Why the US economy will likely fall into a recession next year

That DJIA is down 507 points today, Monday, December 17. Daily stock prices have crossed under their moving averages into bear territory. The DOW has shed 2000 points in the last few weeks. If the Market plummets it won't be a Merry Christmas for anyone as business tightens its belt. Does the Dow affect Main Street? Mostly in that it is a harbinger of things to come, however, Main Street 401K's go with the Market.

 

I didn't get my degree in Economics, but what's so obvious is that the Fed (and every other central bank in "the West") barges in and interferes blatantly with the prevailing free-market economy! They crush interest rates to near zero when the demand for actual, existing MONEY is acute. They buy toxic 'bonds' that nobody in their right mind would touch (and the Fed has run up a 4 Trillion Dollar balance sheet of this crap as a result of the last recession). The Fed barges in and "rescues" a horde of Wall Street biggies who should go bankrupt when their sleight-of-hand pitches them in the ditch, but, the Fed (in all its 'wisdom') decides, UNLATERALLY, that these creep bastards are "too big to fail", so, they swoop in and get them off the hook, and, make them even richer than they were in the first place!

Curiously, there are two major-league countries in the world where the legitimate GOVERNMENT tells its central bank "how it's going to be" instead of the other way around -- Russia, and China. Now, here's your little research project, if you're up to it... of these three countries, which one has -- BY FAR -- the worst ratio of debt-to-GDP? Russia, China, or, the United States. Surely you won't need to "burn the midnight oil" figuring this out.

BTW, you know how the Fed came into existence in the first place? Liberal, "progressive" Democrats, led by Woody Wilson, put this THING into existence 108 years ago... and we've been stuck with it ever since. Did it end recessions and depressions? Track the history of recessions and depressions in this country (including the GREAT DEPRESSION) after the Fed entered the scene....

 

I'm about as 'far-Right' and as much an America-loving Conservative as you will find, Mr. Truth... and yet I tell you in truth, I do not (NOT) blame Obama! I blame the Federal Reserve System -- which completely took over the economy in August 2007, back when Idiot "W" Bush was still very much in power, and quite a few months before Idiot Obama stumbled through his Oath of Office....

Nevertheless, neither Bush nor Obama did anything (ANYTHING) of importance that wasn't spoon-fed to them by Ben Bernanke and, much later, Janet Yellen. This monstrous 'central bank' doesn't pay any attention to anything as 'chump-change' as a mere president... as Donald Trump is finally finding out....

. "He thinks a president is important? Hey, we'll fix THAT."

 

The stock market (all three major components) are still WAY overvalued! Lots more downside movement is probably coming -- unless the Fed "steps in" and commits end-to-end manipulation tactics again. BUT, the Fed already has a 'balance sheet' of over FOUR TRILLION DOLLARS from its last 'intervention'. They need for a steadily-inflating economy to 'suck up the pudge', and that is a long-term strategy that will take many more years.

But, because the Fed did its job TOO WELL after 2008, the stock market skyrocketed to points way beyond anything that made any sense at all. Now, there may need to be a substantial 'correction'... at least, from a short-term perspective.

 

For a simple fool like me, the Fed is impossibly complex and I can only understand it in the simplest terms. After 2007. Treasury and the Fed swung into action and, as part of the "rescue" set interest at ZERO! And kept it there! No inflation + no jobs = expand, expand. But it went on forever. It seems to me that the Fed created a huge credit bubble in both public and private sectors. What this may mean to the Market? ??

 

I don't know, but it seems to me the Fed was doing what it always does to control the economy.
They cut rates after the crash to stimulate the economy and when they saw signs inflation was starting to kick up they began to slowly raise rates. But then the Trumpster cut taxes which is inflationary so they got real nervous. The whole thing is exacerbated by the tariffs which are also inflationary, but for the wrong reasons. I'd say they are breaking new ground.
But to me it spells recession because prices are going up and production is going down.

 

In December 2017, Axel Weber, the extraordinarily gifted, highly-experienced Chairman of Swiss investment bank and financial services company, UBS Group AG, said that by now (the end of 2018), there would most likely be a "Fed funds rate" in the U. S. of between 2.5% - 2.75%. If Fed Chair, Powell, and his board raise rates another microscopic .25% tomorrow, Weber's year-old prediction will come true.

Here's the thing -- the Fed WANTS inflation... the Fed NEEDS inflation. But it doesn't want too much of it too fast.

It's all been too turbulent and uneven -- and now there's the specter of a 'trade war' at a time when unemployment is the lowest since 1969, and, after Trump's big Christmas gift to American business last year. Now, it seems certain that the Fed will raise interest rates by another silly, little .25%. They've got to continue on a trajectory that "sucks up the pudge" created when the Fed "rescued" those "too big to fail" and kept their enormous 'welfare circus' running at the same time during and in the aftermath of the "Great Recession".... If they skip a rate increase this month (December), look for a rate increase in the next month or two. They simply cannot keep interest rates crushed in the dirt forever.

Consider: the very fact that the stock market fell 2,000 points because the "market sentiment" was scared sh*tless of the prospect of any more of these microscopic interest rate increases shows the world just how much all three of the "biggies" (the Dow, the 'DAQ, and the S&P) are so very stupidly overvalued today.

But you never know. The Fed might blow off a rate increase this month to give the stock market 'drug-addicts' their "Santa Claus Rally" -- and keep the oblivious American "cattle" feeling wealthy long enough to keep on buying crap with credit cards for 'the holidays'.

 

Hey, Fed-lovers -- take heart... at lunch break today (18 Dec) there's something of a "dead cat bounce" going on. The Dow is up 277 points. Yippee.... And gold's up, too -- ninety whole cents! Probably ought to go out and BUY a ton of it....

 

Well, former Fed chair Greenspan told investors to prepare for the worst:

https://www.cnn.com/2018/12/18/business/alan-greenspan-stock-market-party-over/index.html

If that's not going to spook investors, then I don't know.

In the meantime, I buy and hold and rebalance as needed. Nobody knows nothing when it comes to the stock market.

 

Excellent find! I haven't really liked ANYBODY connected to the Fed after Paul Volcker left as its Chairman, but I've grudgingly had to admit that Greenspan is at least a pretty honest fellow about 'stupidity' in the stock market, generally. After all, a long time ago, he did warn against "irrational exuberance".

I don't know, either. At the moment, everybody seems to be soiling their trousers over Trump's "trade war". But as I've said, I see the real problem as being much deeper and more fundamental than that -- stupidly high over-valuations! And, yes, the Fed is to blame, because after it took over the economy in August 2007, it moved heaven and earth to herd all the 'cattle' into the stock market, crushing legitimate, appropriate interest rates into the dirt -- and KEEPING them there for years.

Now the Fed has a four trillion dollar balance sheet of toxic CRAP it needs to get rid of.... Ooh, what ARE they going to do during and after the NEXT recession...?

 

The real problem is not the Fed (although it is a minor problem too), the problem is rather globally trillions of dollars in the hands of the ultra-rich that is serving as a savings glut that is counterbalanced by the ever increasing private debt of the have-nots. Like matter and antimatter, the two have to eventually cancel each other out. Until then, idle savings and debt will continue to increase, slowing economic activity.

Yanis Varoufakis, former Greek finance minister has talked a lot about this, here is an example:

http://oecdobserver.org/news/fullst...There_is_no_such_thing_as_a_debt_crisis_.html

Of course, these savings bid up asset prices, like stocks, but they are not used to actually invest into future productivity.

 

Don't feel bad... studying anything as fundamentally tyrannical and manipulative as central banks will give you constant pain -- which is why most people ignore central banks completely. That's convenient for the bankers, of course, and it leaves them free to run and control everyone and everything in the world... EXCEPT, for Russia and China....

But before you give up entirely, you really may enjoy digging into the latest warning (today!) from former Chairman of the Federal Reserve System, Alan Greenspan: https://edition.cnn.com/2018/12/18/business/alan-greenspan-stock-market-party-over/index.html

 

Well, hell -- it only closed up 83 points. Guess that was less of a "dead cat bounce" and maybe more like "dead cat flatulence"....

. Hey, it's only Tuesday....

 

Do you really think it is highly overvalued. I think it's still in the low 20's is it not?

 

Yes, IMHO, the stock market is not just "highly overvalued", it is grotesquely overvalued!

Please read every word of this article (the most detailed one I've found so far) of the alarm being sounded by former Fed Chairman, Alan Greenspan just yesterday: https://wtop.com/business-finance/2018/12/alan-greenspan-to-investors-run-for-cover/

Among other things, it pinpoints blame for the current dangerous situation on the long, L-O-N-G suppression of interest rates:

"Critics, including many economists, now blame the former Fed chairman for the 2008 financial crisis for having encouraged the bubble in housing prices by keeping interest rates too low for too long and for failing to rein in explosive growth of risky and other fraudulent mortgage lending."

A REAL eye-opener for all of us who remember the "Stagflation" situation we had in the 1970's are equally alarmed to hear Greenspan describe that what we appear headed right into now is a return to Stagflation: https://seekingalpha.com/article/4181926-alan-greenspan-right-stagflation-coming-time-win

Where's a safe place? I maintain it is not (NOT) gold and silver -- in any form. Right now, cash-hidden-in-the-mattress seems like the only really safe place to park money in the short-term....

 

Careful there. Cash under the mattress has 100% certainty to lose value to inflation. I'd say 1-2 year FDIC-insured CDs are probably the safest bet right now if you are REALLY risk averse.

 

You can always tell when the next recession is around the corner. It always happens when democrats are trying to win back the White House. Crank up the fear mongering news media, and screw the economy. There's a presidency to win.

 

Ordinarily I would agree with you -- but, this time a 'clarion-call' of warning is coming from Alan Greenspan, the Fed ex-Chair who first warned us about "irrational exuberance"....

A "recession", per se, doesn't worry me. We've had lots of 'recessions' -- BUT, what gets my attention is Alan Greenspan's warning about STAGFLATION! I lived through every horrible minute of that -- from Nixon's resignation all the way through the disastrous reign of Jimmuh Cawduh. We were fortunate to have Fed Chair, Paul Volcker, working together WITH Ronald Reagan, and, sensible Democrats in Congress to put an end to that nightmare in the early 1980's. But NOW? Mostly idiotically radical Democrats, cowardly RINO's, a rookie Fed Chairman, Powell, and a president who still thinks that he can run the United States like it's just another corporation in his multi-billion dollar empire....

I was mostly kidding about the "mattress" as being a place for cash (although it may prove to be a better place than either equities or commodities). Yes -- I agree... CD's are probably best, but not for a commitment of longer than one year, and I prefer credit unions over regular banks.

Federally insured credit unions offer a safe place for you to save your money, with deposits insured up to at least $250,000 per individual depositor. The National Credit Union Administration (NCUA) is the independent agency that administers the National Credit Union Share Insurance Fund (NCUSIF).

 

Oh, yeah, that's logic. We were doing fine with the economy until Drumph started messing with it. Now the stock market fluctuates to extreme highs one day and extreme drops the next. He is a jackass who went bankrupt 3 or 4 times; you think such a 'ceo' is good for our country?

 

As with all things, folks come to the media with an agenda. Alan isn't any different. He's pandering for the bond market. He still thinks that we have to induce liquidity scarcity and his method is crushing interest rates. How about, just for once, we think about halting the printing presses instead? Punitive interest rates are only good for folks, like greenspan. I would also point out that the entire Keynesian model collapsed post price controls during Nixon and into cawtugh.... And just like today, it's the overreach of artificial regulation that is crippling business output that mr Obama found so necessary to ensure the melt down happened, but not on his watch.... That's the simple truth of it. Business unbound is energetic and creative. Government direction is not. The uncomfortable middle is where we once again find ourselves. And mr Greenspan knows it just as much as I do. He's just using his influence to invite yet more scarcity so his money makes more for his dotage...

 

Reasons for a recession -

https://www.economicshelp.org/macroeconomics/economic-growth/cause-recession2/

I remember the Lawson Boom (UK) where everything economically was going well and then 'pop'.

The good times in America will have to pop sometime.

 

The FED just raised the interest rates another time. Stock market already down again.

 

I don't disagree with you... certainly the interest rate increase is very good for the bond market, and I certainly do agree that we should never have started gushing out tidal waves of new money at any time. That, coupled with all the reckless "Quantitative Easings" are what caused this latest gigantic over-valuation of stocks. By my admittedly unprofessional calculation, in general, the DOW is still at least 7,000 points higher than it should be -- and that ratio of "pudge" extends to all the many other sub-considerations that DOW stocks are meshed-in with. But, the 'DAQ is overvalued, probably even more! And the S&P, too.

I agree that we should support -- not fight -- the value of the U. S. Dollar... by not "running the printing presses". And, we should stop this idiotic crushing of interest rates. Let interest rates rise, or fall, according to DEMAND for credit -- and NOTHING ELSE. Even with this latest increase in interest rates, they are still very, very low....