By Theodore Shoebat
A sign that has accurately predicted every recession since 1969 just popped up, as we read in a report from Yahoo! Finance:
The market’s most closely watched part of the yield curve inverted today, and if its record over the last half-century is any indicator, the U.S. could be headed for a recession soon.
Shortly after 6 a.m. ET on Wednesday, the yield on the 10-year U.S. Treasury bond dipped below the yield on the 2-year U.S. Treasury as the 10-year fell 1 basis point below the 2-year. The yield curve inversion has a strong track record of predicting a recession; each of the last seven recessions (dating back to 1969) were preceded by the 10-year falling below the 2-year.
Ahead of the last recession, the yield curve inverted briefly as early as December 27, 2005, about two years before the financial crisis sent the economy into recession.
For over a year after that, the yield curve fluttered in and out of inversion. The last inversion, as measured by U.S. Treasury data collected by the St. Louis Fed, was in 2007.
Concerns over a global slowdown, in addition to uncertainties from the U.S.-China trade war, have weighed heavily on longer-term U.S. Treasury yields. Since the new year, the return on the longer-term 30-year Treasury has fallen from a high of 3.12% in March to 2.08% on August 14.
Bond yields across the board have come down over that same time period, as investors move funds from more aggressive-yielding securities into risk-off assets like gold and U.S. Treasuries.
Yields came down precipitously in August amid a mix of global concerns: President Donald Trump threatened new tariffs on China, an Argentinian election renewed worry over its debt crisis, and protests escalated in Hong Kong.
Morgan Stanley wrote August 12 that unless economic data or U.S. equity earnings turn around, “the bear is alive and kicking.” Their note adds that investors should be careful about equity markets, recommending staples and utilities stocks amid recession risks.
The American people’s excessive use of credit cards (people are using their credit cards to buy everything including coffee at Starbucks), cannot go on without the system imploding. You cannot have so much debt growing and growing, and not have an eventual consequence. There is also the poor economic conditions of millions of Americans, as we read in a report from the Rolling Stone:
Some 40 percent of American families struggled to cover the cost of food, health care, housing or utilities last year, according to a report from the Urban Institute. A Fed found four in 10 adultscouldn’t cover a $400 emergency expense. Even at the current low unemployment rate, about 6 million workers are actively looking for jobs right now — and that doesn’t include part-time workers looking for more hours or those who want work but have stopped looking. Men in the prime of their lives are employed at lower rates than they were before the last recession. Suicide rates are spiking, driving down U.S. life expectancy.
The fact that there are so many Americans still struggling highlights the opportunity President Trump and Republicans missed when they slashed taxes for corporations, businesses and the wealthy, rather than, say, shoring up social safety net accounts, investing in economic development in marginalized communities, funding worker training programs to help them transition to more stable jobs — or even just paying off some of the nation’s debt.
A recession is going to happen eventually, and ultimately we are going to have a depression in the US. The geopolitical effects will be immense, as the US, in a depressed state, will shell itself from the rest of the world, giving the opportunity to countries like Turkey, Japan and Germany to unleash themselves from the American security umbrella and indulge in their militaristic policies. And if Trump’s tariffs have helped the economy, then why is the Trump administration postponed more tariffs on China? As we read in a report from MSNBC:
Trump pushed the Dow up nearly 400 points on Tuesday with a simple announcement: His administration will postpone additional tariffs on Chinese imports that would have hiked prices on popular consumer goods. The threat of those tariffs had helped drive markets down nearly 400 points on Monday.A wave of relief swept through corporate America, which had warned the tariffs might trigger a recession. No president wants to face voters in an economic downturn.
But if that were Trump’s only concern, he never would have pursued his haphazard trade policy in the first place. It isn’t his only concern, which means Tuesday won’t mark the final turn in Wall Street’s trade roller coaster.
The 2008 and 2010 economic disasters did not come from nowhere. They were the result of deliberate policy from the banks. For example, as we learn from Yanis Varoufakis, European banks were giving loans to anyone and everybody, and they knew that it would not have good results. The system eventually crashed. The next recession, and the next depression, will be the result of engineered policy.