Another recession coming?

[Mr.Phips]

The economic recovery that began last summer seems to be running out of steam.  For the first time in almost two years, leading economic indicators dropped last month and the stock market has fallen significantly for the first time in over a year.  Add this to all of the trouble in the UK and rising tax rates next year, we are very likely to see the economy slip into another recession by Spring of 2011.

What does everybody else think?

[Mr.Phips]

I was reading this article yesterday. I don't remember enough macroeconomics to have much to say about it, but I thought I'd post it here and see what your opinion is on it:

http://www.telegraph.co.uk/finance/economics/7769126/US-money-supply-plunges-at-1930s-pace-as-Obama-eyes-fresh-stimulus.html

I dont understand how the money supply can decrease with monetary policy so loose.  I mean, the fed funds red is still at 0%. 

[Mr.Phips]

We're out of recession (or depression or whatever)?

There has never been job growth during a recession, so yes. 

[Mr.Phips]

How could there be another recession when we're not even out of the first recession?  True, things may have been getting better for the past year, but we're definitely not anywhere near out of the 2009 recession.  Now, it is very possible we may go back down hill, but it will be dubbed to be a continuation of the Great Recession.

We are out of the recession and have since last summer.  GDP and jobs dont grow during a recession.

[Mr.Phips]

I am beginning to reassess what I had previously wrote here as I look at the huge positive yield curve(3%).  A negative yield curve usually indicates that a recession is coming, an even yield curve usually indicates sluggish growth, and a positive yield curve usually indicates strong growth.  The yield curve has been over 3% since Spring last year and reached 3.5% early this year and is now at 3%.  This could be distorted because the fact that the fed has had the fed funds rate at 0% for almost two years and that rates cant go any lower. 

[Mr.Phips]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

The yield curve has almost never failed at predicting recessions.  It is probably the best indicator out there.

[Mr.Phips]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

The yield curve has almost never failed at predicting recessions.  It is probably the best indicator out there.

There have been times though went it didn't. It was flat in 2007, not negative. Also, it wasn't that much better in the dot com bubble. Its been a year since I studied up on it so my memory of its failings have gotten foggy.

It was negative in 2006 and most of 2007 until August, which was just five months before the recession started. 

[Mr.Phips]

Yield Curve as a forecast of recession/expansion has been universally discredited by most save the Austrian School and there followers.

The yield curve has almost never failed at predicting recessions.  It is probably the best indicator out there.

There have been times though went it didn't. It was flat in 2007, not negative. Also, it wasn't that much better in the dot com bubble. Its been a year since I studied up on it so my memory of its failings have gotten foggy.

It was negative in 2006 and most of 2007 until August, which was just five months before the recession started. 

The rates for the shorter term treasures were really great in 2006.

The reason for that was that fed was still tightening rates at that time.

[Mr.Phips]

I am beginning to reassess what I had previously wrote here as I look at the huge positive yield curve(3%).  A negative yield curve usually indicates that a recession is coming, an even yield curve usually indicates sluggish growth, and a positive yield curve usually indicates strong growth.  The yield curve has been over 3% since Spring last year and reached 3.5% early this year and is now at 3%.  This could be distorted because the fact that the fed has had the fed funds rate at 0% for almost two years and that rates cant go any lower. 

Actually given the massive deflation and capacity slack in the economy, interest rates are extremely high right now.  In order to have a net 0% interest rate, we would need quantitative easing and fiscal stimulus in the trillions per year - thus stabilizing prices and capacity usage, or perhaps even creating a little inflation.

There has been a large amount of quantitative easing.  The amount of fiscal stimulus that you suggest is impossible to pass.