Recession on the way?

[Lyrical]

One of the things I learned in my business school is that if the yield curve on government bonds starts to have a negative slope, that this is the best indicator of recession. Its been proven out to be statistically the best indicator.

So I am watching the business news this morning, and they report that overnight the yield curve has moved to a negative slope.

I know there are probably some economists who come to this site. I wonder what you have to say (but with a grain of salt, since economists forecasted 11 of the last 7 recessions rofl). Is this something that is temporary because of the storm and the supposed effect of a lower supply of oil in the US because of it? Is it an overreaction to what the media says is the worst storm in the US? Sounds like sensationalism - every natural disaster they say is the "worst ever." Or is it something else?

And no I don't think it has anything to do with George Bush et al, because the curve just shifted. So leave the political crap out of this thread.

[AngryGerbil]

I blame George Bush et al!

[Sthythys]

It's not that an inverted yield directly causes the recession but, instead, the inverted yield curve is a sign that risk aversion is growing. Growing demand for safe return of principal begins to trump 'growth' in people's minds which drives long term yields down...granted, it doesn't help that Greenspan has been artificially driving up short term rates in an attempt to reduce the rate at which we are borrowing money (esp. via mortgages).

As far as what economists predict, for every one who predicts something there is another who predicts something entirely different. The truth of the matter is that the US economy has been a lot weaker than most have been willing to admit for quite some time. Despite popular belief, it is not possible for everyone to make extraordinary returns...it is not possible to borrow money and it not have an effect when you don't pay it back. Eventually, even if not tomorrow, you have to "pay teh piper". Note that I am primarily talking about individuals rather than the government.

That doesn't mean a recession is coming tomorrow, however. Remember that a recession is only identified as two quarters of negative GDP growth...GDP is nothing more or less than a measure of national spending and is hardly a true sign of economic strength. Any weaknesses we see in future GDP, be it a recession or simply miniscule rates of growth will be nothing more than the natural effect of excesses over the last several years.

[Lyrical]

Originally Posted by Sthythys

It's not that an inverted yield directly causes the recession but, instead, the inverted yield curve is a sign that risk aversion is growing. Growing demand for safe return of principal begins to trump 'growth' in people's minds which drives long term yields down...granted, it doesn't help that Greenspan has been artificially driving up short term rates in an attempt to reduce the rate at which we are borrowing money (esp. via mortgages).

As far as what economists predict, for every one who predicts something there is another who predicts something entirely different. The truth of the matter is that the US economy has been a lot weaker than most have been willing to admit for quite some time. Despite popular belief, it is not possible for everyone to make extraordinary returns...it is not possible to borrow money and it not have an effect when you don't pay it back. Eventually, even if not tomorrow, you have to "pay teh piper". Note that I am primarily talking about individuals rather than the government.

That doesn't mean a recession is coming tomorrow, however. Remember that a recession is only identified as two quarters of negative GDP growth...GDP is nothing more or less than a measure of national spending and is hardly a true sign of economic strength. Any weaknesses we see in future GDP, be it a recession or simply miniscule rates of growth will be nothing more than the natural effect of excesses over the last several years.

Right. I never meant that the inverted yield curve causes recessions, but indicated one was coming.

Certainly Americans spend too much money. We can't go on without buckling our belts a bit. Last time I checked, individuals in the US had like a .4% savings rate, compared to Japan at 14%. Either way, whether you spend too much, or save too much, its going to hurt the economy.

The economy would be alot better off if Americans and Japanese people got married to balance each other's bad spending habits

That still doesn't explain why the curve went inverted overnight though.

[EnigmaticParadigm]

Gas is now $3.06 for Regular Unleaded here. My wallet is screaming "KHAN!!!!"

[Lyrical]

Originally Posted by EnigmaticParadigm

Gas is now $3.06 for Regular Unleaded here. My wallet is screaming "KHAN!!!!"

My anus puckers up anytime I have to fill my V8 right now. I am thinking about trading it in. My '05 Mustang goes through gas faster than Bill Clinton goes through cigars

[Eomer]

Fuck that, it should be 1.2 male heirs for Canadians, this whole oil shortage thing has done wonders for our currency!

[Artificial]

actually shouldn't it be 1.35 male heirs per litre in Canada?

Gas has been $3 here for a couple weeks now, not sure how much it is now, but I'm going to get some exercise I've been meaning to get for awhile now I think.

[Eomer]

Oh, it was 1 heir per gallon? My bad, thought that was for a fill...

[frott]

Originally Posted by Lyrical

One of the things I learned in my business school is how to overly theorize everything.

One thing that I've learned by walking around, trying to get clients and jobs, trying to pay for food gas and comprooter stuff is that we're smack dab in the middle of a fucking recession.

I don't really give a shit if the richest people of the USA can balance out the poorest people and thusly by some magical math equation there isn't a recession, and I don't recall a storm that basically erased a city of the magnitude of New Orleans since I've been alive.

Frankly I fail to see what the rest of the nation relies on New Orleans for, crawdad export?

[Bralkan]

fuck you guys.

Georgia is in some shit storm panic set off by someone claiming the gas stations would close at 4.

$4+ a gallon


FOUR FUCKING DOLLARS.

FUCKS THIS. I AM RIDING A BIKE.

Edit: granted, that is at a select number of stations. Not a small number, but not all. I've seen some at 3.50ish. This morning and as of this afternoon there was one here by the school for 2.69. Hopefully it still is in the morning when I goto class.

[Zinke]

Yea, there was a recent article in my paper that basically said what you did Frott.

Polls suggest people feel we're in a recession, but the government's numbers keep saying 'no we're not!!'. Why the disparity? Things like unemployment might be down, but underemployment is still extremely high. That's when someone might work, but not enough to be above the poverty line.

Also, wages have not kept up with the increased cost of living, such as gas, over the last 5 years. More people became employed, but at the lower wages. This means we've got more people just above the unemployed level, but still not living at a comfortable level. This will also increase the GDP and other numbers we use to factor whether we're in a recession or not, but it ignores the reality of the situation.

[Renolin]

Refineries that are under water. Oil companies stopped building those suckers for the last 15 years or so and are screwed as a result. A recession is just a term for 2 consecutive quarters of negative growth. I haven't payed close close attention, but the economy's numbers are in the right place.

PS: Don't buy gas today if you can avoid it. It hit 3.00 cause of the hurricane, but the EPA lifted select gasoline production restrictions and the strategic petroleum reserve may be tapped (i didn't get to finish watching the news to see if it actually is going to be). One or both of those things will lower gas prices in a couple days. Gas stations take a little while to react, while the price probably went down at noon during the press conference (I had to go to work, didn't finish watching).

~Renoline

[Bralkan]

Originally Posted by Renolin

Oil companies stopped building those suckers for the last 15 years or so and are screwed as a result.

25 years. Apparently because enviromentalists have stoped the building of them. That may or may not be true.

Also, our refineries are the main thing that's fucked. The oil reserves won't do much at all - its crude oil in the reserves and it has to be processed.

[titan_atlas]

Two other things to bring up. Many people believe the housing market has around 1-2 years more before the bubble bursts. Like 40% of the new house loans last year were for investment purposes. It is proven that investors will sell at a lower amount as they cannot charge rents to cover expenses. Also just this year was the first time in the united states that household were no longer saving. We are now at 0% savings. In contrast most Europeans are saving between 7%-12% regularly. Also alot of people are concerned Alan Greenspan is putting so much emphasis on managing inflation and is now only starting to look at long term bond yields. Anyways, I'm not a trained economist but I do read many publications such as "the economist" to stay current on these things. Just my 2cp.