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[opendoor]

Originally Posted by Shazam

I am telling you the literal definition of a recession. Do with it what you want.

No, that's a rule of thumb and is certainly not the definition in the US. If that were true 100% of the time, then that means there were no recessions in the US in 1960, 1970, 1980, and 2001.

[opendoor]

Originally Posted by bizaro86

The 10-2 yield curve is inverted by 38 bps in the US. That, combined with the Fed steeply raising rates and the Treasury running a much more balanced (==less stimulative) fiscal position makes avoiding a recession pretty unlikely.

Probably, yeah. Though on average it seems to take about 1.5 years from the start of a yield curve inversion to the beginning of a recession and we're only a month or so into the 10-2 inversion. So I don't know that it's necessarily a good predictor of whether the US is currently in a recession.

Really the most likely way the US avoids an "official" recession is by political power leaning on the NBER to avoid declaring one. More realistically, they will just wait to declare until their declaration is irrelevant - a course of action which is quite common for the group. NBER recession definitions are interesting in retrospect for historical purposes, but not especially useful as a definition in the moment.

If unemployment stays low and GDP starts increasing again, they're not going to have to lean on the NBER to declare anything because the current situation almost surely won't meet their standard for a recession.

And while the NBER's official declaration is certainly more backwards looking, I don't think there's a strong case to be made right now that the US is already months into a recession based on the data. Employment levels, industrial production, and manufacturing have all still been increasing through the first 7 months of 2022. Without fail, those things all begin to drop soon after the beginning of a recession.

[bizaro86]

Originally Posted by opendoor

Probably, yeah. Though on average it seems to take about 1.5 years from the start of a yield curve inversion to the beginning of a recession and we're only a month or so into the 10-2 inversion. So I don't know that it's necessarily a good predictor of whether the US is currently in a recession.

If unemployment stays low and GDP starts increasing again, they're not going to have to lean on the NBER to declare anything because the current situation almost surely won't meet their standard for a recession.

And while the NBER's official declaration is certainly more backwards looking, I don't think there's a strong case to be made right now that the US is already months into a recession based on the data. Employment levels, industrial production, and manufacturing have all still been increasing through the first 7 months of 2022. Without fail, those things all begin to drop soon after the beginning of a recession.

The 10-2 first inverted in April, then came back, and is now very deeply inverted. I think a big factor in all those other indicators is inflation starting up. That makes market participants think things like, "maybe I have pricing power" or "my sales are growing" even when that isn't true in real terms. Wealth effects from inflation hitting the stock/real estate markets are probably also a factor. But inflation is bad for consumer/business confidence in the long term, even though it tends to accelerate spending in the short term as people anticipate rising prices in the future.

Anyway, the bond market is either really, really wrong or the Fed is going to lower rates again immediately after this hiking cycle. Maybe the market just doesn't trust the Fed to fight inflation, but I think a recession (either now or within the next ~1 year) is a near certainty. The Fed/Treasury are trying to cause a recession to fight inflation, but don't want to say that because it would be unpopular and would probably affect the mid terms.

[Shazam]

Originally Posted by opendoor

No, that's a rule of thumb and is certainly not the definition in the US. If that were true 100% of the time, then that means there were no recessions in the US in 1960, 1970, 1980, and 2001.

Okay, we'll use the NBER definition, which widens the criteria but still likes to use the six month time period.

The 1960 one is interesting because unemployment didn't peak until much later.

Basically though my point is that if there is two consecutive quarters of contraction monetary easing should be considered. Certainly the bond market feels like it's going to happen.

[GGG]

Originally Posted by Shazam

Okay, we'll use the NBER definition, which widens the criteria but still likes to use the six month time period.

The 1960 one is interesting because unemployment didn't peak until much later.

Basically though my point is that if there is two consecutive quarters of contraction monetary easing should be considered. Certainly the bond market feels like it's going to happen.

This one is really weird

You have employment up and productivity down wages not increasing as you might thing they should with this low unemployment. Record profits over the last quarter.

I don’t think the pandemic has worked it’s way through the system enough to say this is a recession or not.

One problem is monetary easing is dangerous in a high inflationary environment. So you can’t just print your way or reduce interest rates to fight the recession with the current state of inflation.

[bizaro86]

Originally Posted by GGG

One problem is monetary easing is dangerous in a high inflationary environment. So you can’t just print your way or reduce interest rates to fight the recession with the current state of inflation.

Yeah, the "fed put" is broken, or at least at risk. For the last 40 years every downturn has been met with lower rates/QE.

With current inflation that shouldn't be on the table without a deep recession. We will see if the Fed has the stones to let a recession blow through without immediately dropping rates to purge inflation from the system.

[Leondros]

The answer should be higher taxation... but no one has the balls to implement that correctly.

[Locke]

Originally Posted by Leondros

The answer should be higher taxation... but no one has the balls to implement that correctly.

Once again, I'm not a fan of just hiking taxes or using Tax Policy as the cure-all tool.

Its too unwieldy. We already have a cloudy and nebulous tax system where we have a lack of public accountability as to where our taxes are being spent.

Hiking taxes is like handing an addict more drugs. It'll paper over some temporary cracks and keep the engine running but its not solving any fundamental underlying problems.

[blankall]

Originally Posted by Leondros

The answer should be higher taxation... but no one has the balls to implement that correctly.

Taxing higher during a recession is a pretty awful idea.

I would agree that tax reform is necessary though. The fact you have you have so many people in the USA earning 7 figures plus and paying effective tax rates in the 25% or, even sometimes sub 20%, range is absurd.

Perhaps redistribution. Fewer taxes for the middle class and more effective taxing of the upper class. As it stands, under the current system most higher end earners will simply avoid any new taxes and middle and upper middle class wage earners will bear the brunt of them, only adding to recession.

[Fuzz]

Would raising consumption taxes as a method of lowering inflation work as well as raising interest rates, but with the added benefit of keeping government borrowing costs lower, and increasing funding to help lower income earners deal with inflation? You would want to adjust them down once the economy cooled.

[Leondros]

Originally Posted by Locke

Once again, I'm not a fan of just hiking taxes or using Tax Policy as the cure-all tool.

Its too unwieldy. We already have a cloudy and nebulous tax system where we have a lack of public accountability as to where our taxes are being spent.

Hiking taxes is like handing an addict more drugs. It'll paper over some temporary cracks and keep the engine running but its not solving any fundamental underlying problems.

It certainly isn't a cure all but I believe we will reach an allowable limit on interest rates. Taxes can be another pillar that helps take some inflationary pressure out of the market. Now, looking at what kind of government we have elected currently I am not at all confident it wouldn't get re-injected into some kind of asinine rebate but if it was implemented properly it would work.

We are going to run into a problem where we are tanking the housing market where so many people have a large chunk of their total wealth sitting. We will hit a limit here before people have to turn their keys into the bank. Increasing taxes could be a decent solution.

[Dan02]

Originally Posted by Leondros

It certainly isn't a cure all but I believe we will reach an allowable limit on interest rates. Taxes can be another pillar that helps take some inflationary pressure out of the market. Now, looking at what kind of government we have elected currently I am not at all confident it wouldn't get re-injected into some kind of asinine rebate but if it was implemented properly it would work.

We are going to run into a problem where we are tanking the housing market where so many people have a large chunk of their total wealth sitting. We will hit a limit here before people have to turn their keys into the bank. Increasing taxes could be a decent solution.

Maybe we shouldn't be protecting the few people who bought houses they couldn't afford if not for ultra high leverage with ultra low rates at the expense of the vast majority of the rest of the population. You can't protect everyone from their mistakes.

[GGG]

Originally Posted by Dan02

Maybe we shouldn't be protecting the few people who bought houses they couldn't afford if not for ultra high leverage with ultra low rates at the expense of the vast majority of the rest of the population. You can't protect everyone from their mistakes.

If you go past the stress test values were those houses people couldn’t afford?

Stress test was at 5.25%. Variable rate mortgages are still 2-2.5 and fixed it looks liked you can still get 4%. Son still another 1.25-3% of room before things get worrisome and you have to make that decision.

[GGG]

Originally Posted by Fuzz

Would raising consumption taxes as a method of lowering inflation work as well as raising interest rates, but with the added benefit of keeping government borrowing costs lower, and increasing funding to help lower income earners deal with inflation? You would want to adjust them down once the economy cooled.

This Modern Monetary Theory. Use taxation and debt repayment rather than interest rates to modulate the market. The problem is taxes are political rather than set by a an arms length agency.

[Fuzz]

Originally Posted by GGG

This Modern Monetary Theory. Use taxation and debt repayment rather than interest rates to modulate the market. The problem is taxes are political rather than set by a an arms length agency.

I figured I could never have a unique new idea...they even named it!

[bluejays]

Are there developed countries who aren’t experiencing inflation? Or more specifically did any country handle the pandemic well, economically where they’re avoiding these situations now? Really just curious.

[CliffFletcher]

Originally Posted by fleury

Are there developed countries who aren’t experiencing inflation? Or more specifically did any country handle the pandemic well, economically where they’re avoiding these situations now? Really just curious.

I think Japan still has low inflation. But other than that, everyone is dealing with inflation, higher energy prices, higher cost of living, and labour shortages.

You can also add passport renewal and air travel chaos to the list. And nursing shortages and overwhelmed health care systems.

This #### is all happening across Canada, the U.S., the UK, Australia, the Netherlands, France, Germany, etc. That doesn’t stop people from blaming everything on their government or the politicians they hate.

[PeteMoss]

Obviously this can change - especially if interest rates go down - but I think we already past peak inflation. The rate won't dip down much for a while because its built in, but a lot of the indicators are already decreasing.

[blankall]

Originally Posted by PeteMoss

Obviously this can change - especially if interest rates go down - but I think we already past peak inflation. The rate won't dip down much for a while because its built in, but a lot of the indicators are already decreasing.

Multiple markets that were driving inflation are already seeing major drops.

Some of the issues seem to be supply chain and / or pandemic behavior based and are already clearing up. Gas prices are dropping rapidly too.

The USA is already downgrading their inflation expectations

https://www.bloomberg.com/news/artic...0from%206.8%25.

[shermanator]

Another 75 bps hike this morning. Overnight rate is up to 3.25%. Sounds like more rate hikes to come in the future as well...

Given the outlook for inflation, the Governing Council still judges that the policy interest rate will need to rise further. Quantitative tightening is complementing increases in the policy rate. As the effects of tighter monetary policy work through the economy, we will be assessing how much higher interest rates need to go to return inflation to target. The Governing Council remains resolute in its commitment to price stability and will continue to take action as required to achieve the 2% inflation target.

https://www.bankofcanada.ca/2022/09/...se-2022-09-07/