The coming recession — and fake predictions.

I predict a recession is coming. I just don’t know when.

Clearly, that is a fake prediction, because a recession always is coming. Perhaps tomorrow; perhaps in 50 years;  perhaps in a thousand years. But a recession always is coming.

Yet, the savants, who for many years predicted imminent recessions, finally were rewarded with the Great Recession of 2008. Now, they never fail to beat their chests, boasting about their prescience.

It works like this: When they are wrong, no one remembers. When they are right, no one is allowed to forget. Making such predictions is a no-lose proposition for an economist, or for any other forecaster.

Now the same savants (or perhaps different savants) are predicting another recession, and if we have a recession at any time in the next two, or even ten, years, you can be sure the chest-thumping will commence.

This chest-thumping will generate idol-worship amongst then masses. Here is a true example:

For three consecutive years, my wife (a football maven) correctly and remarkably predicted the exact number of games the Chicago Bears would win.

Despite her modesty, the word got out, and she became a goddess. So before the fourth year, our friends wanted to know her god-like predictions.

Sadly, her streak did not continue, and she was wrong because the Bears managed to acquire a handful of super game-changers.

Sic transit gloria mundi? Not exactly. Her reputation continues. People still want her predictions, which embarrasses her.

Predicting tomorrow is tough, but predicting that something will happen a year or two from now, is a pretty good gig. It can make one famous, especially if one happens to luck into the stopped-clock syndrome (right twice a day).

Here is an article, written in May of 2018, that is illustrative:

7 Smart Market Thinkers Predict When The Next Recession Will Start
John Mauldin Senior Contributor, President of Mauldin Economics

People often ask what I do on my travels and what it’s like to sit in dinners with serious market thinkers. So, let me tell you about my recent meetings with…

Art Cashin, of UBS and CNBC fame;
Peter Boockvar, who writes several letters every day covering markets and the latest economic data;
Lakshman Achuthan, founder of the Economic Cycle Research Institute and the guru on economic cycles. Membership to his “club” costs well into six figures yearly.
Randall (Randy) Forsyth, lead columnist at Barron’s
Barry Habib, who, according to Zillow, is the country’s top housing and mortgage analyst;
Brent Donnelly, Forex maven extraordinaire; and
New friend Jonathan Golub, Chief U.S. Equity Strategist at Credit Suisse.

[All made predictions about the “coming” recession.]

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When Will the Next U.S. Recession Start?
The average prediction was for the second half of 2019—just in time for the 2020 U.S. elections. Golub was the outlier, being certain it will be 2022.

There were a couple of late 2018 guesses. Lakshman thinks the economy is beginning to cycle down but probably not enough for a recession this year.

My own vote is for late 2019, though I may turn more bullish as medium-term data comes in.

Well, as for the 2018 predictors — we probably will not hear from them, again.

If we have a recession this year (2019), you can be sure those oracles will broadcast their powers to the heavens. Otherwise, we will hear the sounds of silence from them, too.

“Sadly” for the oracles, we already are into latish 2019, the clock is ticking louder, and still no recession.

There was a temporary market jolt because of an “inversion” (short term Treasuries paying more than long-term Treasuries).  Inversions supposedly predict recessions; they came before six out of the last.

But inversions, in of themselves, are just predictions being made by bond buyers. People who make predictions based on inversions simply are saying, “Bond buyers predict a recession, so I will, too.”

Now, as of this writing, the marketers have returned to wondering what idiocy our President will throw at them next.

I, being a courageous soul, will make a far more daring prediction than the above mavens have. I predict we will not have a recession in 2019, or even in the next three years.

Predicting a negative is tougher. If I prove to be wrong, you will not let me forget it. But, if I am right, years will have passed, and by then I either will be dead or I almost surely will have forgotten what I wrote.

So it’s a “lose-lose.” Now that is courageous.

Here is my reasoning:

Federal deficits are rising.
In our post, “National Debt Clock: The Sign of Ignorance,” we discussed the fact that federal deficits are projected to rise above $1 trillion annually.

A misnamed federal “deficit” (aka economic surplus) happens when the government takes fewer dollars out of the economy in taxes than it puts in by spending.

In short, the economy is projected to receive an additional trillion growth dollars.

I’d call that a “surplus,” but I don’t make the rules.

Historically (and logically) recessions occur when deficit growth declines:

The reason deficit growth cures recessions: Recessions are caused by insufficient dollars in the economy, which reduces both supply and demand. Deficits add growth dollars to the economy.

Loan delinquency rates are low
The “Great Recession” of 2008 began when the delinquency rate on single-family home mortgages (green line) was 3.67%, and the rate for credit card loans (blue line) was 4.8%.

Today both rates hover near 2.63%.

When the public is not having great difficulty paying its mortgages and daily bills, future purchasing is more likely, which is counter-recessionary.

Now let’s look at the delinquency rate on all loans, personal and business:

At the beginning of the “Great recession,” delinquency rates for all loans had risen to 2.86%. In the first quarter, 2019, the rate was 1.53%.

The Republicans and the Democrats
Traditionally,  Republicans, the deniers of Monetary Sovereignty, have been the chief deficit scolds, demanding any federal spending that benefits the middle- and lower-income groups, be cut.

Thus, we have the constant GOP drum-beat for cuts to Social Security, Medicare, Medicaid, ACA, food stamps and other poverty aids, housing, education, and all regulations that protect the public.

While that drum-beat continues, it isn’t quite so loud these days, what with the Trump administration defending and passing trillion-dollar deficits, and debt ceilings losing their attraction.

Meanwhile, the Democrats, who now own the House of Representatives, and soon perhaps, the Presidency, usually love spending for the masses, Clinton’s second term being an ill-fated exception (His debt cuts caused a recession).

So, the nation can look forward to perhaps five years of growing, trillion-dollar-plus deficits continuing to pump major stimuli into the economy.

In summary: The combination of huge federal money inputs to the economy (erroneously termed “deficits”), and the low loan delinquency rates, bespeak economic growth for the next few years.

No recession, folks.  Lean back and enjoy the ride.

Now let us pray we don’t encounter a meteor or some other kind of black swan.

Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell

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The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.

Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.

Implementation of The Ten Steps To Prosperity can narrow the Gaps:

Ten Steps To Prosperity:

1. Eliminate FICA

2. Federally funded Medicare — parts a, b & d, plus long-term care — for everyone

3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)

4. Free education (including post-grad) for everyone

5. Salary for attending school

6. Eliminate federal taxes on business

7. Increase the standard income tax deduction, annually. 

8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.

9. Federal ownership of all banks

10. Increase federal spending on the myriad initiatives that benefit America’s 99.9% 

The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.

MONETARY SOVEREIGNTY