21 votes

Not many people seem concerned with a probable recession, how come?

We are due for one anyway (11 years since the last one) yet I feel like the general sentiment is that the recent market drops are simply a temporary dip despite huge economic, political and geopolitical risks. What am I missing? Why isn't there more coverage about this? Am I looking in the wrong places?

20 comments

  1. [9]
    patience_limited
    (edited )
    Link
    I'll blame media consolidation for the lack of widespread alarm. There are relatively few sources of broadcast information, most of them belong to the comfortable classes, and no one wants to be...

    I'll blame media consolidation for the lack of widespread alarm. There are relatively few sources of broadcast information, most of them belong to the comfortable classes, and no one wants to be responsible for promoting panic as long as the music is playing and they've still got chairs available.

    In the U.S., there's also been a concerted effort to promote a narrative that things are better with Trump in power, pay no attention to the pessimists [Larry Kudlow, really? Has he ever been right about anything?]. Likewise with Brexit - there was a concerted effort to promote the narrative that Britain would be stronger without those messy EU entanglements and immigrants stealing all the jobs...

    Even Google searches seem to be promoting right-wing economic think-tanks and rose-tinted news. Of course, if you're looking for bad news, you can find it - perma-bears seem to be the only ones who are consistently calling "recession", but that can be passed off as even stopped clocks being correct twice a day.

    Could also be dread fatigue. You mention being "due" for a recession - that's an understanding of ordinary business cycles. People who've been paying attention to conventional risks have known that the current share price collapse was inevitable and will continue. Much of the "recovery" in stock/real estate/crypto prices has been hollow financialization (large pools of liquidity seeking growth assets in a low-return bond climate), and lacks broad-based material demand support. That's an asset bubble, in simpler terms.

    In the real world, even at near-full employment, large swathes of the consuming public don't have wages and savings sufficient to purchase more than simple necessities; even those purchases are on credit. In the U.S at least, federal government spending is decreasing for almost everything but military-related purchases. Military spending has one of the lowest multipliers for GDP and employment growth.

    Much of the developed world has outsourced its dirty manufacturing to China and East/South Asian countries. Modern production methods, using automated factories decades newer than those in the West, can vastly oversupply existing material demand with relatively few workers. No amount of tariffs will change these basic facts, whatever the populists claim.

    As a matter of history, we're reproducing the conditions which precipitated the Great Depression (there's plenty of dispute about causation from right-wing free-marketers and left-wing socialists - I'm summarizing both sets here):

    • massive global power realignments, with wars/trade imbalances/tax policies creating unsustainable government debts, leading to monetary tightening;
    • "business cycle" fall in total demand after a period of high buying
    • protectionist tariffs;
    • climate disasters;
    • wealth concentration, which causes:
      • excessive unregulated speculation;
      • overgrowth of finance,
      • suppression of general demand

    Any one of these causes can, and has, filled whole books. Personally, I can't blame wealth concentration enough - it leads to overproduction of non-productive luxury goods, and underproduction of goods that promote local productivity and well-being. This forces most of the populace into debt for over-priced necessities, which feeds financialization, and sends concentrated money chasing after wealth defense (political influence, tax avoidance, offshoring, foolish speculative investments, etc.), setting up a vicious cycle.

    So, all that being said, there's plenty of cause for concern. My sense of the zeitgeist is that we're all just waiting for the shoe to drop, breath held, and any other cliche' you might care to use to describe the situation. There's superstition involved as well - the "if we don't talk about it, it won't happen" kind of magical thinking.

    ***Disclaimer - I am not holding forth as an expert, economics is just an intersection of systems theory and history I find interesting. I am politically biased left.

    26 votes
    1. [4]
      nacho
      Link Parent
      Lots of great points here. Additionally, I think a lot of people want the economy to tank. to get populists out of power to reduce nationalism for environmental reasons to force something to...

      Lots of great points here.

      Additionally, I think a lot of people want the economy to tank.

      • to get populists out of power
      • to reduce nationalism
      • for environmental reasons
      • to force something to happen to inequality
      • the timing isn't right for economic downturn in relation to their national election cycles quite yet.
      • opposition politicians are busy with more pressing issues in both the EU and US so they aren't picking the fight yet.

      Further, the economy is a self-reinforcing cycle, just like housing prices. The economy and outlook change on meta-thoughts about the economy.

      So those who want the economy to do well have to keep the hype train running.


      Those who're actually middle class have also benefited hugely from low interest rates for over a decade. We remember the last recession and have jobs and finances that mean our personal risks related to a recession are small or minute.

      It's much, much worse for those who aren't interested in society/politics and are more likely to be under-employed or at-risk if the economy turns.

      9 votes
      1. [2]
        frozenplums
        Link Parent
        History shows that a battered economy and populace are actually more susceptible to calls for nationalism and/or "populism" (whatever that means nowadays)

        History shows that a battered economy and populace are actually more susceptible to calls for nationalism and/or "populism" (whatever that means nowadays)

        10 votes
        1. nacho
          Link Parent
          It works the other way around too though: When a populist is in power, the economy tanks, they lose their platform. We're in a counter-cyclical wave of populism currently. The economy has been...

          It works the other way around too though:

          When a populist is in power, the economy tanks, they lose their platform.

          We're in a counter-cyclical wave of populism currently. The economy has been booming, but those gains haven't reached swathes of the population who're discontented. That's got to do with how economic growth has benefited a much smaller group of people than earlier. (we're at a pretty historically high point in terms of inequality, and it's still increasing)


          We're also at a point in time where nationalists and populists are in power in a host of Western countries and in South America too. That's not how things were during the last recession or the one before. (Think Trump, Brexit, Hungary, Poland, Spain, Sweden, Venezuela, Brazil etc.)


          When calls to nationalism show that, well, isolationism really isn't working (Brexit, US trade wars, economy in many South American countries), what's the reaction?

          It isn't more isolationism, because that clearly does way more harm than good in a world of integrated global supply chains and digital economy.

          So when the economy tanks, populism might rise (think Putin's increase in pension ages in Russia this year. It's a totally necessary move for a sustainable society, but hugely unpopular), but it's very unlikely that nationalism will rise similarly.

          Anti-migration, sure, but not economic nationalism. Limiting trade though tariffs or lack of imports are costs directly absorbed by consumer prices.

          7 votes
      2. patience_limited
        Link Parent
        I'm not in favor of the economy tanking. Among other things, that's how fascist politics and wars happen. Schadenfreude is a rotten excuse for endorsing widespread misery, whatever your politics....

        I'm not in favor of the economy tanking. Among other things, that's how fascist politics and wars happen. Schadenfreude is a rotten excuse for endorsing widespread misery, whatever your politics.

        Honestly, I am sick of the Trump administration's own-goals - the uncertainties over trade and tariffs, sabre-rattling, and the pointless corporate share buybacks after the tax cuts, caused a good deal of the damage right now.

        5 votes
    2. [2]
      SuperGracchiBros
      Link Parent
      As someone set to enter the workforce within the next couple years, this is genuinely disconcerting.

      As someone set to enter the workforce within the next couple years, this is genuinely disconcerting.

      8 votes
      1. patience_limited
        Link Parent
        I wish you to be of good cheer - it's impossible to know what's going to happen until it happens, and steadiness is better than fear. Keep to your path and accept the obstacles that arise - that's...

        I wish you to be of good cheer - it's impossible to know what's going to happen until it happens, and steadiness is better than fear. Keep to your path and accept the obstacles that arise - that's all any of us can do individually.

        I came through many years of repeatedly collapsing industry, and erratic employment, stronger and more prepared to pursue opportunities in the good times.

        11 votes
    3. [2]
      harrygibus
      Link Parent
      We're basically just treading water until the amount of people that are being pinched by the economy starts causing defaults (either real estate or college loans could do it) at a rate that tips...

      We're basically just treading water until the amount of people that are being pinched by the economy starts causing defaults (either real estate or college loans could do it) at a rate that tips the balance. Housing in L.A. is flat the last few months and that's not really a thing here normally so, canary in the coal mine?

      5 votes
      1. patience_limited
        (edited )
        Link Parent
        What I'm reading is that business borrowing has been extraordinarily high, and won't be sustainable if profits decline or historically-low interest rates weren't locked in. Those debts have been...

        What I'm reading is that business borrowing has been extraordinarily high, and won't be sustainable if profits decline or historically-low interest rates weren't locked in. Those debts have been directed toward shareholder repayment (stock buybacks), and that's been a major force in driving rising share prices. Paradoxically, falling prices drive even more buybacks.

        None of this improves productivity, wages, or competitiveness, and leaves major vulnerabilities in a downturn. Businesses with big debts to cover are very quick to close facilities and lay people off, which feeds the other risks you mention.

        See also: http://pentoport.com/stock-buy-backs-go-bust/
        and https://outline.com/225npy (the "no" position says nothing about the wisdom of borrowing money to repay borrowed money)

        Full disclosure: I work for, and am a shareholder in, a company that's pursuing this strategy - needless to say, I'd rather remain employed than have higher notional asset prices.

        3 votes
  2. [2]
    EightRoundsRapid
    Link
    From a purely personal, non analytical perspective, I'm aware of the warnings and likelihood, but there ain't shit I can do to influence the economic cycle. I am just continuing with the lessons I...

    From a purely personal, non analytical perspective, I'm aware of the warnings and likelihood, but there ain't shit I can do to influence the economic cycle.

    I am just continuing with the lessons I learned from the last two recessions I battled through, the most important ones being "don't live beyond your means" and "if you can't pay the full price up front, you can't afford it".

    14 votes
    1. jwr
      Link Parent
      This is about how I feel as well. I can't do anything about the economy, personally. All I can do is try to keep my job if a recession occurs, and since I have at least 30 years until retirement,...

      This is about how I feel as well. I can't do anything about the economy, personally. All I can do is try to keep my job if a recession occurs, and since I have at least 30 years until retirement, I'm not terribly worried about the value of my investments going down right now, since it will allow me to buy more at a lower price in the meantime.

      Additionally, responding to "Why isn't there more coverage about this?", what would happen if the media went all in on "the recession is coming!"? All it would do is scare investors, and likely make things worse.

      Nobody can predict with any certainty what is going to happen in the stock market, and gaving people in the media cheerleading one way or another is never a good thing. It makes people react emotionally and then make poor decisions based on their emotions, whether that means selling all their stocks for safer assets, or buying bitcoin at $15k because of FOMO.

      3 votes
  3. [4]
    Kraetos
    Link
    Yes: Are You Ready for the Financial Crisis of 2019? The debt threat: Business debt, and worries about it, are up Nearly half of US CFOs fear a 2019 recession Another Recession Is Looming U.S....
    11 votes
    1. [3]
      patience_limited
      Link Parent
      And yet there are still plenty of market cheerleaders who want us to believe it's all going to be fine, at least for now: 'I'm stunned' by all the recession talk — Mohamed El-Erian warns against...

      And yet there are still plenty of market cheerleaders who want us to believe it's all going to be fine, at least for now:

      I believe the practical reality is that we're not bottomed out yet - it's likely to be a decent holiday retail season (for Amazon, anyway), and there will be a dead-cat bounce. Barring more loony trade catastrophes from the Trump administration, I'm expecting the real mess to happen after Q2 earnings are released in 2019.

      5 votes
      1. [2]
        Kraetos
        Link Parent
        OP asked "Not many people seem concerned with a probable recession, how come?", not "Is a recession probable?" Even your own links concede that the two narratives right now are "a recession is...

        OP asked "Not many people seem concerned with a probable recession, how come?", not "Is a recession probable?"

        Even your own links concede that the two narratives right now are "a recession is imminent" and "everyone is wrong about a recession being imminent." Everyone is talking about the possibility of a 2019 or 2020 recession right now.

        2 votes
        1. patience_limited
          Link Parent
          I'm not arguing with you, but depending on your sources there were people trying to promote the story that any bumps were transient. "Recession" wasn't a prominent mass interest until quite...

          I'm not arguing with you, but depending on your sources there were people trying to promote the story that any bumps were transient. "Recession" wasn't a prominent mass interest until quite recently.

          In the last couple of weeks, with the stock market down over 7% from November 30, there's been a widespread change in sentiment about how soon it's happening.

          3 votes
  4. jlpoole
    Link
    What goes up, must come down. What direction have we been going in the last four years?

    What goes up, must come down. What direction have we been going in the last four years?

    3 votes
  5. nic
    Link
    What makes you think people are not concerned? Yield curve puts the probability of a recession at 24% https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth.aspx...

    What makes you think people are not concerned?

    Yield curve puts the probability of a recession at 24%

    https://www.clevelandfed.org/our-research/indicators-and-data/yield-curve-and-gdp-growth.aspx

    S&P 500 has had a drawdown of 18%

    I'd say the market is accurately pricing in the probability of a slowdown/ recession.

    3 votes
  6. [2]
    TurdFerguson
    Link
    Not exactly probable. Possible though yes. Most sources are saying it's not likely, CFRA and Fed, while media outlets are jumping on the scaremongering train.

    Not exactly probable. Possible though yes. Most sources are saying it's not likely, CFRA and Fed, while media outlets are jumping on the scaremongering train.

    2 votes
    1. jlpoole
      Link Parent
      Isn't it the nature of a recession to occur when people are not predicting it? I wonder if looking at past recessions one can point to a certain time period before and see whether major respected...

      Isn't it the nature of a recession to occur when people are not predicting it? I wonder if looking at past recessions one can point to a certain time period before and see whether major respected opinions were predicting same. What is the CFRA?

      2 votes
  7. nsz
    Link
    I think it's important to note that a positive attitude is an important part of preventing a crisis, as long as legislation is firm enough to hold back the kind of abuse seen in the 2007 crash, a...

    I think it's important to note that a positive attitude is an important part of preventing a crisis, as long as legislation is firm enough to hold back the kind of abuse seen in the 2007 crash, a belief that the system is stable is all you need really.

    1 vote