With another stock market meltdown, the official “recession watch” is underway according to some experts.
The U.S. economy, though not exactly humming along at 2 percent growth and with wages stagnant, is the jewel of the global economy now. Europe is a mess. China is getting its bubble comeuppance and the daily business watch is now a debate over whether a recession is ahead.
We’re overdue for one, CNBC commentator Michael Pento writes today, throwing a bucket of cold water on those of us who feel like we’re just getting our heads above water from 2008’s economic collapse.
He says the coming recession will be even worse, thanks in large measure to how quickly we forgot the lessons of 2008.
But most importantly, even if one were to concede financial institutions are less leveraged; the startling truth is that businesses, the federal government and the Federal Reserve have taken on a humongous amount of additional debt since 2007. Even household debt has increased back to its 2007 record of $14.1 trillion. Specifically, business debt during that time frame has grown from $10.1 trillion, to $12.6 trillion; the total national debt boomed from $9.2 trillion, to $18.9 trillion; and the Fed’s balance sheet has exploded from $880 billion to $4.5 trillion.
Banks may be better off today than they were leading up to the Great Recession but the government and Fed’s balance sheets have become insolvent in the wake of their inane effort to borrow and print the economy back to health. As a result, the federal government’s debt has now soared to nearly 600 percent of total revenue. And the Fed has spent the last eight years leveraging up its balance sheet 77-to-1 in its goal to peg short-term interest rates at zero percent.
Jeff Spross at The Week says there’s plenty of data to suggest a recession is on the way, but economics being what it is, we don’t really know for certain what the data means.
A lot of the trends we look at are ones we actually haven’t been gathering numbers on for that long. You can look at the pattern for mergers and acquisitions, for example, and it sure looks like a recession is coming within a year or two. But then the numbers only go back about two decades. Who knows how long these trends stick with particular predictable forms of behavior?
Ultimately, many clues indicate we could be heading for a recession. But they’re all circumstantial.
Everyone predicting a recession is right; that’s the easy part. Recessions come and go as a matter of pattern. But is it dead ahead? Is your job at risk? Tougher questions.
Ben Casselman at FiveThirtyEight.com predicts if a recession is coming, it won’t hit this year.
The question is how much of a threat China’s struggles pose to the U.S. economy as a whole. The answer is clearly not “none,” but it might well be “not much.” U.S. exports to China are relatively modest, and our financial systems aren’t particularly interconnected. A broader global slowdown would surely pinch, but the rest of the world has been struggling for more than two years now and the U.S. recovery has stayed on course.
None of this is to say that a recession isn’t coming. If there’s one truism in macroeconomics, it’s that we’re really bad at predicting recessions. But that failure works in both directions — a vocal subset of economists has been forecasting a collapse for six years. One day, they’ll be right. But I’m guessing that day won’t come in 2016.
The stock market is a lousy place to look for signs of recession anyway, David Blitzer of Standard & Poor’s argues. The broader economy, particularly the number of people filing for unemployment, is a decent indicator, though. And it’s been reasonably good.
Meanwhile, if you were about to retire, what’s happening to your retirement portfolio is real; you’ve got a lot less money to count on.