“Almost no chance of a recession this year”, concludes Barron’s roundtable, “markets will gain despite looming risks.” “Recession has been “priced out in a rally for the record books” booms bloomberg and forbes feels that now “only the perennial bears believe” in a 2020 recession. Investors “go into the new decade with a spring in their step,” reckons Reuters and wonders if we might be in for “a repeat of the roaring twenties?”
Better not, warns the IMF. And if there is a consensus on the The Great Stagnation it is that there is trouble ahead. “We are all hyper-alert to any signals that the next recession is coming” writes George Salapa on VB : “Yes, it’s been the longest but also the slowest bull market in history.” Maybe this time it is (really) different because of QE. But not that different. “Crises are certain; they are inevitable like death and taxes because we are all driven by the urge to earn superior returns.”
Anything could trigger it. Like a green swan. Or a spot of flue. Or the next Trump Tweet. As marketwatch reminds us, “Overbought markets tend to be vulnerable. Sometimes it is an exogenous event that topples stocks.”
The IMF and Ray Dalio are not the only bears. Plenty more prophets of doom like Peter Schiff , Repo Zoltan , David Rosenberg, CEO’s and CCN. IMF and Dalio stick out because they both focus on the “endogenous” problem of inequality, a topic that gets “left-of-Pelosi commie-marxist” Steve Keen on to bloomberg:
Interesting to find illustrating charts for Keen’s arguments on MishTalk’s “Recession Arithmetic: What Would It Take?”
But does a recession make for a crisis? What crisis? What we do know is that the next crash would be the most predicted, ever. Central Banks are ready with their chests of unconventional maesures. Or even without?
“Why Ben Bernanke is wrong” fumes The Economist. Talk of the smug calling the complacent lazy? After all, one is sure that “QE and forward guidance have been effective economic stimulants” but has to admit that “judging their exact impact is tricky”. One cannot be sure about “natural rates” of interest whose estimation is “highly imprecise” but cannot escape the metallist grip of an anachronistic money-is-neutral Wicksellian “theory” of central banking. Still, in the absence of any theoretical forward guidance one is now pragmatically ready to contemplate “the careful use of a radical new tool kit like helicopter money.”
Better late than never?
Meanwhile QE forever continues. They have tried and failed to re-name it. They have tried and failed to stop it. As Steve Keen says, serious tightening would be interesting to watch. Could they change banks’ QE into people’s QE now? Someone might ask: Why not ten years ago?
The next crisis may provide cover for “breaking rules”. For now QEasy money keeps flowing and zero rates keep pushing safe savers into risk. So the bull staggers on. Until it stumbles. “Gradually and then suddenly.”
Bankers may be ready. But economists are not. “The biggest challenge economists face today is how to deal with downturns…” starts The Economist’s article on Bernanke. Slim chance of sorting that as long as one is still in denial about the last one. The biggest challenge for economics is to disentangle itself from a dying paradigm.
Meanwhile the biggest challenge in the real political economy is inequality.
Oh, and “in case you haven’t noticed, the world is currently on fire.”
Just follow the money …