Here’s when the ‘everything bubble’ bursts – News Couple

Here’s when the ‘everything bubble’ bursts

In October 20XX. This is not a typo. To make our best guesses about when the next recession will start, we need to understand how the Fed creates unsustainable booms and why the next crash may be around the corner.

The warning is valid. As physicist Niels Bohr said, “Prediction is very difficult, especially if it is about the future.” However, I will fearlessly heavier with 10 cents. The inflationary policies of the Federal Reserve increased from two cents by five times. The next cryptocurrency may be on the horizon: My 10 Cents.

If a dog could have a cryptocurrency, why couldn’t the retired finance professor who warned the public that prices were about to accelerate due to the inflationary policies of the Federal Reserve in the spring of 1976, not have one?

Consumer prices rose 5.7% in 1976, 6.5% in 1977, 7.6% in 1978, 11.3% in 1979, and 13.5% in 1980. Talk about being right about the money!

While inflation has been racing throughout his presidency, President Jimmy Carter appointed Paul Volcker, a former banker and US Treasury official, in 1979 to stem the multi-year price spiral. Volcker succeeded amazingly. Consumer prices rose 10.3% in 1981, revealing how the inflationary momentum could continue for a while before tight Fed monetary policies killed the inflation dragon. In 1982 rates rose 6.1%, 3.2% in 1983, and (the miracle of miracles) only 1.9% in 1986, a year before Volcker stepped down as Fed chair and replaced him with Alan Greenspan.

To accomplish what was considered at the time improbable due to high inflation expectations, Volcker’s Fed raised the federal funds rate – the rate that banks borrow from each other for overnight loans – to 22% by December 1980. The cost of Volcker’s tight money policies needed to stem the decline The dollar has had successive recessions: a short contraction 1980 and then another, 1981-1982. It can be shown that one long recession actually lasted for three years, from January 1980 to November 1982.

Determine the moment

One of the best leading indicators of cyclical deflation is the unemployment rate, which reached its lowest level in May 1979 (5.6%) several months before the 1980 recession and did not peak until November 1982 (10.8%). The unemployment rate declined until the next increase in layoffs began to accelerate in 1990.

currently, Unemployment rate It has fallen from its closing peak in early 2020 and reached levels that historically mark the beginning of the end of the cyclical boom. The shutdowns have undoubtedly distorted the unemployment rate, but the historical pattern reveals that when the unemployment rate approaches three percent and then rises, a recession will soon begin.

yield curve It is one of the most widely followed financial indicators that portend a recession, usually within a year. The yield curve reveals the relationship between short-term and long-term interest rates. The yield curve is usually upward sloping, as is the case today, when short-term rates are lower than long-term rates, reflecting a significant amount of liquidity in the financial markets.

When the Fed is concerned that the economy is “overheating,” it tends to raise the federal funds rate to cool down price inflation, which occurred before both the 2000 internet bubble and the 2007 housing bubble burst. The yield curve actually reversed at the end of 2019, indicating The recession will begin sometime in 2020. However, the shutdowns in response to COVID-19 caused a recession in early 2020, not a typical cyclical recession.

Now the economy is experiencing another cyclical revival because the Federal Reserve has injected $4 trillion in liquidity to “simulate” the economy. At the latest FOMC meeting, it was decided to cut monthly purchases from $120 billion to $105 billion. In other words, the Fed will continue to put its foot on the monetary pedal even with inflation recently rising to 6% y/y. In the past, accelerating inflation has sounded the alarm at the Federal Reserve to raise interest rates to ease inflationary pressures and expectations. For now, the Fed believes that price inflation is “temporary” and therefore no need to tighten monetary policy.

Thus, my bold predictions are: inflation accelerates in 2022. Then, public anger over skyrocketing prices and media reports highlighting how prices are killing average family purchasing power may cause the Biden administration to impose wage rate controls as President Nixon did in 1971 to de-inflate before his 1972 election campaign. Biden could use an executive order if Congress did not give him legal authority to impose price controls.

Without rate controls, I would expect the Fed to raise the federal funds rate, sometime in 2022 and to continue tightening in 2023. Thus, the next recession could start in the fall of 2023, but no later than a year later. If the recession does not start on schedule, it only means that it was postponed, not eliminated.

Murray Sabrin, Ph.D., retired professor of finance. In 2021, the Board of Trustees awarded Dr. Sabrine an honorary standing for his scholarship and professional contributions during his 35-year career. He is the author of Universal Medical Care: From Conception to End-Life: The Case for a Single Payer System; Navigating the Boom/Bust Cycle: An Entrepreneur Survival Guide; Tax Relief 2000: The Revival of American Liberty; And why the Fed is weakening: it causes, inflation, recession, bubbles and enriches the one percent.

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