
The Growing Risk of a 2020 Recession and Crisis - hhs
https://www.project-syndicate.org/commentary/trade-war-recession-crisis-2020-by-nouriel-roubini-2019-06
======
defertoreptar
I will say that I agree that the prolonged, near-zero interest rates is an
issue. It's one less tool we'll have at our disposal once the going gets
tough. We shouldn't slow the raising of interest rates, or reducing the
balance sheet for that matter, while we're in a bull market.

That said, they didn't really point to anything that compelling to make me
worry about 2020. At least, they didn't any more than I was worried in 2019,
2018, or 2017. They say the initial benefits of the tax cut will wear off, but
doesn't the structure itself not change until at least 10 years? Are they
saying that the tax cuts are a bandaid for an underlying issue? If so, what's
the underlying issue?

~~~
dahfizz
People have been saying that there will be a "crisis" next year for the past
1000 years. The truth is nobody can reliably predict economic downturns like
this. If we could, they would not happen.

~~~
lightgreen
Some people can predict a crisis, they make films about these people:
[https://en.wikipedia.org/wiki/The_Big_Short_(film)](https://en.wikipedia.org/wiki/The_Big_Short_\(film\))

But yes, a significantly large number of people cannot predict a crisis, it is
catch-22.

~~~
lokedhs
After every large financial event you are going to find some person who
predicted it. Since there is a nearly unlimited number of people making
contradictory predictions at all times, you're also going to find someone
making a correct prediction. In fact, if be more surprised if you didn't.

I think you'll have a hard time finding someone who made more than one correct
prediction (and none, or at least very few incorrect ones). It's easy to be
correct if you just throw everything at the wall as see what sticks.

~~~
lightgreen
> After every large financial event you are going to find some person who
> predicted it.

Yes, but not so many made a fortune from it, and even fewer who gave a proper
explanation of why the crisis is going to happen and weren't just lucky.

These guys from "The Big Short" movie were explicitly betting against CDO, not
against SNP500 as other lucky folks who also made a lot of money.

> I think you'll have a hard time finding someone who made more than one
> correct prediction (and none, or at least very few incorrect ones).

Predicting one of 5 crisis during lifetime (with real money) and simply not
losing money during other 4 crisis is a huge success for predictor I think.

> It's easy to be correct if you just throw everything at the wall as see what
> sticks.

Only those predictors who throw real money at the wall count, not these
endless newspaper analysts.

TL;DR I don't believe those folks from the movie were just lucky.

------
chrisco255
From Friday's jobs report:

KEY POINTS Nonfarm payrolls rose 224,000 in June, well above market
expectations of 165,000, according to the Labor Department.

The unemployment rate edged higher to 3.7% but was still near 50-year lows.

Wage growth was 3.1% year over year, one-tenth of a point below market
expectations.

Professional and business services led the job gains with 51,000, while health
care added 35,000 and transportation and warehousing contributed another
24,000. Construction also added 21,000 and manufacturing, despite teetering on
contraction recently, saw another 17,000 jobs added, above the 8,000 per month
average in 2019 and getting closer to the 22,000 a month in 2018.

[https://www.cnbc.com/2019/07/05/jobs-report-
june-2019.html](https://www.cnbc.com/2019/07/05/jobs-report-june-2019.html)

~~~
siidooloo
That’s why they’re called bubbles. Everything looks great until they burst.
And you’ll likely only retroactively see why.

~~~
mbrumlow
This is all fine, and bubbles do pop. But look at the DJIA, nearly every point
looking back looks like a bubble. So if bubbles pop do they drop to zero? Or
can we say that while the highs we see today may drop compared to where they
are now, that we have continued to move the average in the right direction?

My second point is, it is also hard to tell if you are not in a bubble, and
you won't know until retroactively you see why.

~~~
Aloha
The only sector that doesn't seem to be doing well right now is the
agricultural sector but it's only 1.3% of employment compared to like 30% in
1929, so I'm not too concerned, the stock market seems grossly overvalued -
this does concern me.

------
11thEarlOfMar
I keep an eye on S&P 500 earnings. As of March 31, they were at an all time
high [0]. This is irrespective of the stock market valuation. Profit is the
underlying value, and that remains very strong.

What changes is the sentiment of investors and whether they collectively
believe improvement will continue. If yes, then stock values will continue to
rise.

In the mean time, profits can continue to increase while stock values drop. I
would not be concerned about that.

[0] [https://www.multpl.com/s-p-500-earnings/table/by-
year](https://www.multpl.com/s-p-500-earnings/table/by-year)

~~~
nemo44x
If the USD could get more fairly valued against the Euro and Pound we’d see
profits skyrocket. This will happen eventually, I figure after Brexit, but as
of today the USD is too strongly valued.

~~~
danielscrubs
the market decides what’s fair, no?

What do you propose?

~~~
nemo44x
Time. EU did too much austerity. They are in the middle of a dovish cycle and
also in crisis with Brexit. Once this is sorted and the consequences are more
clear then interest rates should rise there.

~~~
danielscrubs
Have you seen the historical forecasts on interest rates compared to what
actually happens for a couple of decades?

[https://obamawhitehouse.archives.gov/sites/default/files/ima...](https://obamawhitehouse.archives.gov/sites/default/files/image/charts/chart1_%20Historical_Rates_Forecasts_blogcharts.jpg)

[http://www.brfekoxen.com/wp-
content/uploads/2016/03/riksbank...](http://www.brfekoxen.com/wp-
content/uploads/2016/03/riksbankens-igelkott-28-oct-28-riks.png)

------
just_asking_
"Many involve the United States. Trade wars with China and other countries,
along with restrictions on migration, foreign direct investment, and
technology transfers, could have profound implications for global supply
chains, raising the threat of stagflation (slowing growth alongside rising
inflation)."

Why is immigration into the United States so crucial? Why is the same not
said, eg, of China, India, Israel, etc.?

~~~
melling
Because many important jobs are done by immigrants:

[https://www.newsobserver.com/opinion/article227483414.html](https://www.newsobserver.com/opinion/article227483414.html)

Not having enough people to harvest the crops will impact the economy, for
example.

~~~
just_asking_
Is the US unique in its _need_ for imported labor? Is economic crisis the only
alternative to mass immigration, as Roubini claims? It seems like another
option is for jobs currently filled with imported labor to start paying more
to attract more domestic applicants. What do other countries do to fill these
important jobs that we fill with imported labor? It seems impossible for
everyone to rely on mass immigration, unless we held a big round robin
population swap.

~~~
smt88
Not everyone needs mass immigration. Countries with high living standards and
low birth rates do.

~~~
just_asking_
Japan, South Korea, and Taiwan fit this description but don't rely on mass
immigration.

~~~
smt88
"As the revised Immigration Control and Refugee Recognition Act enacted last
December took effect in April, the government set in motion a newly created
visa status designed to admit foreign workers with certain skills or knowledge
to make up for a serious domestic workforce shortage."

[https://www.japantimes.co.jp/opinion/2019/06/26/commentary/j...](https://www.japantimes.co.jp/opinion/2019/06/26/commentary/japan-
commentary/japan-becoming-country-immigration/)

------
quietthrow
If a recession of the magnitude claimed happens what are the three things the
common individual should do? In other words what’s the best way to prepare for
a down turn ? Hoard cash as much as possible? Try to hold down a job?
Everybody cries of a recession surprisingly there is very little talk of how
to prepare for a down turn

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futureastronaut
I doubt that a recession is looming, because the fear is fanned by perceived
periodicity, while the economy solidly expands mostly on the back of the
software industry's expansion. The market will ride that software expansion
for some time. There is no iron law of a ten year recession period.

~~~
new_realist
Software is 2% of US GDP.

~~~
dehrmann
I think they meant a more vague definition software. Amazon isn't really a
software company, but it used it to change distribution and squeeze
inefficiencies out of the system. Same with Google and advertising. No one
really knows what the ROI for a TV spot is, but every Adwords bidder knows
their keywords' ROI, and if Adwords claimed TV dollars, that squeezed out
inefficiency.

~~~
new_realist
Sure, but this didn’t prevent recessions in 2001 and 2007; in fact, efficiency
improvements have been occurring since the dawn of civilization. It’s not a
lack of efficiency that causes recessions, it is over-expansion mediated by
greed.

------
dehrmann
Oh, it's by Nouriel "permabear" "Dr. Doom" Roubini.

Gawker did some amazing coverage of this guy back in its heyday:
[https://gawker.com/tag/nouriel-roubini](https://gawker.com/tag/nouriel-
roubini)

------
sleepysysadmin
Bond yields inverted. If the recession doesn't hit in 2020 economists are
going to be studying this to extreme; because that's a 1:1 measurement for
predicting recessions.

Canada for example has around 170% household debt to disposable income. If it
was at 100%, it means the interest on the debt owed is exactly the same amount
as how much you earn. You don't get to spend and you don't get to reduce your
debt, you are only paying the interest.

At 170% you're incurring significant more debt every year and you have
literally no chance of reducing your debt.

Household debt typically is mortgage, car loans, and student loans.

What are the 3 major articles you constantly hear about?

Housing is unaffordable; aka mortgages are too expensive. Car manufacturers
closing plants and laying off significant numbers of people. How about the
crippling student loans? You know the debt you literally cant even bankrupt.

There's a certainty that the recession is coming in 2020. The thing that is
interesting is multiple times now in history the governments of the world
prolonged or attempted to prevent these debt cycle recessions. It 100% of the
time has made the situation worse. Usually resulting is far worse recessions.

There's also another factor. There is a depression every 50-100 years or so.
We're due for one.

There's 1 way to potentially see a depression coming. Social tensions spike
far worse than during a recession.

Don't know if you're following US politics... I'm pretty sure we are seeing
this right now.

------
secfirstmd
There was a tongue in cheek but interesting comment from a Central Banker in
Ireland last week that:

"The chance of a next recession is 100 percent."

I think that it makes a lot of sense that people think about that. So many
underlying issues are happening in the markets at the moment. My biggest fear
is that Democracy in Western countries might not come out well after another
one.

~~~
wozniacki

      My biggest fear is that Democracy in Western
      countries might not come out well after 
      another one.
    

Not that observers disagree with that sentiment, but what specifically makes
you say that? Is it something thats structurally malformed in the way markets
are set up currently? Is it going to affect most mature markets -- since they
are all so heavily interlinked these days -- or will there be survivors?

~~~
secfirstmd
So I think that in reality with interests rates so low there is very little
wiggle room to stimulate Western economies. So job cuts etc are gonna happen
on a big level and the social safety net will feel massive pressure. Also I
think that there is massive underlying disillusionment with lower and middle
classes since 2008. In many cases this has led to the rise of far Left/Right
parties. Many of whom have authoritarian instincts. I think the pain of
another recession will see this trend happen again.

------
brianpgordon
Trying to predict the next recession is basically voodoo. Unless it's your
actual job to analyze the data, I would assert that all you need to know is
summed up in the MoC from econpi's BaR grid:

[http://www.econpi.com/index.php](http://www.econpi.com/index.php)

------
smkellat
I dumped any “tech” holdings I had and invested in oil tankers as well as bulk
shipping. The only thing close to a “tech” stock that I hold now is Gilat
Satellite Networks Ltd. The portfolio doesn’t fluctuate much and the dividend
payouts are very nice.

------
fallingfrog
This is speculation, but I feel like xi xinping probably thinks that trump is
a one-term president, and he can afford to wait a couple years for a better
deal. Then, the trade crisis will resolve.

------
ur-whale
At the risk of flirting with ad hominem, the author of this piece is a highly
controversial character.

His delivery style in particular is highly abrasive, and his economic pieces
always deeply tainted by his politics.

I'd read with having researched his background first.

edit: his twitter stream doesn't exactly feel like what an educated, well-read
academic would produce. You be the judge:

[https://twitter.com/Nouriel](https://twitter.com/Nouriel)

~~~
jm__87
From his Wikipedia page:

 _After receiving a BA in political economics at Bocconi University, Milan and
a doctorate in international economics at Harvard University, he became an
academic at Yale and a visiting researcher /advisor at the International
Monetary Fund (IMF), the Federal Reserve, World Bank, and Bank of Israel. Much
of his early research focused on emerging markets. During the administration
of President Bill Clinton, he was a senior economist for the Council of
Economic Advisers, later moving to the United States Treasury Department as a
senior adviser to Timothy Geithner, who in 2009 became Treasury Secretary._

Yes, clearly Nouriel Roubini is not an educated, well-read academic. /s

