Times are good. Unemployment is low. People are buying big SUVs and trucks and driving fast. New homeowners are buying houses for more than the asking price.
What if it’s about to all come crashing down again?
Every recession in the past 60 years has been correctly predicted by the yield curve of bonds. Sure, bond yield curves aren’t that interesting or sexy. But if they tell us that the tough times are at our doorsteps, would we change anything in our lifestyle before it kicks in the door? If so, what?
In a good economy, the rate on longer-term bonds will be higher than short-term ones. That’s not much of the case these days, however, and that’s got some economists worried.
The last time the gap between the two was this small was 2007. The economy collapsed a year later.
Another small gap occurred in 2000, just before the dot-com economy came crashing down.
“In the current environment, I think it’s a less reliable indicator than it has been in the past,” Matthew Luzzetti, a senior economist at Deutsche Bank, tells the New York Times today.
And there’s always a risk we could push an economy into a recession just by talking about it. People react to such talk by tightening belts and stashing money, which makes the economy slow down, which can create a… you know. One of those.
So what’s prudent person to do here? Live like the good times will last? Or acknowledging that they won’t and hastening the onset of the bad ones?