Today’s conditions expose vulnerabilities that make a recession or market meltdown more likely
If you drew up a list of preconditions for recession, it would include the following: a labor market at full strength, frothy asset prices, tightening central banks, and a pervasive sense of calm.In other words, it would look a lot like the present.
.. Companies meanwhile have responded to slow, stable growth and low rates by borrowing heavily, often to buy back stock or pay dividends. Corporate debt as a share of economic output is at levels last seen just before the past two recessions.
.. Last week Janet Yellen, the Fed chairwoman, said she thought there wouldn’t be another financial crisis “in our lifetimes.” Fair enough: crises as catastrophic as the last happen twice a century. But small crises are inevitable as risk migrates to financial players who haven’t drawn the attention of regulators.
.. in a world with permanently lower inflation and growth, businesses will struggle to earn their way out of debt
Why one hedge-fund titan is bracing for ‘all hell to break loose’ in the stock market
Skeptics of Wall Street’s recent rally, which has been borne on the hope of pro-growth promises from Trump coming to into full view sooner than later, predict that an inevitable failure of the president to make good on his policy promises could jolt markets violently lower.
Singer is among those fearing that very scenario. He is betting that an economic recession may be on the horizon and believes that, with interest rates already near ultralow levels, the Federal Reserve won’t be able to provide a sufficient quantitative-easing cushion, as it did during the 2008-’09 financial crisis.
Why Odds May Be Fading For a Near-Term U.S. Recession
Many economists are reducing their warnings, seeing potential infrastructure spending, tax cuts, soaring markets and less focus on international risks
But many share the assessment that inflation, in particular, has been too low in recent years, and that somewhat higher inflation would be a welcome development... Typically, the wealth effect of rising stock prices provides some lift to consumption and should provide some pep for the economy.
Trump can’t revive industry. But his voters might still get raises.
Wage stagnation in the Rust Belt likely won’t endure through his presidency.
If Trump can simply find a way to keep the economy growing even modestly for several years, and if the unemployment rate remains low, he has a good chance of presiding over a period of sustained wage growth similar to what America saw in the mid- to late 1990s, when Bill Clinton was president.
.. They might not bring back many factory or mining jobs, but they will boost the paychecks of the men and women who lost production jobs years ago and remain angry about it today.
.. For all Trump’s railing against the “terrible” economy under President Obama, census data released in September shows that typical workers at every level, from the very poor to the very rich, experienced income growth in 2015.
.. Americans without college degrees started to see rising incomes as far back as 2013.
.. his promises to deport millions of immigrants quickly and to threaten tariffs on trading partners such as China and Mexico in an effort to revive the millions of manufacturing jobs lost in the Rust Belt since the turn of the century.
.. Most forecasters say the policies would, instead, dampen job growth by reducing the labor force and raising prices on imported consumer goods, and would possibly push America into recession.
.. There’s a good chance — which markets are already pricing in — that those plans could stoke higher inflation. The Federal Reserve could respond by raising interest rates more quickly than expected, which could pump the brakes on growth and possibly cause a downturn.
.. What Trump needs is just enough policy fuel to continue growth, without provoking a shock — from a trade war, interest rate hikes or anything else — that would send the economy tumbling.