American Economic Outlook 2018-2020: Bad news?

[Great Minarchistan]

Quite true. But a major difference between now and 1925-1929 is the difference in the behaviour of banks. There's no margin lending today.

[img]https://infographic.statista.com/normal/chartoftheday_8925_tesla_vs_gm_and_ford_n.jpg

I'd rather show Apple as an example. 1000% growth within 8-9 years is not the prime example of sustainability tbf.

[Great Minarchistan]

Unemployment at one of the lowest levels registered in modern history (4.1%, almost breaking the 3.8% achieved in the evening before 2001 burst);

If you ignore underemployment, sure.

So?

[Great Minarchistan]

I think the impact of bubbles might be being overstated here, they often don't crash the real economy.

When they are intertwined with the stock markets? Yes they do.

Plus, unlike the housing bubble, people kind of view bitcoin as a bubble already and I don't think it collapsing will affect major world financial organs.

Honestly bitcoin lost its steam on investments, now people are migrating to altcoins that are riskier. Doesn't change your point though, but a crypto crash may motivate a large inflow on stocks in order to get more profits.

Also rising personal debt is usually attributable to people buying assets, mostly houses, which as long as their value remains relatively stable wouldn't lead to that causing a crash in the economy as a whole.

The focus now isn't on housing since it has barely recovered post-08 slump and home ownership is falling quickly. Stocks -- mainly the ones linked to tech -- are highly motivators of this bubble though.

Plus, unlike most other countries, the US has a little bit of give in what it can do with interest rates to cushion a recession (although not nearly as enough as one would hope).

Most/all of developed world is likely diving into NIRP after the next crash. Unsurprising though since places like eurozone and japan are already doing so.

[MERIZoC]

If you ignore underemployment, sure.

So?

So, to suggest the economy is doing great is a misrepresentation.

[Improved werpland]

And as we all know you'd never support one country trying to hurt another economically, right Werpland? Right? So I'm sure you opposed all those sanctions on Russia, right? Oh wait, I forgot, in your World, it's totally ok for US to hurt Russia, but when Russia returns the favor, you seem outraged.

Speaking in terms of the American economy, though, lots of taxpayers' dollars were spent on aid to Russia during the 90's but the return on investment is a crazy state which started plotting to damage our economy as soon as possible and in the most bizarre way. If I were a US taxpayer right now (I am not because my lack of income) I would be very angry that this money was not spent on infrastructure in the Midwest!

[Great Minarchistan]

So?

So, to suggest the economy is doing great is a misrepresentation.

When did I say that?

[MERIZoC]

So, to suggest the economy is doing great is a misrepresentation.

When did I say that?

idk I'm making a general point against people that make that assumption, who are many.

[Shofercia]

And as we all know you'd never support one country trying to hurt another economically, right Werpland? Right? So I'm sure you opposed all those sanctions on Russia, right? Oh wait, I forgot, in your World, it's totally ok for US to hurt Russia, but when Russia returns the favor, you seem outraged.

Speaking in terms of the American economy, though, lots of taxpayers' dollars were spent on aid to Russia during the 90's but the return on investment is a crazy state which started plotting to damage our economy as soon as possible and in the most bizarre way. If I were a US taxpayer right now (I am not because my lack of income) I would be very angry that this money was not spent on infrastructure in the Midwest!

"Aid to Russia" - that's funny. This "aid" was used to get Boris "the drunkard" Yeltsin reelected. Speaking of said "aid"

https://medium.com/@NedSnark/from-russi ... b7cebf01f7

Strong-armed by the administration, and in a move aptly characterized by Michael Dobbs in the Washington Post as, “an expression of political support by Western governments for Russian leader Boris Yeltsin in advance of presidential elections in June,” the normally, or at least outwardly, politically neutral International Monetary Fund became, with a single transaction, Boris’ single largest donor by approving a loan for $10.2 billion [the second largest loan of its kind in IMF history to that point, by the way, that was only superseded by the one given to Mexico in 1995 for $17.8 billion], with a crucial installment of more than $4 billion being made available during that first year, thus enabling Yeltsin to repay the $2.8 billion owed in back wages, as well as giving him the ability to follow through on his promise to increase spending on social programs...

Why, oh why was such a gesture made?

it didn’t take an experienced pollster to recognize that the issue that had the entire country [oligarchs and mobsters, etc. notwithstanding, of course] understandably seething was of the economic variety [even those same Russian newspapers with the empty statistical findings were on top of the matter]. More specifically, Ruskies were all up in arms over government workers who hadn’t seen a paycheck in MONTHS despite Yeltsin promising to remedy the situation, which might as well have induced a Dresner facepalm but also provided the team with a teachable, if not also what one would think would have been a Captain Obvious, moment. As Dresner explained to Dyachenko, “You can’t just promise these things. You have to do them. And then you have to make sure the people know what you’ve done.”

To accomplish this relative to the criminal economic deprivation that faced the aforementioned members of the proletariat [sorry, it’s just too easy], the triad advised Yeltsin to, in the political equivalent of flogging someone in a public square, chastise those officials who had failed to apportion the salary arrears as per his instructions, a proposal that both Yeltsin and the press were all too happy to implement and cover, respectively; but while such a feel-good PR exercise looked great for the cameras and bought the president some political capital, without the money needed to actually alleviate said financial suffering the whole undertaking would have been seen as yet another empty gesture...

Oh, right, makes sense. Gotta keep Russia's Al Capone in power, hence the "aid" during the election year. My, my, my, how magnanimous of you, Werpland.

[Oil exporting People]

So, a major recession does seem in the offing; what does this mean politically?:

Economic duress can be the harbinger of political change – and sometimes geopolitical change. Think about the United States in the 1930s, or the Soviet Union in the 1980s, or the European Union any time in the past decade. In these instances and many others, leaders’ options for righting the economy were only as palatable as the political consequences they would incur.

A case in point is the United States today. Like so many other countries, the U.S. is still coping with the social and economic fallout wrought by the 2008 financial crisis. The crisis may not have created Washington’s economic problems, but neither did it resolve them. And as those wounds continue to fester, it appears as though the U.S. is headed for recession.

Evidence to that effect is the flattening of the yield curve for U.S. Treasuries – a curve that is the flattest it’s been in 10 years. Usually, long-term debt has a higher interest rate to compensate investors for tying their capital up for longer. Declining interest rates on long-term debt, or higher rates on short-term debt, result in a narrower spread in the yield curve. (Visually, this looks like it is becoming flat.) The rare occurrence of an inverted yield curve – when short-term rates are higher than long-term rates – has on several occasions heralded a recession.

Yield vs. Security

A yield curve can flatten or become inverted in two ways: through higher short-term interest rates and through lower long-term ones. Both are now occurring at the same time. Since the 2008 recession, the Federal Reserve has maintained low interest rates, prompting investors to “search for yield.” In other words, they searched for higher returns in riskier investments.

Investors are now flocking to long-term treasuries to reduce risk, a sign that they believe the economy will fare poorly in the future. After 2008, when the Fed lowered interest rates, stocks and “junk bonds” – bonds with a low credit rating and higher interest rates – were purchased in greater numbers. Investors have since begun to sell stocks and junk bonds in exchange for more secure assets. CalPERS, the United States’ largest pension fund, which manages nearly $350 billion in assets, is reducing its exposure to stocks and overweighting high-rated debt. Similarly, capital from debt investment funds has begun to flow out of those in the high-risk category and into more secure ones.

The other way that a yield curve can flatten – higher short-term interest rates – is driven by monetary policy. The Fed has begun to raise rates, thanks in part to low unemployment, though inflation has remained below its target of 2 percent. The Fed typically adjusts its rates based on employment and inflation metrics. Too much inflation is dangerous because it lowers the value of money, but too little inflation is also dangerous because it can create unsustainably high levels of debt. Otherwise it can send an economy into a deflationary spiral, whereby prices constantly decrease and therefore discourage consumer spending. Rising interest rates in a low-inflation environment increase the risk of such a spiral.

Investors and the Fed are concerned that low inflation will play its part to suppress economic growth. The causes of this peculiar brand of low inflation, however, tell us something deeper about the U.S. demography.

Adequate Wages

Inflation is simply a measurement of price increases. The Consumer Price Index is frequently cited to determine inflation. It stands to reason, then, that if inflation is low, consumer spending is also low. This is in fact the case. Since the end of the 2008 recession, consumption expenditure growth – which tends to be a leading indicator of inflation, albeit a slight one – has generally stayed within a range of -1.5 percent to 2 percent. Consumer spending growth since 1980, on the other hand, rarely dipped below 0 percent and generally stayed between 2 percent and 4 percent.

Why is consumer spending – and therefore inflation – so low if the U.S. unemployment rate is likewise so low at roughly 4 percent? Shouldn’t employed people be spending money, and therefore driving higher inflation? The answer to that question lies both in the size of the labor force and the quality of the jobs that people are finding.

The unemployment rate, generically understood as the percentage of people without jobs, is a useful but sometimes misleading metric. It only calculates employed people as a percent of the labor force. It excludes people not actively searching for jobs (as determined by a number of criteria). This means that the unemployment rate can fall even as people leave the labor force. Participation in the labor force declined over the past decade, from 66 percent to 62.7 percent, which some have attributed to the retirement of baby boomers. This is only partly true. The labor force participation rate for workers in their “prime” years – 25 to 54 years – declined from 83.3 percent in 2008 to 81.6 percent today. In fact, the participation rate for workers of all ages declined over the past decade except for those over 55 years of age.

While the increase in the participation rate for those over 55 may seem counterintuitive – given that they are the retiring baby boomers – participation rates for those over 55 and 65 are much lower than for younger workers. Further, retiring baby boomers make up a larger portion of the population than they did a decade ago, so you can actually have an increasing participation rate in older categories with fewer actual workers in the market. The result is a shrinking labor force, and slow growth in consumption expenditure.

The second factor has to do with the quality of employment. The U.S. personal savings rate, declining since 2012, is at a near-record low of 3.1 percent. Despite low and relatively steady consumer expenditure growth, people are still not able to save as much as they did before 2012. (In fairness, the lowest savings rate in the past 50 years came just before the 2008 crisis.)

Taken together, these two metrics suggest that people have jobs – just perhaps not ones that can cover their living expenses.

The flattening yield curve, therefore, illustrates what’s going on in the economy. Low inflation – the indicator that both debt investors and the Fed fixate on – stems from mild consumption growth, caused by a declining prime-age labor force and an inability of those in the labor force to secure adequate wages. Lower long-term interest rates, combined with the Fed increasing rates, are signs that the U.S. economy is heading for a recession. Though that recession may not be as bad as the 2008 recession, the inherent social divisions aggravated by the 2008 recession are still here. A recession that makes life more difficult for those who have suffered for the past decade – but not for the elite – is inherently political.

[Painisia]

When will an economic collapse happen in the US?

[Oil exporting People]

When will an economic collapse happen in the US?

Had AIG tanked back in '08, you would've seen it then.

[Trumptonium]

When will an economic collapse happen in the US?

There's absolutely nothing pointing to this eventuality at the moment.

The only thing we do know is that in the next crash, the government will be powerless and the central bank will pursue a policy of negative interest rates as a first resort. Beyond that, the extent of the next downturn in the cycle we do not know, and there's nothing to say we've actually peaked the current cycle either. Or even entered a boom. Global economic activity has crashed in 2008, recovered until 2011, Europe dragged down the world until 2012-13, the world recovered speed again until 2015 when Chinese debt concerns and the stock market crash and Western politics dragged growth back down to minimal levels, and now it's recovering very fast again with all the world's major economies growing below their boom potential.

Generally speaking we only mention 'economic collapse' in the eventuality of a country returning to it's positive output (ie above potential economic output) and that has not happened yet for the US. Unless there's an exogenous issue that isn't affected by the business cycle that could bring down the economy to recession, we generally limit ourselves to that.



The fact that treasury yields are returning to normal and the Federal Reserve is very hawkish and rapidly raising interest rates is proof that we are coming back to potential, but aren't there yet. Inflation is rather low as well.

[Somecoldwetislands]

I think the impact of bubbles might be being overstated here, they often don't crash the real economy.

When they are intertwined with the stock markets? Yes they do.

Plus, unlike the housing bubble, people kind of view bitcoin as a bubble already and I don't think it collapsing will affect major world financial organs.

Honestly bitcoin lost its steam on investments, now people are migrating to altcoins that are riskier. Doesn't change your point though, but a crypto crash may motivate a large inflow on stocks in order to get more profits.

Also rising personal debt is usually attributable to people buying assets, mostly houses, which as long as their value remains relatively stable wouldn't lead to that causing a crash in the economy as a whole.

The focus now isn't on housing since it has barely recovered post-08 slump and home ownership is falling quickly. Stocks -- mainly the ones linked to tech -- are highly motivators of this bubble though.

Plus, unlike most other countries, the US has a little bit of give in what it can do with interest rates to cushion a recession (although not nearly as enough as one would hope).

Most/all of developed world is likely diving into NIRP after the next crash. Unsurprising though since places like eurozone and japan are already doing so.

So if you look at crashes in the stock market they don't always precede a recession. Case in point for 1987, where there was no recession, or the dot-com bubble which triggered a downturn that didn't have enough magnitude to qualify as a recession, and indeed did not cause a recession everywhere.

Moving on to debt, household debt to GDP has actually fallen in the US link. There isn't some debt bubble going on in the US right now, at least not across the economy as a whole.

And yeah, we're looking at Negative Rates after the next crash. Fortunately Quantitative Easing seems to have filled the gap left by conventional monetary policy in the US and Europe, especially since the ECB started to fill the role as lender of last resort to everyone but Greece. Hopefully Fiscal policy is put into the mix too.

[Hayo]

I'm not an economist, so this is a layman's perspective.

I think the economic outlook is good in the short term. I wouldn't be surprised if there is a 10-15% correction in the stock market at some point in the next few years, though. I think the huge move out of bonds and into stocks after Trump's election had more to do with expectations about policy than they did with any fundamental change in how the economy is doing.

That is because Trump wanted/wants to run the economy hot (as a businessman-turned-POTUS with a big ego, he wants growth to be YUGE), with debt-fueled tax cuts, cuts in regulation, big investments in infrastructure, and doves in the Fed. I think, overall, investors have been reacting more to that than anything.

[Great Minarchistan]

So if you look at crashes in the stock market they don't always precede a recession. Case in point for 1987, where there was no recession, or the dot-com bubble which triggered a downturn that didn't have enough magnitude to qualify as a recession, and indeed did not cause a recession everywhere.

Federal Reserve slashed rates aggressively following both events. It doesn't have ammo anymore soooo yea.

Moving on to debt, household debt to GDP has actually fallen in the US link. There isn't some debt bubble going on in the US right now, at least not across the economy as a whole.

The bubble is focused on stocks. In fact, NYSE margin debt has been hitting all-time highs.

And yeah, we're looking at Negative Rates after the next crash. Fortunately Quantitative Easing seems to have filled the gap left by conventional monetary policy in the US and Europe, especially since the ECB started to fill the role as lender of last resort to everyone but Greece.

Hmmmm, don't think so. The recovery from 2008 was extremely sluggish (US recovered from pre-slump levels by 2014 and most of Europe by 2015-16 IIRC).

Hopefully Fiscal policy is put into the mix too.

Some packages here and bailouts there and you'll see Western Europe and US with their debt burden at 150-170%.

[Great Minarchistan]

I'm not an economist, so this is a layman's perspective.

I think the economic outlook is good in the short term. I wouldn't be surprised if there is a 10-15% correction in the stock market at some point in the next few years, though. I think the huge move out of bonds and into stocks after Trump's election had more to do with expectations about policy than they did with any fundamental change in how the economy is doing.

That is because Trump wanted/wants to run the economy hot (as a businessman-turned-POTUS with a big ego, he wants growth to be YUGE), with debt-fueled tax cuts, cuts in regulation, big investments in infrastructure, and doves in the Fed. I think, overall, investors have been reacting more to that than anything.

Personally I like to say that short term results are often speculation, medium term are confidence and long term are solid growth prospects. So far we're looking on medium term even though again, it's worthy noting that almost all bubbles that I've observed suffer an irrational bull run on the last year or so before the burst.

[Claorica]

Agriculture is already in a slight slump, so it is possible the economy could drop in the near future. We generally do see the hurt before the rest of the economy.

[Great Minarchistan]

Agriculture is already in a slight slump, so it is possible the economy could drop in the near future. We generally do see the hurt before the rest of the economy.

Has agriculture even recovered from Katrina?

[Claorica]

Agriculture is already in a slight slump, so it is possible the economy could drop in the near future. We generally do see the hurt before the rest of the economy.

Has agriculture even recovered from Katrina?

We've had a few strong years in the last decade, we've recovered enough that we can say that what we are in right now is a slump.

[Trumptonium]

Agriculture is already in a slight slump, so it is possible the economy could drop in the near future. We generally do see the hurt before the rest of the economy.

The US is not dependent on agriculture enough to see the 'hurt'. In fact agriculture would have to more than catastrophically crash in half to pull the US into a recession right now.

[Trumptonium]

So if you look at crashes in the stock market they don't always precede a recession. Case in point for 1987, where there was no recession, or the dot-com bubble which triggered a downturn that didn't have enough magnitude to qualify as a recession, and indeed did not cause a recession everywhere.

Federal Reserve slashed rates aggressively following both events. It doesn't have ammo anymore soooo yea.

It does. NIRP has had some effects in Switzerland, and there's also no real way to determine a limit to QE. The final bullet in the revolver is deposit reserves, and allowing banks to go into negative rates, i.e. allow them to loan more than their entire deposit book. At present it's 90% I believe.

[Hayo]

If things get really bad, so-called "helicopter money" is another unconventional policy option.

[Claorica]

Agriculture is already in a slight slump, so it is possible the economy could drop in the near future. We generally do see the hurt before the rest of the economy.

The US is not dependent on agriculture enough to see the 'hurt'. In fact agriculture would have to more than catastrophically crash in half to pull the US into a recession right now.

That doesn't change the fact that historically, including in more modern history, Agriculture has generally seen its markets slump before the rest of the economy sees a slump. Happened in '08, happened in the '70s, sure as hell happened in the '30s.

[Oil exporting People]

If things get really bad, so-called "helicopter money" is another unconventional policy option.

Not really, because the U.S. isn't in a liquidity trap.

[Trumptonium]

If things get really bad, so-called "helicopter money" is another unconventional policy option.

Not really, because the U.S. isn't in a liquidity trap.

Wasn't too far from this reality around 2011-2013, and especially in the Eurozone up to around 2014 where helicopter drops were genuinely a policy consideration, made worse by deflation.