The Recession: Nov budget deficit $205billion; Deficit grew 48% in 2018

[acri1]

What’s the Yield Curve? ‘A Powerful Signal of Recessions’ Has Wall Street’s Attention
By Matt Phillips

You can try to play down a trade war with China. You can brush off the impact of rising oil prices on corporate earnings.

But if you’re in the business of making economic predictions, it has become very difficult to disregard an important signal from the bond market.

The so-called yield curve is perilously close to predicting a recession — something it has done before with surprising accuracy — and it’s become a big topic on Wall Street.

Terms like “yield curve” can be mind-numbing if you’re not a bond trader, but the mechanics, practical impact and psychology of it are fairly straightforward. Here’s what the fuss is all about.

First, the mechanics.
The yield curve is basically the difference between interest rates on short-term United States government bonds, say, two-year Treasury notes, and long-term government bonds, like 10-year Treasury notes.

Typically, when an economy seems in good health, the rate on the longer-term bonds will be higher than short-term ones. The extra interest is to compensate, in part, for the risk that strong economic growth could set off a broad rise in prices, known as inflation. Lately, though, long-term bond yields have been stubbornly slow to rise — which suggests traders are concerned about long-term growth — even as the economy shows plenty of vitality.

At the same time, the Federal Reserve has been raising short-term rates, so the yield curve has been “flattening.” In other words, the gap between short-term interest rates and long-term rates is shrinking.


The gap between two-year and 10-year United States Treasury notes is roughly 0.34 percentage points. It was last at these levels in 2007 when the United States economy was heading into what was arguably the worst recession in almost 80 years.

As scary as references to the financial crisis sound, flattening alone does not mean that the United States is doomed to slip into another recession. But if it keeps moving in this direction, eventually long-term interest rates will fall below short-term rates.

When that happens, the yield curve has “inverted.” An inversion is seen as “a powerful signal of recessions,” as the president of the New York Fed, John Williams, said this year, and that’s what everyone is watching for.


Every recession of the past 60 years has been preceded by an inverted yield curve, according to research from the San Francisco Fed. Curve inversions have “correctly signaled all nine recessions since 1955 and had only one false positive, in the mid-1960s, when an inversion was followed by an economic slowdown but not an official recession,” the bank’s researchers wrote in March.

Even if it hasn’t happened yet, the move in that direction has Wall Street’s attention.


“For economists, of course it’s always been traditionally a very good signal of directionality of the economy,” said Sonja Gibbs, senior director of capital markets at the Institute of International Finance. “That’s why everyone is bemoaning the flattening of the yield curve.”

Recession? Really?
Sure, it seems like a strange time to be worried about recession. Unemployment is at an 18-year low, corporate investment is picking up steam, and consumer spending shows signs of rebounding.

Some economists on Wall Street think the economy could be growing at around a nearly 5 percent annualized clip this quarter. But if the current economic vigor is only reflecting a short-term stimulus coming from the Trump administration’s tax cut, then some kind of slowdown is to be expected.

“It’s very hard to see what’s going to goose the economy further from these levels,” Ms. Gibbs said.

And the financial markets can sometimes sniff out problems with the economy before they show up in the official economic snapshots published on G.D.P. and unemployment. Another notable yield curve inversion occurred in February 2000, just before the stock market’s dot-com bubble burst.

In that sense, the government bond market isn’t alone. Stocks have been in a sideways struggle since the Standard & Poor’s 500-stock index last peaked on Jan. 26. Returns on corporate bonds are negative, as are some key commodities tied to industrial activity.

An important caveat to the predictive power of the yield curve is that it can’t predict precisely when a recession will begin. In the past the recession has come in as little as six months, or as long as two years, after the inversion, the San Francisco Fed’s researchers note.

In other words, there’s a reason to look at the yield curve skeptically, despite its prowess at predicting recessions.

The new fear gauge.
As in all market moves, perceptions of its significance mean the yield curve can sometimes become a feedback loop.

If enough investors begin to grow concerned about a recession, they will most likely put more and more money into the safety of long-term government bonds. That buying binge would likely help flatten, or invert, the yield curve.

Then people will write articles about the curve’s sending a stronger signal on recession. And that could, in turn, drive even more people to buy into long-term bonds. Rinse. Repeat.

There’s also a practical impact.
But it’s not just psychology. The yield curve helps determine some of the decisions that are the most crucial to the health of the American economy.

Specifically, the flattening yield curve makes banking, which is basically the business of borrowing money at short-term rates and lending it at long-term rates, less profitable. And if the yield curve inverts, it means lending money becomes a losing proposition.

Either way, the flow of lending is likely to be curtailed. And in the United States, where borrowed money is the lifeblood of economic activity, that can slam the brakes on economic growth.

The Fed’s hand.
There is an argument to be made against reading too much into the yield curve’s moves — and it hangs on the idea that, rather than the free market, central banks have had a big influence on both the long-term and short-term rates.

Since the last recession, central banks bought trillions of dollars of government bonds as they tried to push long-term interest rates lower in order to lend a helping hand to the economy.

Even though they’re reversing course now, central banks still own massive amounts of those bonds, and that may be keeping long-term interest rates lower than they would otherwise be.

Also, the Federal Reserve has been raising short-term interest rates since December 2015 and has indicated it will keep doing so this year.

So if long-term rates were pushed lower by central bank bond buying, and now short-term rates are being pushed higher as the Fed tightens its monetary policy, the yield curve has nowhere to go but flatter.

“In the current environment, I think it’s a less reliable indicator than it has been in the past,” said Matthew Luzzetti, a senior economist at Deutsche Bank.

https://www.nytimes.com/2018/06/25/business/what-is-yield-curve-recession-prediction.html
Shyt may be about to get real. Start stacking if you're not already.

 

[Professor Emeritus]

The whole fact that we even have recessions is almost hilarious.

There's WAY more than enough money to go around. And there's way more than enough of everything that matters.

We have recessions because...large groups of people periodically all hold onto their money at once and it stops circulating. Just because.

Shows how incredibly stupid our money system is. Have a recession and no way to get money moving when there's more money sitting around than could ever be spent anyway.

 

[Secure Da Bag]

Supposedly the Bond Yield Curve inverted. And when that happens, normally, a recession isn't far behind. Can the financial brehs verify this? Simply.

Bloomberg - Are you a robot?

 

[Serious]

The whole fact that we even have recessions is almost hilarious.

There's WAY more than enough money to go around. And there's way more than enough of everything that matters.

We have recessions because...large groups of people periodically all hold onto their money at once and it stops circulating. Just because.

Shows how incredibly stupid our money system is. Have a recession and no way to get money moving when there's more money sitting around than could ever be spent anyway.

Solution?

 

[mastermind]

Solution?

It's obviously regulation and not allowing so much money to sit with so few people.

It won't happen because our country is for the elite

 

[Serious]

It's obviously regulation and not allowing so much money to sit with so few people.

It won't happen because our country is for the elite

That's what I thought, any rhetoric pertaining to wealth redistribution is a nonstarter.

Instead I fully expect to hear a wave of tropes and responsibility politics, attacking people for being less economically well off.


We could learn a thing or two about France.

 

[storyteller]

Supposedly the Bond Yield Curve inverted. And when that happens, normally, a recession isn't far behind. Can the financial brehs verify this? Simply.

Bloomberg - Are you a robot?

Yeah forreal, how fast should I move my 401K into more conservative funds?

 

[Professor Emeritus]

Solution?

The spending/hoarding cycle of money in our system largely revolves around interest rates and people predicting what will happen with interest rates. It all goes back to having created a system where the wealthy think they should earn money solely because they happen to have money. Nearly every major religion and philosophical system of the past demonized interest and could see its negative effects, it's only in the recent capitalist era that it's been sanitized. Yet it's still responsible for several of the world's greatest problems.

The solution would be to kill interest and operate within a negative-interest system instead. Any money you hold onto depreciates the longer you hold onto it. People are motivated to spend and invest because any return at all is better than your money depreciating. Thus money flows through the system much more rapidly, there's no longer any reason to hoard it.

A negative-interest system couldn't be the sole change by itself, it would likely require some other changes (such as how land is bought and sold) in order to keep people from dumping everything into non-depreciating storage units of some sort. But the truth is, in the real world nearly every asset depreciates over time, or at least takes constant attention/money to store and maintain it. Money is unnatural in that it's supposed to appreciate over time rather than depreciating, and that unnatural aspect of money has not been good for society.

If you read into early 20th century economists Silvio Gesell was a big proponent of the idea. It was tried on some small scales with very positive results, but powerful governments always shut it down quickly as it threatened the elite's reliance on wealth inequality to maintain power. Keynes gives a lot of attention to Gesell and says some quite affirming things, though he finds the idea unworkable in the end (mostly due to the fact that he didn't want to touch property law in that manner). Even today Gesell gets quite a bit of praise by economists in the know for the direction of his theory.



Gesell was a freaking prophet too. He had seen the economic disaster in the 1880s in Argentina firsthand, led him to understand some of the economic problems that helped create World War I. Even as that war was ending, in 1918 on the eve of the signing of the peace treaty, he published the following:

"In spite of the holy promises of people to banish war once and for all, in spite of the cry of millions “never again war” in spite of all the hopes for a better future I have this to say: If the present monetary system based on interest and compound interest remains in operation, I dare to predict today that it will take less than twenty-five years until we have a new and even worse war. I can foresee the coming development clearly. The present degree of technological advancement will quickly result in a record performance of industry. The buildup of capital will be fast in spite of the enormous losses during the war, and through the oversupply [of money] the interest rate will be lowered [until the money speculators refuse to lower their rates any further]. Money will then be hoarded [causing predictable deflation], economic activities will diminish, and increasing numbers of unemployed persons will roam the streets … within these discontented masses, wild, revolutionary ideas will arise and with it also the poisonous plant called “Super Nationalism” will proliferate. No country will understand the other, and the end can only be war again."


If you know anything about history, that's the exact progression that led from the economic buildup of the "Roaring 20s" to the hoarding and crash of the "Great Depression" followed by the takeover of super-nationalism in Germany, Italy, Japan, and elsewhere....followed by World War II. All within 21 years of his prediction.

 

[BigMoneyGrip]

Pay up all them loose bills brehs...

Get rid of them car notes etc..

 

[mastermind]

The spending/hoarding cycle of money in our system largely revolves around interest rates and people predicting what will happen with interest rates. It all goes back to having created a system where the wealthy think they should earn money solely because they happen to have money. Nearly every major religion and philosophical system of the past demonized interest and could see its negative effects, it's only in the recent capitalist era that it's been sanitized. Yet it's still responsible for several of the world's greatest problems.

The solution would be to kill interest and operate within a negative-interest system instead. Any money you hold onto depreciates the longer you hold onto it. People are motivated to spend and invest because any return at all is better than your money depreciating. Thus money flows through the system much more rapidly, there's no longer any reason to hoard it.

A negative-interest system couldn't be the sole change by itself, it would likely require some other changes (such as how land is bought and sold) in order to keep people from dumping everything into non-depreciating storage units of some sort. But the truth is, in the real world nearly every asset depreciates over time, or at least takes constant attention/money to store and maintain it. Money is unnatural in that it's supposed to appreciate over time rather than depreciating, and that unnatural aspect of money has not been good for society.

If you read into early 20th century economists Silvio Gesell was a big proponent of the idea. It was tried on some small scales with very positive results, but powerful governments always shut it down quickly as it threatened the elite's reliance on wealth inequality to maintain power. Keynes gives a lot of attention to Gesell and says some quite affirming things, though he finds the idea unworkable in the end (mostly due to the fact that he didn't want to touch property law in that manner). Even today Gesell gets quite a bit of praise by economists in the know for the direction of his theory.



Gesell was a freaking prophet too. He had seen the economic disaster in the 1880s in Argentina firsthand, led him to understand some of the economic problems that helped create World War I. Even as that war was ending, in 1918 on the eve of the signing of the peace treaty, he published the following:

"In spite of the holy promises of people to banish war once and for all, in spite of the cry of millions “never again war” in spite of all the hopes for a better future I have this to say: If the present monetary system based on interest and compound interest remains in operation, I dare to predict today that it will take less than twenty-five years until we have a new and even worse war. I can foresee the coming development clearly. The present degree of technological advancement will quickly result in a record performance of industry. The buildup of capital will be fast in spite of the enormous losses during the war, and through the oversupply [of money] the interest rate will be lowered [until the money speculators refuse to lower their rates any further]. Money will then be hoarded [causing predictable deflation], economic activities will diminish, and increasing numbers of unemployed persons will roam the streets … within these discontented masses, wild, revolutionary ideas will arise and with it also the poisonous plant called “Super Nationalism” will proliferate. No country will understand the other, and the end can only be war again."


If you know anything about history, that's the exact progression that led from the economic buildup of the "Roaring 20s" to the hoarding and crash of the "Great Depression" followed by the takeover of super-nationalism in Germany, Italy, Japan, and elsewhere....followed by World War II. All within 21 years of his prediction.

Where was this tried? And what do you recommend reading about this?

 

[Professor Emeritus]

Where was this tried? And what do you recommend reading about this?

The two most famous examples are the German "Wara" and the Austrian experiment in the town of Worgl. Both saw initial success followed by a ban instituted by the national governments.

Some early, apparently successful, stamp scrip implementations inspired by Gesell’s ideas occurred in Germany and Austria in the 1930s. Both countries were experiencing deflation, commercial bank failures, and high unemployment, much like the United States at the time.

The German experiment occurred in the town of Schwanenkirchen, where a stamp scrip called Wära was issued. It received attention in the United States through numerous newspaper and magazine articles, including one by Hans R. L. Cohrssen that appeared in The New Republic in August 1932. He reported that in 1931 the owner of a coal mine that had been closed for a couple years borrowed 40,000 Reichsmarks and approached miners about being paid in Wära and local merchants about accepting it. Merchants were at first hesitant, but soon supported the scrip. By Cohrssen’s account, the plan was successful. The 1 percent per month tax on the scrip appeared to encourage its rapid circulation. Cohrssen called it the “miracle of Schwanenkirchen”:

“Indeed, one could not have recognized Schwanenkirchen a few months after work had been resumed at the mine. The village was [prosperous], workers and merchants were free from debts and a new spirit of freedom and life pervaded the town. Had Herr Hebecker used his 40,000 Reichmarks instead of Wära, his efforts would have inevitably resulted in failure; the money would have circulated through only one or two hands, each person retaining as much as possible and hoarding it because of the hard times.”

Ultimately, Wära was accepted in thousands of stores in Germany, and a few banks actually created accounts denominated in it. But eventually the scrip was declared illegal by the German Ministry of Finance.

In Austria, stamp scrip was issued in the town of Wörgl in August 1932 to finance a number of public works projects. Accounts of the episode indicate it had some success. However, as in Germany, the Wörgl experiment was short-lived. An Austrian court forbade its issuance in November 1933.

I've read a variety of sources on the theory including Keynes's analysis of Gesell's value as a economic theoretician in Book VI of his General Theory, but the most interesting place to learn about the ideas in question might be a funny little book called "Sacred Economics" by Charles Eisenstein. He basically traces through a number of lines regarding what's wrong with modern economic theory - unsustainable constant growth necessary, feeds ever-increasing wealth and power inequalities, inevitible growth-crash cycle, increases greed and selfishness as an innate aspect of the system, and results in great environmental destruction - and attempts to come up with some ideas that could address it. Some of his ideas would require community/government regulation and others are more about fostering a different individual mindset, but some major themes are negative interest rates, universal basic income, monetary standard reform, and land use reform. Gift economy on the personal level is also a big theme.

I read the physical version of the book cause I picked it up off of a friend's bookshelf, but I believe the entire book is online. I haven't spent any time on the website though:

Homepage - Sacred Economics | Charles Eisenstein

 

[Serious]

The spending/hoarding cycle of money in our system largely revolves around interest rates and people predicting what will happen with interest rates. It all goes back to having created a system where the wealthy think they should earn money solely because they happen to have money. Nearly every major religion and philosophical system of the past demonized interest and could see its negative effects, it's only in the recent capitalist era that it's been sanitized. Yet it's still responsible for several of the world's greatest problems.

The solution would be to kill interest and operate within a negative-interest system instead. Any money you hold onto depreciates the longer you hold onto it. People are motivated to spend and invest because any return at all is better than your money depreciating. Thus money flows through the system much more rapidly, there's no longer any reason to hoard it.

A negative-interest system couldn't be the sole change by itself, it would likely require some other changes (such as how land is bought and sold) in order to keep people from dumping everything into non-depreciating storage units of some sort. But the truth is, in the real world nearly every asset depreciates over time, or at least takes constant attention/money to store and maintain it. Money is unnatural in that it's supposed to appreciate over time rather than depreciating, and that unnatural aspect of money has not been good for society.

If you read into early 20th century economists Silvio Gesell was a big proponent of the idea. It was tried on some small scales with very positive results, but powerful governments always shut it down quickly as it threatened the elite's reliance on wealth inequality to maintain power. Keynes gives a lot of attention to Gesell and says some quite affirming things, though he finds the idea unworkable in the end (mostly due to the fact that he didn't want to touch property law in that manner). Even today Gesell gets quite a bit of praise by economists in the know for the direction of his theory.



Gesell was a freaking prophet too. He had seen the economic disaster in the 1880s in Argentina firsthand, led him to understand some of the economic problems that helped create World War I. Even as that war was ending, in 1918 on the eve of the signing of the peace treaty, he published the following:

"In spite of the holy promises of people to banish war once and for all, in spite of the cry of millions “never again war” in spite of all the hopes for a better future I have this to say: If the present monetary system based on interest and compound interest remains in operation, I dare to predict today that it will take less than twenty-five years until we have a new and even worse war. I can foresee the coming development clearly. The present degree of technological advancement will quickly result in a record performance of industry. The buildup of capital will be fast in spite of the enormous losses during the war, and through the oversupply [of money] the interest rate will be lowered [until the money speculators refuse to lower their rates any further]. Money will then be hoarded [causing predictable deflation], economic activities will diminish, and increasing numbers of unemployed persons will roam the streets … within these discontented masses, wild, revolutionary ideas will arise and with it also the poisonous plant called “Super Nationalism” will proliferate. No country will understand the other, and the end can only be war again."


If you know anything about history, that's the exact progression that led from the economic buildup of the "Roaring 20s" to the hoarding and crash of the "Great Depression" followed by the takeover of super-nationalism in Germany, Italy, Japan, and elsewhere....followed by World War II. All within 21 years of his prediction.

@Broke Wave

 

[Secure Da Bag]

 

[wtfyomom]

The whole fact that we even have recessions is almost hilarious.

There's WAY more than enough money to go around. And there's way more than enough of everything that matters.

We have recessions because...large groups of people periodically all hold onto their money at once and it stops circulating. Just because.

Shows how incredibly stupid our money system is. Have a recession and no way to get money moving when there's more money sitting around than could ever be spent anyway.

capitalism is trash, guaranteed inequality, guaranteed recessions.

 

[88m3]

surprised everyday the last year or two we haven't gone into a full meltdown