- The limits to central bank money printing
- The key indicators signalling recession
- The growing fractures in the US economy & housing market, Europe, China & global trade
- Stepping out of the recession's path
If you have not yet read Part 1: Next Stop: Recession!, available free to all readers, please click here to read it first.
Here in early 2019 the central banks have already caved to the market’s December 2018 weakness by printing more money, softening their plans for reducing their balance sheets and delaying the already timid schedule for introducing new interest rate hikes. They are panicking early and often and seem inordinately afraid of any sort of downturn in stock prices, which is a concerning matter in itself.
So our asterisk on this claim of ours that a recession has arrived is contained in the phrase “until and unless.” Until and unless the central banks reignite their QE booster rockets, and do so in larger-than-ever quantities, and do so by giving money to the common people (not the banks), we think that the die is cast. The recession has arrived.
Perhaps we should introduce a second idea which is contained in the phrase “they can until they can’t.” The central banks managed to get a bounce in the equity markets through a combination of easing financial conditions, as they say (i.e. throw more money to the markets), and jawboning.
This was sufficient to get a relief bounce in equity and bond markets, but it did nothing to alter the many recession indicators we’ll track for you below. The central banks can still move the markets with their words and deed. Someday, perhaps soon, it will be shown they can’t. They can move markets until they can’t. Other such times of the central banks being overwhelmed by the movement of the market tides were in 2000 and 2008.
What sorts of things could or will swamp the levitating effects of money printing? One is a full-blown recession that ends up crushing the various crevices that central banks cannot directly control via printing such as real estate, consumer sentiment, and zombie companies’ ability to meet debt payments.
Another is a deflationary event that sweeps across overleveraged debt markets and causes the very worst sort of damage to a debt-based money system built on leverage; a decline in the amount of credit outstanding from one period to the next. In other words, another 2008-2009 type of event.
The central banks can control things until they can’t. That’s what history says. Perhaps something more fundamental has changed since that allows them more complete control than ever, and perhaps we should always have a few of our chips placed on that possibility, but otherwise it’s not different this time and the central banks will once again discover that credit bubbles are really fun on the way up and utterly destructive on the way down.
We think the next recession has arrived and that it’s going to be a real doozy in terms of creating financial market panic and losses.
Specifically, you need to watch out for…
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