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“If cyclical pressures continue to build and financial vulnerabilities broaden, it may become appropriate to ask the largest banking organizations to build a co

“If cyclical pressures continue to build and financial vulnerabilities broaden, it may become appropriate to ask the largest banking organizations to build a countercyclical buffer of capital to maintain an adequate degree of resilience against stress,” Brainard said. This is probably going to be too little, too late. Anyone with half a brain should be able to see the downturn coming soon. Simply looking at global macroeconomic indicators like Shiller P/E, Yield Curve, stock market indices against GDP or unemployment rate over the last two decades makes it clear the market has run extremely hot and is running on hot air by now. I won't know what will be the final trigger — 45 playing with fire in the pseudo trade wars or the upcoming cryptopocalypse: All I know is that once the downward spiral has been triggered, everything will happen very fast. Whatever the "stress tests" might have predicted in a bull market: I don't think anyone will have cared to predict tipping points and negative feedback loops once the underlying assets get worthless. There's just way too much disincentive for banks to building up capital (especially with negative interest) vs. speculating with it in order for this scheme being able to work. If you want my 2 cents: Hope for the best, but brace for the worst.

village-idiot 8y ago
This is only one of many data points that has my “economic meltdown” threat board blinking red all the time. The other ones are how many counties with AAA aren’t even within a country mile of being able to afford their future obligations, and the slew of pensions across the US that are expected to go bankrupt.
TomK32 8y ago
If 45 doesn't cause it by March, my money's on a hard Brexit triggering the downturn.
- checkyoursudo 8y ago
  I'm by no means a brexpert, but from my unprofessional POV it really seems like brexit will be the worst for the Brits and not as bad for the rest of us, though maybe not great of course.
  - TomK32 8y ago
    Yes it will be worst for them, just like a housefire being worst for that collection of rare stamps you had at home, but also turning everything else into a pile of ash. The impact of a no deal brexit will be felt everywhere because that's who the UK as part of the EU is trading with.
bko 8y ago
> Anyone with half a brain should be able to see the downturn coming soon. How are you so sure about this? You dont provide any evidence or reasoning and state is as a fact. One argument people that make similar claims is the "never in history has an economic expansion like this continued", which is true. The argument is, based on history, we should see a downturn soon. But then you go on to mock the stress tests for relying on history. There is no specific criticism of the "stress tests" but you just write them off as meaningless. Then you throw in a few buzz words like tipping points, feedback loops, speculation and negative interest rates. I'm skeptical of stress tests and bank incentives as well but your comment isn't really making the best case for the argument and strikes me as uniformed
- Latteland 8y ago
  Skepticism is good, but stressing systems is certainly better than just hoping things will be okay. There's no rule of the world that says growth has to follow certain limits, but it's prudent and reasonable to think that things are not different this time. But the primary reason one should be concerned is we screwed up our countries macro-economic future by giving rich people giant tax cuts and juiced the economy to grow, but poorer people are facing increasing loss of the social safety net, we are building an ever bigger group of people who can't do anything but pay off their college debts. In other words, there are clear reasons to be worried about the future financially.
Symmetry 8y ago
If it were true that anybody with half a brain could see a downturn coming now then they would have already taken short positions, causing the downturn to have already arrived. It's really hard to try to time the market, people regularly lose their shirts trying to do it. Don't tell people it's easy.
- sthu11182 8y ago
  I think inverted yield curve is interesting. In my simplistic understanding, isn't it just a global bet that short term yield is going better than the long term based on investor sentiments. So in essence, when the inversion happens, the smart money is on a downturn/recession. I believe that the 10 year bond and the 2 year bond yield have been close recently feeding fears of an inverted yield curve and recent talk of a downturn.
  - Symmetry 8y ago
    It's interesting but the large financial institutions who have teams of people who have spent their live studying yield curves aren't selling off their stocks. So probably they know something we don't and we shouldn't be selling off our stocks. Of course, by the time they have it'll be too late for us but so it goes. Trying to time the market is just too hard for retail investors to do.
  - gimmeThaBeet 8y ago
    It's the correct results, but it's sort of the backwards interpretation. If you think that interest rates are going to go down a la 2008, there is going to be less demand for short term debt (price goes down, yield goes up), and demand for long term debt goes up (price goes up, yield goes down). That is to say, if people are willing to take a lower rate for 10 years because they think interest rates won't be nearly as high in say 3 years. Another aspect to it is that the shorter the maturity, the more the yield is determined by set rates, whereas the longer you go out, the more it's just the auction process of markets setting the yield. This is part of where you get the idea that raising rates too fast can potentially be troublesome, you can end up inverting the curve that way.
- 8y ago
nradov 8y ago
There's always another downturn "coming soon" (depending on your definition of soon).
- ryandrake 8y ago
  Your comment reminded me of this infographic. S&P 500 vs. Pundits: https://pbs.twimg.com/media/DloRqfCW4AE6EZs.jpg https://pbs.twimg.com/media/DloRqfCW4AE6EZs.jpg

village-idiot 8y ago

This is only one of many data points that has my “economic meltdown” threat board blinking red all the time. The other ones are how many counties with AAA aren’t even within a country mile of being able to afford their future obligations, and the slew of pensions across the US that are expected to go bankrupt.

TomK32 8y ago

If 45 doesn't cause it by March, my money's on a hard Brexit triggering the downturn.

checkyoursudo 8y ago
I'm by no means a brexpert, but from my unprofessional POV it really seems like brexit will be the worst for the Brits and not as bad for the rest of us, though maybe not great of course.
- TomK32 8y ago
  Yes it will be worst for them, just like a housefire being worst for that collection of rare stamps you had at home, but also turning everything else into a pile of ash. The impact of a no deal brexit will be felt everywhere because that's who the UK as part of the EU is trading with.

bko 8y ago

> Anyone with half a brain should be able to see the downturn coming soon. How are you so sure about this? You dont provide any evidence or reasoning and state is as a fact. One argument people that make similar claims is the "never in history has an economic expansion like this continued", which is true. The argument is, based on history, we should see a downturn soon. But then you go on to mock the stress tests for relying on history. There is no specific criticism of the "stress tests" but you just write them off as meaningless. Then you throw in a few buzz words like tipping points, feedback loops, speculation and negative interest rates. I'm skeptical of stress tests and bank incentives as well but your comment isn't really making the best case for the argument and strikes me as uniformed

Latteland 8y ago
Skepticism is good, but stressing systems is certainly better than just hoping things will be okay. There's no rule of the world that says growth has to follow certain limits, but it's prudent and reasonable to think that things are not different this time. But the primary reason one should be concerned is we screwed up our countries macro-economic future by giving rich people giant tax cuts and juiced the economy to grow, but poorer people are facing increasing loss of the social safety net, we are building an ever bigger group of people who can't do anything but pay off their college debts. In other words, there are clear reasons to be worried about the future financially.

Symmetry 8y ago

If it were true that anybody with half a brain could see a downturn coming now then they would have already taken short positions, causing the downturn to have already arrived. It's really hard to try to time the market, people regularly lose their shirts trying to do it. Don't tell people it's easy.

sthu11182 8y ago
I think inverted yield curve is interesting. In my simplistic understanding, isn't it just a global bet that short term yield is going better than the long term based on investor sentiments. So in essence, when the inversion happens, the smart money is on a downturn/recession. I believe that the 10 year bond and the 2 year bond yield have been close recently feeding fears of an inverted yield curve and recent talk of a downturn.
- Symmetry 8y ago
  It's interesting but the large financial institutions who have teams of people who have spent their live studying yield curves aren't selling off their stocks. So probably they know something we don't and we shouldn't be selling off our stocks. Of course, by the time they have it'll be too late for us but so it goes. Trying to time the market is just too hard for retail investors to do.
- gimmeThaBeet 8y ago
  It's the correct results, but it's sort of the backwards interpretation. If you think that interest rates are going to go down a la 2008, there is going to be less demand for short term debt (price goes down, yield goes up), and demand for long term debt goes up (price goes up, yield goes down). That is to say, if people are willing to take a lower rate for 10 years because they think interest rates won't be nearly as high in say 3 years. Another aspect to it is that the shorter the maturity, the more the yield is determined by set rates, whereas the longer you go out, the more it's just the auction process of markets setting the yield. This is part of where you get the idea that raising rates too fast can potentially be troublesome, you can end up inverting the curve that way.
8y ago

nradov 8y ago

There's always another downturn "coming soon" (depending on your definition of soon).

ryandrake 8y ago
Your comment reminded me of this infographic. S&P 500 vs. Pundits: https://pbs.twimg.com/media/DloRqfCW4AE6EZs.jpg https://pbs.twimg.com/media/DloRqfCW4AE6EZs.jpg