Recession?
Say a word for Jimmy Brown he ain't got nuthin’ at all
Not the shirt right off his back he ain't got nuthin’ at all
And say a word for Ginger Brown walks with his head down to the ground
Took the shoes right off his feet and threw the poor boy right out in the street
And this is what he said,
Oh! Sweet nuthin' he ain't got nuthin' at all
Oh! Sweet nuthin’ she ain't got nuthin' at all
In the immortal words of Yogi Berra, predicting is hard, especially about the future. No predicting harder than a recession, whatever that might be these days. Leaving aside the government shutdown of the US economy in 2020, it’s been 14 years since the last recession, the longest period in US history. So, that’s interesting, even more so when we're now a year and half into the largest Fed rate hike since the Volcker years, that's forty years ago, but the economy keeps rolling.
Notable financial writer John Authers has a flag waving piece today about inverted and dis-inverting yield curves. Authers writes of recent moves, “An inversion so protracted implies serious problems afoot.” This piece represents a lot of increasing noise in the financial press about bond sell-offs, rising interest rates, and the increasingly odd bond market. Bonds are the foundation of the financial world, stocks just fluff floating on top.
The financial markets have been fighting the Fed across this whole rate-rise campaign. Authers notes,
“But why exactly should we care about the yield curve? Theoretically, by making it harder for banks to make profits, it’s causative. The inverted curve can bring about a recession. But banks are less central to the financial system than they once were.”
“Banks are less central” is something thrown around over the last couple decades. However in ‘08, as the financial system collapsed, the banks proved still very much central and a lot more tightly tied to the so called non-bank financial sector than promoted. Unlike non-bank finance, banks are directly tied to the Fed, they still create money.
Anyway, we sail further and further into terra incognita, place your bets. The one thing we do know for the United States, every recession in the last fifty years saw an ever larger number of people thrown off the bus and not allowed back on, the next one will prove no different – Oh! Sweet Nuthin'.