American Economic Outlook 2018-2020: Bad news?

[Great Minarchistan]

Taking the opportunity of the start of 2018 (Happy New Year!), I suppose it's also a good time to discuss what will happen to the US' economy during the second half of Trump's presidency. While not really his fault, I'm not getting good feelings on regards to it. The main factor to blame my pessimism is on the apparent bubble that has been developing since 2010ish. Some indications for a future disaster are:

-> 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);
-> The gap between GDP and potential GDP has achieved the first positive -- meaning GDP is higher than potential -- since 2008. Worthy reminder that out of the eleven recessions registered since 1950, ten were preceded by this event, with an usual "countdown" of 7-9 quarters to recession after the first positive is achieved.
-> Commercial and industrial loans have effectively stagnated since mid-2016, a possible signal of:
-> Credit tightening from Federal Reserve, that has done four hikes since 2016 -- rather impressive for a central bank that has let the rates on the floor during seven years -- and plans to schedule three more hikes in 2018. This has probably led to:
-> Seemingly irrational exuberance on stocks during the last 12-18 months. While rather far from achieving annualized growth of 40-60% (when stock markets typically proceed to crash), we are on our way to it.
-> Private debt ratio has barely deflated on post-2008 and is growing back again.

Those are all the factors I can remind as of now to justify fears of another recession and, God forbid me, another huge financial crisis. You might be asking why did I create that topic and well, I think it would be also worthy to find more opinions about the matter within the NSG community and new indicators or discussion about the extent of the possible impact to be taken on a global scale.
Brace yourselves

[Nihon koku]

The Russians are probably behind this.

[Major-Tom]

I don't think we are in for a recession in the foreseeable future, but an economic slowdown triggered by unsustainable growth in some markets, as well as some bubbles could be possible in the next five years or so. But we'll see. At the moment, our market is quite good, but there are indicators, as you said, that this could change.

(Can't believe I'm agreeing with a libertarian here but meh. )

[Great Minarchistan]

I don't think we are in for a recession in the foreseeable future, but an economic slowdown triggered by unsustainable growth in some markets, as well as some bubbles could be possible in the next five years or so. But we'll see. At the moment, our market is quite good, but there are indicators, as you said, that this could change.

Heh, I don't suppose US will tolerate much more. Fun fact is how during post-08 """recovery""" the US economy threatened to fall into recession two or three times (2013, 2016 and maybe 2015). This could be the case but the scenario is looking up much more clear right now.

(Can't believe I'm agreeing with a libertarian here but meh. )

Ha, I don't bite

[Improved werpland]

The Russians are probably behind this.

Well you say that jokingly, but it's not like they haven't tried :^)

[Great Minarchistan]

Bumpity bump

[Oil exporting People]

Why the Next Recession Could Be Worse Than the Last

For all the optimism surrounding low unemployment rates and record-high real median income, there are some signs that something is rotten in the US economy. This isn’t wholly surprising – economic health tends to be cyclical, and the US is due for a recession. But when the next recession comes, there’s reason to believe it won’t be business as usual. The structural problems that led to the 2008 financial crisis haven’t been fixed. If anything, they’ve gotten worse.

In January, we forecast that the signs of just such a recession would emerge by the end of the year. And emerge they have. The yield curve between short-term and long-term US Treasuries is the flattest it has been at any point in the past 10 years. One of my colleagues, Xander Snyder, wrote an excellent piece last week on this very subject, and I encourage you to familiarize yourselves with it if you have not already done so.

A flattening yield curve, as he points out, is a problem in its own right, as is a declining prime-age labor force unable to secure adequate wages. But there are other longer-term forces at work that threaten to make what should be a minor cyclical recession a much more painful and prolonged affair. The two most consequential of these forces are increases in total household debt and the continued growth of wealth inequality within the US economy.

Household debt in the United States is now almost $13 trillion. That figure exceeds total household debt at any point during or in the recovery period after the 2008 financial crisis. Housing debt has creeped back to pre-2008 levels. Credit card debt has reached pre-2008 levels too. Student loan debt has skyrocketed by 134 percent since the first quarter of 2008 (about 9 percent on average per year).

Increased household debt, though, doesn’t mean the end is nigh; it just means people are borrowing more money. Still, problems arise when people default on credit card and consumer loans. In the second quarter of 2017, the delinquency rate on credit card loans was 2.47 percent and on consumer loans was 2.21 percent. Low though these rates may be, they are trending upward. Last month, shares of JPMorgan Chase and Citigroup fell on the news that both banks had increased their reserves for consumer loan losses – just under $300 million for JPMorgan Chase and just under $500 million for Citigroup. Put simply, American consumers are beginning to spend beyond their means.

More serious than higher household debt, though, is increased income and wealth inequality in the United States since the 1970s. In 2015, the top 10 percent of all US earners accounted for just under 49 percent of total income – a share greater than at any time during the Great Depression. The top 1 percent accounted for 20 percent of total income. This kind of disparity is a refrain in US economic history. It characterized the Gilded Age of the late 19th century as well as the decade or so before the Great Depression. Both were eras of immense wealth generation that benefited only the top, and both were rampant with speculation – the railroads and oil in the Gilded Age, the stock market in the Roaring Twenties. Today’s inequality is statistically more pronounced than during both of those times in history.

Wealth inequality was already increasing before the 2008 financial crisis, but what happened in 2008 has exacerbated the problem. According to the Pew Research Center, only upper income families have recouped the wealth they lost during the financial crisis. Median wealth was roughly 40 percent lower for lower-income families in 2016 than it was in 2007. It was roughly 33 percent lower for middle-income families. The median wealth for upper-income families, however, grew by 10 percent. The US economy may have recovered in terms of top-line figures, but middle- and lower-income families have not. For those hardest hit, the tales of recovery ring hollow.

If that is the case, then how is it that real median income – one of the most important economic indicators we use to assess the health of the US economy – is so high? When we first forecast the coming crisis of the American middle class in 2011, median household income, adjusted for inflation, was lower than it was in 1989 or in 2000. The subsequent rise in real median income is a sign that the middle class has stabilized, right? Well, not really. Real median income can rise even as the gap between those above and below the median widens. For example, the share of adults living in middle-income households has fallen since 1970. That year, 61 percent of adults lived in a middle-income household. In 2015, that number had fallen to 50 percent. The share of those living in a low-income household increased by 4 percent, and the share of those living in an upper-income household increased by 7 percent. The underlying problem is wealth inequality, and real median income does not necessarily capture wealth inequality.

And in 2017, real median income doesn’t go nearly as far as it used to. In the 1950s, the median cost of a home was a little more than double a family’s average annual income. A car was just under half of a family’s average annual income, according to data from the US Census Bureau and the US Department of Commerce. Today, it costs an average family about four times its average income to buy a house, and almost two-thirds its annual income to buy a car. A majority of households in the 1950s, moreover, were single-income households. By the end of that decade, the husband was the sole income generator for 70 percent of American households. Analysis performed by Pew in 2015, based on the last US census, estimated that in 2012, 60 percent of American households were dual-income households. The purchasing power of the real median income has decreased even as US households have added a second breadwinner to the home.

For the past 40 years in the US, the rich have been getting richer, the poor have been getting poorer, and the middle class has been disappearing. The crisis of 2008 was a global phenomenon, but in the US, it was also an episode in an era of increasing inequality that began in the 1970s. The American dream was never about just making ends meet – it was about social mobility and giving your children a better life than you had growing up. That is beyond the means of an increasing number of US households. When the next recession comes, it will come as inequality reaches new heights, and if US history is any indication, that will translate into massive political change.

[Dysmastan]

I hope not. I really need a new full-time job!

[Minoa]

I personally think that the bitcoin is the biggest thing we should be watching right now, because the price of a virtual currency is unrealistically insane for something that seems to be created out of thin air, let alone the question of where I can even spend the bitcoins (Steam gave up on accepting bitcoins due to the transaction fees being so disproportionate).

It’s not like Squid Girl will accept them at the Lemon Beach House, if she has to pay more than €20 in fees for a €10 dining bill.

[Oil exporting People]

I personally think that the bitcoin is the biggest thing we should be watching right now, because the price of a virtual currency is unrealistically insane for something that seems to be created out of thin air, let alone the question of where I can even spend the bitcoins (Steam gave up on accepting bitcoins due to the transaction fees being so disproportionate).

It’s not like Squid Girl will accept them at the Lemon Beach House, if she has to pay more than €20 in fees for a €10 dining bill.

It's the biggest bubble in history:

[Trumptonium]

The stock market isn't really overpriced in any material manner. Most stocks are within their trend, and some are dirt cheap, especially bank stocks.

Only a few stocks are overinflating the general indexes, and unsurprisingly they're all tech indexes. Stocks like Tesla and Amazon are incredibly overpriced (literally multiples) relative to the average business when you look at their financial statements. They are based on future expectations, be it rational or hope. Most other businesses are valued on the 'here and now.' Which is a good thing, as in 2007 and 1999 it was closer to the former.

I own a two stocks, an automobile manufacturer and a bank, and neither of them have any tangible risk I would worry about in the short term.

[Great Minarchistan]

The stock market isn't really overpriced in any material manner. Most stocks are within their trend, and some are dirt cheap, especially bank stocks.

Only a few stocks are overinflating the general indexes, and unsurprisingly they're all tech indexes. Stocks like Tesla and Amazon are incredibly overpriced (literally multiples) relative to the average business when you look at their financial statements. They are based on future expectations, be it rational or hope. Most other businesses are valued on the 'here and now.' Which is a good thing, as in 2007 and 1999 it was closer to the former.

I own a two stocks, an automobile manufacturer and a bank, and neither of them have any tangible risk I would worry about in the short term.

US in the Roaring Twenties had their stocks doubling from 1924 to 1928 and another double from 1928 to 1929 yet P/E ratio was kept basically unchanged without spiking at high levels (in fact they were low). Plus what you described might show just another tech bubble.

[-Ocelot-]

2018-2020, just in time for Republicans to jump ship and start blaming the Dems for the upcoming recession.

[Liriena]

Yeah, there's at least a few sizeable bubbles just waiting to burst. And with a right-wing government led by an idiot in power, when those bubbles burst, it's going to be specially awful for working Americans.

[Liriena]

The stock market isn't really overpriced in any material manner. Most stocks are within their trend, and some are dirt cheap, especially bank stocks.

Only a few stocks are overinflating the general indexes, and unsurprisingly they're all tech indexes. Stocks like Tesla and Amazon are incredibly overpriced (literally multiples) relative to the average business when you look at their financial statements. They are based on future expectations, be it rational or hope. Most other businesses are valued on the 'here and now.' Which is a good thing, as in 2007 and 1999 it was closer to the former.

I own a two stocks, an automobile manufacturer and a bank, and neither of them have any tangible risk I would worry about in the short term.

US in the Roaring Twenties had their stocks doubling from 1924 to 1928 and another double from 1928 to 1929 yet P/E ratio was kept basically unchanged without spiking at high levels (in fact they were low). Plus what you described might show just another tech bubble.

I don't suscribe to the idea that history repeats itself, but we can certainly learn from past examples, and you bringing up the Roaring Twenties is a very good example of why these numbers Trumpists fawn over, when put in context, should be cause for concern.

[Shofercia]

Taking the opportunity of the start of 2018 (Happy New Year!), I suppose it's also a good time to discuss what will happen to the US' economy during the second half of Trump's presidency. While not really his fault, I'm not getting good feelings on regards to it. The main factor to blame my pessimism is on the apparent bubble that has been developing since 2010ish. Some indications for a future disaster are:

-> 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);
-> The gap between GDP and potential GDP has achieved the first positive -- meaning GDP is higher than potential -- since 2008. Worthy reminder that out of the eleven recessions registered since 1950, ten were preceded by this event, with an usual "countdown" of 7-9 quarters to recession after the first positive is achieved.
-> Commercial and industrial loans have effectively stagnated since mid-2016, a possible signal of:
-> Credit tightening from Federal Reserve, that has done four hikes since 2016 -- rather impressive for a central bank that has let the rates on the floor during seven years -- and plans to schedule three more hikes in 2018. This has probably led to:
-> Seemingly irrational exuberance on stocks during the last 12-18 months. While rather far from achieving annualized growth of 40-60% (when stock markets typically proceed to crash), we are on our way to it.
-> Private debt ratio has barely deflated on post-2008 and is growing back again.

Those are all the factors I can remind as of now to justify fears of another recession and, God forbid me, another huge financial crisis. You might be asking why did I create that topic and well, I think it would be also worthy to find more opinions about the matter within the NSG community and new indicators or discussion about the extent of the possible impact to be taken on a global scale.
Brace yourselves

The Russian Hackers clearly hacked the US Economy to support their puppet's (Trump's) regime. Duh! How are you sheeple not seeing this?! /sarcasm

[Shofercia]

The Russians are probably behind this.

Well you say that jokingly, but it's not like they haven't tried :^)

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.

As far as the reset button is concerned, that came as a result of US failed policy in the Caucasus. One might ask, if the US wasn't trying to hurt Russia, what was the US doing in the Caucasus? To which I'm sure you'll respond with "spreading Democracy" or some such bullshit.

The best solution to any such attacks is having a strong economy, and not pissing off countries for no reason. Which is exactly what Paulson did with the Conservatorship Program.

[Trumptonium]

The stock market isn't really overpriced in any material manner. Most stocks are within their trend, and some are dirt cheap, especially bank stocks.

Only a few stocks are overinflating the general indexes, and unsurprisingly they're all tech indexes. Stocks like Tesla and Amazon are incredibly overpriced (literally multiples) relative to the average business when you look at their financial statements. They are based on future expectations, be it rational or hope. Most other businesses are valued on the 'here and now.' Which is a good thing, as in 2007 and 1999 it was closer to the former.

I own a two stocks, an automobile manufacturer and a bank, and neither of them have any tangible risk I would worry about in the short term.

US in the Roaring Twenties had their stocks doubling from 1924 to 1928 and another double from 1928 to 1929 yet P/E ratio was kept basically unchanged without spiking at high levels (in fact they were low).

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.

Plus what you described might show just another tech bubble.

I'm hardly the first one to predict this.

Case in point



In the event of a 2008 repeat, I can't see Ford falling any further than about 15-20% given their fundamentals. Tesla is like a -99%.

(For the record, I have no gains in Tesla, the automobile manufacturer I own I mentioned earlier is BMW AG)

[Shofercia]

US in the Roaring Twenties had their stocks doubling from 1924 to 1928 and another double from 1928 to 1929 yet P/E ratio was kept basically unchanged without spiking at high levels (in fact they were low).

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.

Plus what you described might show just another tech bubble.

I'm hardly the first one to predict this.

Case in point



In the event of a 2008 repeat, I can't see Ford falling any further than about 15-20% given their fundamentals. Tesla is like a -99%.

(For the record, I have no gains in Tesla, the automobile manufacturer I own I mentioned earlier is BMW AG)

And that's why I'm not investing in Tesla.

[Trumptonium]

Relevant

[Major-Tom]

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.



I'm hardly the first one to predict this.

Case in point

In the event of a 2008 repeat, I can't see Ford falling any further than about 15-20% given their fundamentals. Tesla is like a -99%.

(For the record, I have no gains in Tesla, the automobile manufacturer I own I mentioned earlier is BMW AG)

And that's why I'm not investing in Tesla.

Shit, it's almost like the market model for Tesla is driven by ego and a blind mentality of "spend more money to maybe make some money in the future."

[Petrolheadia]

US in the Roaring Twenties had their stocks doubling from 1924 to 1928 and another double from 1928 to 1929 yet P/E ratio was kept basically unchanged without spiking at high levels (in fact they were low).

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.

Plus what you described might show just another tech bubble.

I'm hardly the first one to predict this.

Case in point



In the event of a 2008 repeat, I can't see Ford falling any further than about 15-20% given their fundamentals. Tesla is like a -99%.

(For the record, I have no gains in Tesla, the automobile manufacturer I own I mentioned earlier is BMW AG)

Tesla - a PR company with an automotive division.

[MERIZoC]

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.

[Somecoldwetislands]

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

[Aclion]

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.

Unemployment has always ignored underemployment so it wont affect comparisons.