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The Fourth Horseman of the Next Recession Approaches (duke.edu)
34 points by sharno 66 days ago | hide | past | web | favorite | 8 comments



Using the "Sapiens" definition, the market is a second order chaotic system - chaos which reacts to predictions of its future. If everyone expects recessions to happen on a certain date, can it really happen?

Are there any books you would recommend for better understanding of the global economy? Ones that really stick to what we know or have observed, not drawing conjectures such as the one in the article? I must say that my friends who have studied economics at prestigious universities often fail to explain to answer "some pretty basic questions" I have about the world economy.


If everyone predicts a recession is coming then yes, absolutely, it can start a recession. If you read that duke CFO survey basically what happens is companies begin to pull back on capital expenditures if they think the future economy is going to slow down. That simple idea manifested in enough companies can significantly reduce the amount of capital expending to make a dent in economic growth. This thinking also plays into the inverted yield curve - it is a sentiments indicator so if people are fearful about the future then they change their behaviors. Perhaps they don't invest anymore money into stocks, they buy bonds instead. Maybe instead of going on that vacation, they pay down debt or cut non-essential spending. If a large enough people do this then it will definitely have an impact on economic growth.


In other words - a self-fulfilling prophecy.


He forgets about the forthcoming GE bankruptcy (see latest news), and maybe even Boing. It needs just a spark to ignite a fire.


Two questions:

1) Did the yield curve invert before the dot com crash or 2008?

2) Was this thought of at those times as a recession indicator. Was it being widely discussed? Or was it off the radar?


>Did the yield curve invert before the dot com crash or 2008?

Yes to both. In fact it inverted before every single crash in recorded history and there has been a crash every single time it did happen.

The complication is that sometimes it's years before the crash occurs. Largely due to government deficit spending offsetting and delaying the crash.

>2) Was this thought of at those times as a recession indicator. Was it being widely discussed? Or was it off the radar?

For sure it was. It's been a known metric for many decades. Old article from February: https://www.cnbc.com/2019/02/20/a-recession-indicator-with-a...

It has been triggered twice now.

There are other metrics as well.


The yield curve inverted over 2 years before the 2008 recession [1], that's not the most timely indicator.

[1] https://money.cnn.com/2005/12/27/news/economy/inverted_yield...


There has been others which were even more delayed than that.

To understand what's going on is that the bond market inversion is because fallible people who are analyzing the situation and putting their money into bonds. They are buying 10 year bonds when 3 month bonds would be cheaper.

That's a very irrational thing to do; unless you're predicting a crash; and when the rates invert it also means there's a very large amount of $ going into those bonds.

Not to mention that when this happens it makes headlines and causes the politicians to scramble and try to fix the problem. This is where the delay comes in; the politicians spend $ to cover up the hole in the economy delaying the recession.

This is actually a huge problem, Canada is around 170% debt to disposable income. If you delay the recession the only thing that happens is that it goes to 180%+ making the problem that much worse.




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