Their industry is so healthy I think a new newspaper or news service opens every week to take advantage of this wealth bonanza. They know they can easily ride out any recession.

I mean they probably are desperate for him to be re-elected so they can keep getting clicks.

Anyway I sure hope the economy doesn't go into recession. This was my main fear when the President got elected, that his stupid trade and tax policies would eventually harm the recovery. I hoped, and still hope, we could replace him before that happened.

[Tamas]

Yes the news media absolutely wants the economy to crash. Their industry is so healthy I think a new newspaper or news service opens every week to take advantage of this wealth bonanza. They know they can easily ride out any recession.

I mean they probably are desperate for him to be re-elected so they can keep getting clicks.

Anyway I sure hope the economy doesn't go into recession. This was my main fear when the President got elected, that his stupid trade and tax policies would eventually harm the recovery. I hoped, and still hope, we could replace him before that happened.

I think it goes beyond Trump and he only makes things worse but not solely responsible.

In fact I'd appreciate if this thread would not turn into a Trump thread, we have about 5 of those already, and it is depressing.

[crazy canuck]

Well, we finally know who's responsible!

Donald J. Trump
@realDonaldTrump
·
17h
The Fake News Media is doing everything they can to crash the economy because they think that will be bad for me and my re-election. The problem they have is that the economy is way too strong and we will soon be winning big on Trade, and everyone knows that, including China!

It is incredible how low the office of the POTUS and with it world politics have sunk, and so quickly. Can you guys remember that Obama was this idiot's predecessor? And to think I was fairly lukewarm on that guy because he couldn't achieve the sweeping changes he promised? Now he seems like such a high standard that we may not see for decades, maybe not even in my lifetime.

What a shame.

I am beginning to think that there is something to the theory that we are living in a simulation.  Someone got bored with seeing strong liberal democratic institutions evolve and play out and decided to alter the parameters of the program.

[Habbaku]

We're in a hotseat game of Dwarf Fortress and Jaron has taken the helm.

[crazy canuck]

Yes the news media absolutely wants the economy to crash. Their industry is so healthy I think a new newspaper or news service opens every week to take advantage of this wealth bonanza. They know they can easily ride out any recession.

I mean they probably are desperate for him to be re-elected so they can keep getting clicks.

Anyway I sure hope the economy doesn't go into recession. This was my main fear when the President got elected, that his stupid trade and tax policies would eventually harm the recovery. I hoped, and still hope, we could replace him before that happened.

I think it goes beyond Trump and he only makes things worse but not solely responsible.

In fact I'd appreciate if this thread would not turn into a Trump thread, we have about 5 of those already, and it is depressing.

The problem is it is hard to separate Trump from the discussion of the causes.

Krugman had this to say today in his NYtimes piece,

But even if Trump and company aren't the source of all of our economic difficulties, you still want some assurance that they'll deal effectively with problems as they arise. So what kind of contingency planning is the administration engaged in? What are officials considering doing if the economy does weaken substantially?

The answer, reportedly, is that there is no policy discussion at all, which isn't surprising when you bear in mind the fact that basically everyone who knows anything about economics left the Trump administration months or years ago. The advisers who remain are busy with high-priority tasks like accusing The Wall Street Journal editorial page of being pro-Chinese.

No, the administration's only plan if things go wrong seems to be to blame the Fed, whose chairman was selected by ... Donald Trump. To be fair, it's now clear that the Fed was wrong to raise short-term rates last year.

But it's important to realize that the Fed's mistake was, essentially, that it placed too much faith in Trumpist economic policies. If the tax cut had actually produced the promised boom, if the trade war hadn't put a drag on growth, we wouldn't have an inverted yield curve; remember, the Fed didn't cause the plunge in long-term rates, which is what inverted the curve. And the Trump boom wasn't supposed to be so fragile that a small rise in rates would ruin it.

https://www.nytimes.com/2019/08/15/opinion/trump-economy.html?action=click&module=Opinion&pgtype=Homepage

 

[crazy canuck]

We're in a hotseat game of Dwarf Fortress and Jaron has taken the helm.

[The Brain]

We're in a hotseat game of Dwarf Fortress and Jaron has taken the helm.

[Syt]

[The Minsky Moment]

Keep a careful watch on the leveraged loan and high yield (i.e. junk) bond markets.  Leveraged loans are basically ultra-junk corporate loans that use similar "covenant-lite" terms as was the fashion during the subprime mortgage crisis - and like those subprime loans, they are typically diced and packaged into CLOs. That market hit $1 trillion in June but since has dried up and recently there were a couple defaults and some deal fails.  The borrowers that can are issuing junk bonds instead. But Goldman released analysis late last week showing that defaults are rising in the high yield market and is an pace to set a post-08 record this year.  Even as investors are piling into treasuries and investment grade corporates, high yield is performing poorly and spreads are widening.

There is risk of contagion as a large percentage of leveraged loans are held by banks in the conventional banking system.  The danger is that the events of 08-09 replay but in market for corporate debt as opposed to mortgages. 

[Razgovory]

I'm really afraid of 08 type recession.  Quick action on Bush's part an a willingness to do something extremely unpopular by Congress kept us afloat.  I'm afraid the political will isn't there anymore.  And even if it is, do we have enough money to throw at the problem?

[HVC]

Keep a careful watch on the leveraged loan and high yield (i.e. junk) bond markets.  Leveraged loans are basically ultra-junk corporate loans that use similar "covenant-lite" terms as was the fashion during the subprime mortgage crisis - and like those subprime loans, they are typically diced and packaged into CLOs.

so I guess no one learned.

[crazy canuck]

I'm really afraid of 08 type recession.  Quick action on Bush's part an a willingness to do something extremely unpopular by Congress kept us afloat.  I'm afraid the political will isn't there anymore.  And even if it is, do we have enough money to throw at the problem?

An analyst this morning was pointing out that it took concerted joint efforts of all the Western economies working closely together both at the political level and at the level of the various national banks.  None of which is remotely possible today.