When will the next recession be?

[136or142]

The Trumpcession caused by his tariffs and increasing government debt may have already started, however, I think it will be either a slow decline or just a long period of stagnation and not an actual decline in GDP.

[136or142]

What Will Cause the Next US Recession?

Jan 7, 2019 J. BRADFORD DELONG

https://www.project-syndicate.org/commentary/possible-causes-of-next-us-recession-by-j--bradford-delong-2019-01

[136or142]

economic horizon is 12-18 months, max.

Now that the Fed has stopped raising rates = No recession in sight = no recession in 2019

If China slows down, then commodity prices will decrease = no inflation = no rate hikes.

biggest threats to economy in 2019-2020:
1) Trump legal problems
2) lack of productivity increases
3) escalation of US-China trade war (doubtful)
4) actual deflation - if China bubble bursts in 2019 (doubtful)

Other than that, the US isn't facing any immediate bubbles that could burst and topple the economy like in 2008...and to a lesser extent, we don't have a stock market bubble comparable to 2000 when the P/E10 was well over 3 standard deviations from its historical mean.  Currently, the P/E10 is about 1.75 standard deviations above its historical mean, which is still very expensive, but not nearly the bubble of 2000.

We have long term problems (debt, entitlements, productivity), but nothing immediate to push the economy into recession... i.e. these are the salad days and they should continue for at least the foreseeable future (12 months)

So, barring impeachment, Trump is likely to go into the 2020 election with unemployment around current levels.

I read a number of articles that said 2018 could be a big year for Artificial Intelligence.  If correct, that should help solve the productivity problems.  Of course, the impacts would be far from all felt in 2018, but, while there could be massive dislocation caused by this, in the longer term, significant A.I breakthroughs could lead to another economic revolution and massive economic growth.  How that wealth would be distributed though, is a different question.

Of course, I would also add to your list of long term problems both global warming and increasing concentration of wealth.

[136or142]

News story yesterday that many more people are having difficulty paying their auto loans.  In so far as the importance of the banking sector to the economy and the problem of bad debts, if this is indicative of a wider problem (i.e individuals having problems paying their mortgages)  the next recession and another possible credit freeze may not be far away.  Auto loans are about 10% of all household loans, so by themselves, these bad debts would probably not lead to a recession.

Given the number of recessions caused by bad loans, an increase in unpaid loans to banks is probably by far the best indicator of an oncoming recession.

https://www.caranddriver.com/news/a26310943/auto-loans-numbers-delinquent/

Seven Million Americans Delinquent on Auto Loans Could Be a Bad Sign
The U.S. is at an all-time high for loan delinquencies. Is this the sign of overborrowing or overconfidence in the economy's strength?

[136or142]

It depends that the results of the 2020 election are.

I agree, if we get Trump out quickly enough we might be able to avoid the brunt of it for a while.

I'm not sure about that. Ever since the Democrats took the House of Representatives the economy hasn't been doing as well. The Democrats will cause the economy to crash before Trump does. This is a repeat of 2008 all over again.

Democrats taking the Congress in 2006 had nothing to do with the crashing of the economy in 2008.

That recession was baked into the pie thanks to legislation passed during Clinton's administration and the means by which the Bush Administration and the Federal Reserve got us out of the 2001 recession. Namely boosting Housing and using that as a lead sector to pull the economy out of one recession, directly caused another. The substitution of debt for rising income also meant that once the financial sector became crippled thanks to the exposure caused by both the repeal of Glass Steagall and the proliferation of derivatives led to a credit crunch in mid 2007. Absent debt fueled consumption, the economy went into recession in December 2007.

Take out its leading sector and its primary source of domestic consumption and the end result is a deep, deep recession.

The Great Recession was caused by fraud by bankers and a lack of willingness to regulate by Chris Cox at the FEC and Alan Greenspan at the Fed.  Full stop.  Anything else are just red herrings.

In terms of the creation of bubbles, it may be that cutting capital gains taxes so that passive income is favored over 'earned' income has led to the dot.com bubble of 2000 and the housing bubble. However, there would not have been a housing bubble if not for the fraud.

The problem with the housing bank fraud is that loans were made that should not have been made.  Had there not been this fraud, by no means is it certain that alternative uses for the money loaned out would not have been productive.

[136or142]

Fed pretty much announced no more rate increases in 2019.  Looking at historical that means that the next recession will most likely start 5 to 7 quarters from now which would mean late 2020 or early 2021.  Whoever wins the 2020 Prez elections will be winning a poisoned chalice.

I certainly don't dispute that there is a 'business cycle' in the broad sense, but the economy is made up of many people making individual decisions to buy, invest...

The idea that there is something approaching an economic cycle that works like the earth goes around the sun every 365.25 days is utter nonsense.

[136or142]

The other problem that led to the Financial meltdown of 2007/2008 was that the banks were allowed to sell their mortgage loans.

Banks are supposed to provide a screening function for the economy.  This 'due diligence' is supposed to be ensured by making the banks responsible for loan losses.  However, when the banks were able to sell their loans, they had no incentive to ensure that the loans were quality loans.  This directly led to the NINJA loans (No Income, No Job or assets.)

[136or142]

Barring some bubble bursting, the only other cause of recessions are:
1.A lack of innovation  or risk taking resulting in economic slowdown.  This is obviously an entirely theoretical argument.  Dystopian authors might have written books about it.

2.Two sides of the same coin (more or less): rising inflation that causes interest rates to rise or an increase in loans going bad that result in something of a credit crunch.

Despite Trump's increasing use of tariffs and the increasing price of a barrel of oil (WTI) the 10 year Treasury Note is still at a low 2.58% yield, so there doesn't seem to be a concern of rising inflation.  In terms of bad loans, there may be an increasing problem with auto loans and certainly many people are squeezed with their credit card debt, but there doesn't seem to be anything out of line here either.

Unless there is something that I'm not aware of, those are the only things that lead to recessions.

Market cycles do occur: an expanding economy ultimately grows faster than the factors that need to support it can expand (labor and inputs) and this leads to inflation in those factors which leads to rising interest rates, which leads to slowdown...

However, central banks are actually pretty good at 'smoothing' these things out.  So, while the economic growth will be faster at times and slower at times (known as a 'growth recession') there really is no need for real recessions to ever occur.  People who look at the economy or 'economic cycles' as regular things like the movement of the stars are just using the wrong analogy.  

So, people who say 'there hasn't been a recession for 8 or 9 years, we're due for one,' are just wrong.