The next Recession!

Gaudion M said:
As a bit of an armchair economist I have been seeing signs of an impending recession for a couple of years, but we and the rest of the world seem to be bouncing along pretty well, jobs numbers are very high globbaly and therefore GDP growth is tracking moderatley upward in most countries.

But you look at the more subtle financial indicators and they are all showing some pretty alarming trends. Interest rates are low yet investment returns are also low, Banks can't make money in that environment - when they cant make money they tend to reign things in as the returns are not worth the risk. Barclays have just anounced an 80% drop in profits. The chairman saying:-

We acknowledge that the outlook for next year is unquestionably more challenging now than it appeared a year ago, in particular given the uncertainty around the UK economy and the interest rate environment,”.

If you subscribe to the idea that these things always move in cycles then we had the dot com crash of 2000/2001, the credit crunch of 2007/8/9 (although you could argue that went on for 5 years or more) and we are now circa 10 years beyond that. Next year could well be tough.
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cheer up, it might never happen
 
Question is how do they respond to the next recession? With interest rates already so low, what else is in the arsenal to combat it?
 
Millwallawayveteran1988 said:
I think the difference between recessions in the past and now is that central banks will do almost anything to help the economy. Negative interest rates, more QE etc. I think if we get one, then it is likely to be short lived (I’m talking global rather than just U.K.)
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As an actual economist, I can tell you the issue there is that most central banks do not actually have much room for intervention as they have had in the past. Interest rates, as a baseline prior to previous recessions, are already very low, meaning lowering them further will likely have very little impact on the financial markets. And extensive QE, especially in the current climate which would persist after any such degradation, would likely actually intensify the problem: various trade wars, mostly started by the US, higher indebtedness across the board than prior to previous recessions, savings rates very low (in some countries record low), county/provincial/state budgets operating on extremely fine margins in most developed nations (with their emergency/surplus funds having already been drained in the past decade), faltering growth economies like China, Brexit uncertainty (as well as other political volatility), and climate disasters further stretching the resources of many nations (a problem which will only likely get worse). The last thing you want to do is flood the markets with every holder of value currency *and* potentially devalue every long-term government investment vehicle available (their value *should* go up in that scenario, but they’ll be seen as risky, as each nation’s fiscal state will be even worse than prior to the last recession).

It is one of the main reasons most central banks have been reluctant to lower interest rates over the past year, even in the face of mounting evidence of a world economic downturn. I have been harping on about this for nearly 2 years (at times on here) and generally get skeptical responses, except from middle-to-low revenue business owners currently seeing revenues falling (especially those that produce luxury goods, as they are usually the first to feel the pinch and are rightly used as a canary in the coal mine) and those working two or three jobs to stay afloat (many participating in the much lauded “gig economy”, which is really just a sham front for externalising costs from profitable enterprises to the embattled “independent contractor”). The biggest mistake anyone can make right now is to take the whim of the stock markets as indication of how the economy is doing. All that reliably tells you is how well those that will likely be able to ride out any such downturn without much trouble are doing. Not that I thought you were doing that, but I just find so many believe the stock markets represent the overall world economy, which could not be further from the truth, especially in the last 30 years, when valuations have massively diverged from the revenue assessment model (which is also one of the drivers of our current predicament — the investment world has gone absolutely mad).

All of this is to say: the next downturn will likely not be a “recession.”
 
SebastianBlue said:
As an actual economist, I can tell you the issue there is that most central banks do not actually have much room for intervention as they have had in the past. Interest rates, as a baseline prior to previous recessions, are already very low, meaning lowering them further will likely have very little impact on the financial markets. And extensive QE, especially in the current climate which would persist after any such degradation, would likely actually intensify the problem: various trade wars, mostly started by the US, higher indebtedness across the board than prior to previous recessions, savings rates very low (in some countries record low), county/provincial/state budgets operating on extremely fine margins in most developed nations (with their emergency/surplus funds having already been drained in the past decade), faltering growth economies like China, Brexit uncertainty (as well as other political volatility), and climate disasters further stretching the resources of many nations (a problem which will only likely get worse). The last thing you want to do is flood the markets with every holder of value currency *and* potentially devalue every long-term government investment vehicle available (their value *should* go up in that scenario, but they’ll be seen as risky, as each nation’s fiscal state will be even worse than prior to the last recession).

It is one of the main reasons most central banks have been reluctant to lower interest rates over the past year, even in the face of mounting evidence of a world economic downturn. I have been harping on about this for nearly 2 years (at times on here) and generally get skeptical responses, except from middle-to-low revenue business owners currently seeing revenues falling (especially those that produce luxury goods, as they are usually the first to feel the pinch and are rightly used as a canary in the coal mine) and those working two or three jobs to stay afloat (many participating in the much lauded “gig economy”, which is really just a sham front for externalising costs from profitable enterprises to the embattled “independent contractor”). The biggest mistake anyone can make right now is to take the whim of the stock markets as indication of how the economy is doing. All that reliably tells you is how well those that will likely be able to ride out any such downturn without much trouble are doing. Not that I thought you were doing that, but I just find so many believe the stock markets represent the overall world economy, which could not be further from the truth, especially in the last 30 years, when valuations have massively diverged from the revenue assessment model (which is also one of the drivers of our current predicament — the investment world has gone absolutely mad).

All of this is to say: the next downturn will likely not be a “recession.”
Click to expand...
 
SebastianBlue said:
As an actual economist, I can tell you the issue there is that most central banks do not actually have much room for intervention as they have had in the past. Interest rates, as a baseline prior to previous recessions, are already very low, meaning lowering them further will likely have very little impact on the financial markets. And extensive QE, especially in the current climate which would persist after any such degradation, would likely actually intensify the problem: various trade wars, mostly started by the US, higher indebtedness across the board than prior to previous recessions, savings rates very low (in some countries record low), county/provincial/state budgets operating on extremely fine margins in most developed nations (with their emergency/surplus funds having already been drained in the past decade), faltering growth economies like China, Brexit uncertainty (as well as other political volatility), and climate disasters further stretching the resources of many nations (a problem which will only likely get worse). The last thing you want to do is flood the markets with every holder of value currency *and* potentially devalue every long-term government investment vehicle available (their value *should* go up in that scenario, but they’ll be seen as risky, as each nation’s fiscal state will be even worse than prior to the last recession).

It is one of the main reasons most central banks have been reluctant to lower interest rates over the past year, even in the face of mounting evidence of a world economic downturn. I have been harping on about this for nearly 2 years (at times on here) and generally get skeptical responses, except from middle-to-low revenue business owners currently seeing revenues falling (especially those that produce luxury goods, as they are usually the first to feel the pinch and are rightly used as a canary in the coal mine) and those working two or three jobs to stay afloat (many participating in the much lauded “gig economy”, which is really just a sham front for externalising costs from profitable enterprises to the embattled “independent contractor”). The biggest mistake anyone can make right now is to take the whim of the stock markets as indication of how the economy is doing. All that reliably tells you is how well those that will likely be able to ride out any such downturn without much trouble are doing. Not that I thought you were doing that, but I just find so many believe the stock markets represent the overall world economy, which could not be further from the truth, especially in the last 30 years, when valuations have massively diverged from the revenue assessment model (which is also one of the drivers of our current predicament — the investment world has gone absolutely mad).

All of this is to say: the next downturn will likely not be a “recession.”
Click to expand...
thanks for that, good stuff
 
SebastianBlue said:
As an actual economist, I can tell you the issue there is that most central banks do not actually have much room for intervention as they have had in the past. Interest rates, as a baseline prior to previous recessions, are already very low, meaning lowering them further will likely have very little impact on the financial markets. And extensive QE, especially in the current climate which would persist after any such degradation, would likely actually intensify the problem: various trade wars, mostly started by the US, higher indebtedness across the board than prior to previous recessions, savings rates very low (in some countries record low), county/provincial/state budgets operating on extremely fine margins in most developed nations (with their emergency/surplus funds having already been drained in the past decade), faltering growth economies like China, Brexit uncertainty (as well as other political volatility), and climate disasters further stretching the resources of many nations (a problem which will only likely get worse). The last thing you want to do is flood the markets with every holder of value currency *and* potentially devalue every long-term government investment vehicle available (their value *should* go up in that scenario, but they’ll be seen as risky, as each nation’s fiscal state will be even worse than prior to the last recession).

It is one of the main reasons most central banks have been reluctant to lower interest rates over the past year, even in the face of mounting evidence of a world economic downturn. I have been harping on about this for nearly 2 years (at times on here) and generally get skeptical responses, except from middle-to-low revenue business owners currently seeing revenues falling (especially those that produce luxury goods, as they are usually the first to feel the pinch and are rightly used as a canary in the coal mine) and those working two or three jobs to stay afloat (many participating in the much lauded “gig economy”, which is really just a sham front for externalising costs from profitable enterprises to the embattled “independent contractor”). The biggest mistake anyone can make right now is to take the whim of the stock markets as indication of how the economy is doing. All that reliably tells you is how well those that will likely be able to ride out any such downturn without much trouble are doing. Not that I thought you were doing that, but I just find so many believe the stock markets represent the overall world economy, which could not be further from the truth, especially in the last 30 years, when valuations have massively diverged from the revenue assessment model (which is also one of the drivers of our current predicament — the investment world has gone absolutely mad).

All of this is to say: the next downturn will likely not be a “recession.”
Click to expand...

Interesting. Re the last line

the next downturn will likely not be a “recession.

Are you saying there could be a big asset price correction that does not lead to a drop in GDP and therefore not a technical recession. I can see that but then if asset prices drop those assets feed the calculation of GDP and their is a knock on.
 
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