Recession 2019/2020 Mega-thread (putteth all thy strange eruption in h're)

[Rupert]

https://www.cityam.com/pink-goes-offline-as-covid-takes-the-shirt-off-its-back/

[rcjordan]

Long-term unemployment is rising toward a Great Recession record
https://www.cnbc.com/2021/02/05/long-term-unemployment-is-rising-toward-a-great-recession-record.html

[rcjordan]

US unemployment rate actually double official rate, worst since Great Recession: Fed
https://www.businessinsider.com/us-unemployment-rate-double-official-rate-fed-worst-great-recession-2021-2

[rcjordan]

Perfect storm of covid & brexit:

U.K. hit with biggest economic decline in more than 300 years - CBS News
https://www.cbsnews.com/news/uk-covid-biggest-economic-decline-in-300-years/

[littleman]

This thread has been fun, but it's time to unpin it.

[ergophobe]

I had the same thought today when I noticed it still there.

[rcjordan]

Change the title to Runaway Inflation and leave it pinned, hhh.

[ergophobe]

S&P 500 has 51st record closing of the year, the most at this date since 1995

https://www.marketwatch.com/story/sp-500-marks-51st-record-of-2021-matching-the-most-in-a-calendar-year-as-stocks-clamber-higher-wednesday-2021-08-25

[ergophobe]

https://www.economist.com/leaders/2022/02/05/interest-rates-may-have-to-rise-sharply-to-fight-inflation

There are few examples of central banks taming inflation without the economy suffering a recession. The last time America’s inflation fell from over 5% without a downturn was over 70 years ago.

[rcjordan]

Interest increase will wipe out much of the current home & vehicle buying, as people buy on the amount of monthly payment and not on the amount of the loan.  Car dealerships are already reporting that prices have seemed to peak.

[ergophobe]

I'm sure you're right. Every slimy car salesmen (about half of the total and, yes, all men) at some point all utter the line: "And what sort of monthly payment are you looking for?" That is the underlying assumption behind a gazillion mortgage calculators as well.

A while back I calculated (and I think I posted it here somewhere) what the value of a house is at 4% interest vs at 7% interest. If you assume the same monthly budget, prices plummet. The question is, is it a long-term issue or a short-term issue? Another article in The Economist says that savings are very high by historical standards. One factor is the growing income inequality - people with a lot of money can afford to save and, in a fairly real and direct way, the debt of the less wealthy drives the savings of the more wealthy. Very high savings leads to a lot of deposits which drives interest rates down (The Economist estimate was 0.6% due just to the increased income inequality in America and the resulting deposits) which leads the less wealthy to borrow more, which allows the more wealthy to invest in products (mortgage-backed securities) that make money off the debt of the less wealthy, increasing the savings of the more wealthy and driving the cycle.

Now, it seems like we might get out of that cycle with inflation eating away at savings and shaving away at debt and labor shortages increasing wages, and that may indeed be what happens.

However, another big driver of the "savings glut" (Bernancke term from 2005) is that populations nationally and globally are aging. I believe it was something like 25% are over 50 today and 40% will be over 50 in 2100. You have people living longer and fertility dropping. That's a double whammy. People are living longer so they need to save more for retirement and retirees tend to spend down their savings slowly. So that increases savings already, but then you compound that with more of the population being older and, therefore having more savings relative to the number of people who are in the market for debt (i.e. home loans, car loans).

So the net effect could be that after a period of inflation (The Economist projects the inflation bubble going to 2024 assuming the Fed takes decisive action soon) we return to long-term low inflation and therefore low interest rates until we bottom out on the aging cycle of populations and then things return to "normal" whatever that will mean in 2150.

[Drastic]

Any Debbie estimates on when the recession might manifest?

[Drastic]

Too early?

I'm feeling 12-15 months.

[rcjordan]

>Too early?

Yeah, Debbie is drawing a blank on this one.

[ergophobe]

There is talk that the Fed will raise rates 50 basis points instead of the usual 25 at the next meeting. That will be our first indication.

In the 1970s, the Fed always raised rates and then the second blood started to flow, brought them back down. By the time Voelker came along, the only solution was to drive the economy into a deep recession. Presumably they Fed has learned both lessons. So if we see 50 basis points, expect some damage in the asset markets (stocks, homes), but for most of the real economy to be reassured (consumer confidence, durable goods). If we see 25 basis points, I think that will keep assets afloat, but make people worried.

This is interesting though. There is so much worry about inflation, that it's possible that 50 basis points will actually juice the asset markets briefly.

The Fed is also signaling that they might raise rates at all eight meetings this year. That will definitely increase interest rates significantly and put a bit of a damper on investment and growth.

So my guess (and for the record, my record at prediction is horrible): they do 50 basis points to show they are serious about this. That reassures people, takes some of the heat out of the economy, but doesn't result in a major retraction. Then they wait and see and do a few smaller increases over the year.