20 votes

Do you think a recession is likely within the next 15 years? If so, what/who will cause it and why?

I am not even remotely knowledgeable about economics and stocks so if any logic in this is flawed, please tell me why.

If it happens (which seems likely but not a given) I think the most likely offenders would probably be companies like Uber and WeWork because they kept going with their current practices (mainly unsustainable and sometimes still unprofitable) to the point where venture capitalists decide it's too risky an investment to make and the stocks eventually crash in these companies and the whole market soon follows.

7 comments

  1. reese
    Link
    Here is a figure: Annualized GDP change from 1923 to 2009. Note that negative GDP growth, aka recession, is frequent, such that it is reasonable to assume we will experience it every decade....

    Here is a figure: Annualized GDP change from 1923 to 2009. Note that negative GDP growth, aka recession, is frequent, such that it is reasonable to assume we will experience it every decade. Examining recent years, corrective fiscal policy was adopted under the Obama Administration, largely explaining why we've seen tremendous growth since the Great Recession. There has not been a recession in the United States since that one. In other words, it looks like the 2010s have been kind to us. But that is why you may have heard people say that we are due for a recession.

    And I agree. I suppose we could never have a recession ever again, but the observed frequency suggests otherwise. So do I think a recession is likely within the next 15 years? I would bet money on it. That a recession would occur within the next five years is highly likely as well. Since I am biased, I would vaguely assume that it would have something to do with trade wars and excessive deregulation of markets under the Trump Administration, exacerbated by a confluence of other issues that would only be popularly deterred by hindsight (the unsustainable VC funding you mentioned seems like a strong candidate). I am also willing to say that student loan and medical debt will continue to bog down growth, placing a huge barrier between a future recession and recovery, probably to the degree that Americans will take forgiving such debt on a mass scale very seriously.

    23 votes
  2. [2]
    envy
    Link
    Wework & uber are probably a symptom, not a cause. The last few USA recessions have been caused by the economy overheating (inflation), so the Fed hiked their rates to control inflation (one of...

    Wework & uber are probably a symptom, not a cause.

    The last few USA recessions have been caused by the economy overheating (inflation), so the Fed hiked their rates to control inflation (one of their mandates), which causes yield curves to invert, and shrinks the money supply, which contracts GDP and decreases employment. You can see this play out here.

    Typically, at about the time the yield curve inverts and unemployment increases, investors go into risk off mode. Tech stocks are high risk, so they tend go contract significantly.

    Once the inflation issue is no longer a concern, the Fed then cuts rates, which kick starts the economy and GDP takes off. Lately this second stage has been less effective, so the Fed has got creative with keeping rates near zero and introducing quantitate easing.

    This has resulted in a lot of money floating around looking for a home. The money hasn't found it's way into the hands of folks who would spend it (causing inflation) but has stayed in the hands of the 1% (we have historically high levels of wealth inequality.) All this money has kept rates low in America, and negative rates have appeared in some other countries. Because there are a lot of people desperate for a good return on their money, they are doing crazy things, like shoveling it into risky propositions like Softbanks vision fund, which is primarily responsible for the WeWork crazyness.

    In 2000, the dot com started crashing prior to the recession, but the dot com crash didn't cause the recession. The economy was overheating, inflation was increasing all the way through late 2000 while Nasdaq started correcting early 2000. The Fed raised rates around the middle of 2000. Back in 2000, Pets.com (the WeWork of 2000) only raised $80M. When it crashed and burned, those that invested $80M into Pets.com lost it all. Now if WeWork goes to zero, that is a $10B hole, a hundred times more than Pets.com. So it's possible that WeWork is the first domino that topples the rest, but Softbank and Saudi Arabia both have amazing cash flows. Plus the bond market isn't too worried about WeWork just yet.

    Also, the Fed didn't hike rates recently to avoid inflation, they hiked rates because they were nervous about rates being so close to zero, and what would they do in a recession if rates are zero? Then the Fed reversed that and started cutting rates once the yield curve inverted and Trump started pressuring them to cut rates prior to election year (I'm so tired of the word unprecedented, but I don't have any better words to describe this situation.) So now the Fed are back to being worried about what to do if there is a recession.

    With the yield curve inverting, banks would have a hard time making loans, which contracts the money supply, which causes a recession. So I think we could see a recession next year. If so, it will likely be a doozy, as the Fed doesn't have any more levers to pull to effect a monetary based recovery, and China is struggling and Europe looks bad. In the next 15 years either we almost certainly see a recession, or we see something similar to Japan, where the global economy limps along. What causes it, nobody knows for sure, as we are not seeing the inflationary problems we used to see, and interest rates are historically low.

    During the 2008 recession, Bernake was worried that we were seeing another great depression, which is why the Fed pulled all sorts of unusual tricks out of it's hat. So I generally think that is the most likely scenario. The economy recesses, investors risk off, WeWork & Uber die a horrible death, rates increase, nobody can pay the insane rates on debt, everyone thinks too much debt is the problem, the federal reserve banks can do nothing with monetary policy, governments refuse to use fiscal policy to enact a recovery, everybody tries to cut spending to avoid increasing the debt and just make interest payments, and that causes a recession to turn into a depression, and we all end up homeless and in a mad max style future.

    11 votes
    1. Amarok
      Link Parent
      Now into this pot toss the fifteen dollar minimum wage, the first truly massive automation wave, medicare for all, universal basic income, wealth tax, value added tax, financial transaction taxes,...

      Now into this pot toss the fifteen dollar minimum wage, the first truly massive automation wave, medicare for all, universal basic income, wealth tax, value added tax, financial transaction taxes, carbon taxes, a sizeable helping of student dent forgiveness, ever increasing damages from climate change, continual high profile failures of aging infrastructure, and a massive realignment of capitalist incentives coming from government (all depending on who wins this election).

      The economy of the 2020s is going to get weird.

      7 votes
  3. retiredrugger
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    NPR's Money Planet has some great discussions on the world economy and the inverted yield curve. So back in the second fiscal quarter the value of the 10 year Federal reserve dipped beneath the 3...

    NPR's Money Planet has some great discussions on the world economy and the inverted yield curve. So back in the second fiscal quarter the value of the 10 year Federal reserve dipped beneath the 3 month Federal reserve. The seven times this has previously happened we've witnessed a recession one year after; the only exception was the Great Recession which took a record 23 months to begin after the yield curve inverted.

    As for how the Trade War ties into this I really don't know. Maybe it ends up stimulating the economy and delays the recession, or perhaps it will incite the next recession early. Your guess is as good as mine; all I know is it's coming sooner rather than later.

    7 votes
  4. fional
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    I suspect there's a substantial risk in both corporate and sovereign debt-- the absolute amount of debt is quite high, but serviceable due to historically low interest rates. As a result, the...

    I suspect there's a substantial risk in both corporate and sovereign debt-- the absolute amount of debt is quite high, but serviceable due to historically low interest rates. As a result, the economy seems very dependent on a low interest-rate environment, to the point where the raising or lowering of the interest rate appears to dwarf most other market trends.
    While this situation has existed for a long time, and could persist for the foreseeable future, I also think it's possible that the demographics of the baby boomer generation retiring may also produce an exogenous shock to the interest rate situation--as the peak earner boomers retire and become a net capital outflow from the investment sphere, they decrease the credit supply and therefore will exert an upward pressure on interest rates. This is less acute in the US, where immigration has helped offset declining fertility rates, but might be more pressing in southern Europe and East Asia. As the Baby Boomer generation ran until 1964, the last of them will hit 65 at 2029, and so if this plays out, it will likely be within the next 15 years.

    3 votes
  5. skybrian
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    It probably will happen eventually, but nobody can tell you when or why it happens. The reasons for recession seem to be different very time. WeWork is quite a fun disaster to watch, but the only...

    It probably will happen eventually, but nobody can tell you when or why it happens. The reasons for recession seem to be different very time.

    WeWork is quite a fun disaster to watch, but the only people who lost money from it are Softbank's investors. Uber is public, but it doesn't seem like they are all that essential to the economy?

    2 votes
  6. Diet_Coke
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    Fifteen? More like next year.

    Fifteen? More like next year.