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Most recessions are easy to predict because they’re intentionally triggered by central banks with the aim of controlling inflation by putting a lot of people ou

Most recessions are easy to predict because they’re intentionally triggered by central banks with the aim of controlling inflation by putting a lot of people out of work.

H8crilA 7y ago
Those are actually somewhat rare. US in the late 70s with Paul Volker and the famous British Pound short by Soros which interrupted the government chocking off the economy with high interest rates, broke the pound and saved the UK from a recession. Do you have more prominent examples? It's usually policy error in the other direction - keeping easy money for too long. I.e. you don't handle a catastrophe by fixing the down leg (that's emergency measures with bad side effects), you prevent the up leg. Alan Greenspan will be forever remembered and hated by some after his efforts to create the dotcom and the housing bubble.
- rapsey 7y ago
  The Japanese central bank single handedly caused the lost decade.
  - mcguire 7y ago
    Single handedly?
  - hogFeast 7y ago
    They didn't. That is a misconception borne out of reading our methods of economic policy onto a different context. The MoF, not the BoJ, controlled not only monetary policy but pretty much all aspects of the economy (they even directed lending by banks at the level of individual loans). This changed in the late 90s but through to the early 90s, it was all the MoF.
- surfmike 7y ago
  The policy error in 2008 was not enough easy money early enough. https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2019/5/cj-v39n2-12.pdf https://www.cato.org/sites/cato.org/files/serials/files/cato...
- hogFeast 7y ago
  It happened in 1958 (it may have been '56, my memory is poor), and 1920-1. In the case of the Fed, the last central banker to take this approach was Martin in the 1960s ("leaning against the wind")...and his legacy ended up being inflation. You are basically correct but these factors are essentially structural. For example: is the central bank independent from the govt? How much oversight is there over policy decisions? Etc. In the West, it has been politically impossible to actually do this. Your understanding of early 1990s Britain is not correct. The UK was forced to raise rates because of the ERM and rising inflation. The govt ran the BoE so it should be quite obvious that they had no desire to slow the economy down but were forced to do so.
  - H8crilA 7y ago
    They wanted high rates because ERM was the main policy goal of the prime minister. Super high rates were also choking the economy. It was a choice between ERM and easier recession, and the breakage of the pound forced them to no ERM and easier recession. The bundesbank was the one to put the final nail in the UK Euro coffin. Also, this is not about the FED being dependent or independent from the government. This is about the widespread idiocy of thinking that expensive assets = well-being of the country. Dotcom and 2008 (and today, but let's wait for it to burst first) are all FED's pedal-to-the-metal work.
    - hogFeast 7y ago
      > They wanted high rates because ERM was the main policy goal of the prime minister. Again: no they didn't. They didn't "want" high rates. You understand how dependent the Conservatives were on home owners and the structure of UK mortgages? The reason ERM was the main policy goal of Major was inflation. The Bundesbank was the immediate cause but the reason they got into that position was inflation (if you read the research, even the die-hard Lawson fans believe that the ERM set the stage for the 1990s). Yes, the nature of the relationship between the central bank and the govt determines the response to those events. Do you realize that there have been substantial changes in this relationship since the Fed was created? The Fed is politically unable to respond. I don't understand the relevance of your point about expensive assets...that determines nothing, the market will go up and down regardless of anything.
madengr 7y ago
Then why not short sell stocks and become rich?
- abcpassword 7y ago
  Because it can’t actually be predicted or they would do just that.
- take_a_breath 7y ago
  Stocks aren’t necessarily an indicator of economic strength. The S&P 500 is in an earnings recession right now, but continues trading at all-time highs. The market can stay irrational longer than you can stay liquid.
  - tryptophan 7y ago
    This is not true. Sp500 earning are near ATH. https://www.multpl.com/s-p-500-earnings https://www.multpl.com/s-p-500-earnings
    - take_a_breath 7y ago
      Your chart is earnings per share, it’s also from June. That has increased because of all the stock buybacks following the new tax law. Total earnings are down. MarketWatch - https://www.marketwatch.com/story/the-sp-500-is-in-its-first-earnings-recession-in-three-years-2019-09-18 https://www.marketwatch.com/story/the-sp-500-is-in-its-first... CNBC - https://www.google.com/amp/s/www.cnbc.com/amp/2019/06/24/analysts-now-expect-the-earnings-recession-to-last-through-the-third-quarter.html https://www.google.com/amp/s/www.cnbc.com/amp/2019/06/24/ana...
ur-whale 7y ago
That sounds like a conspiracy theory. Also, I fail to see how this theory applies to the recession of '08.
- viburnum 7y ago
  I said most. Occasionally there are bank crises (like in 2008). This isn’t a big secret, it’s right there in FOMC meeting notes. Google Greenspan and punch bowl. Google Kalecki and politic aspects of full employment.
GuB-42 7y ago
Conspiracy aside, that doesn't make it easy to predict. It is like saying that wars are easy to predict because they are (obviously) the result of governments declaring war. Same thing for companies, even if a layoff is planned, no one knows exactly when it will happen, not even the people who planned it. It may be earlier than expected, or later, or not at all depending on the results, the whims of the market, the legal framework...
- BenoitEssiambre 7y ago
  While it doesn't make things predictable unless you can predict central banker's whims, this is no conspiracy theory. It's a fairly accurate description of mainstream Keynesian macroeconomics. I might tone it down by saying bad recession happens when central banks accidentally overdo their inflation control but sometimes it doesn't seem so accidental, and more a question of incompetence. Like when central bankers refused to use negative interest rates even though the natural rate was clearly plunging into the negative. In 2009 their own Taylor rule models put the correct rate at negative 4% (https://www.brookings.edu/blog/ben-bernanke/2015/04/28/the-taylor-rule-a-benchmark-for-monetary-policy/ https://www.brookings.edu/blog/ben-bernanke/2015/04/28/the-t...). Central banks kept interest rates very high at zero.
aguyfromnb 7y ago
>intentionally triggered by central banks with the aim of controlling inflation by putting a lot of people out of work This is the top comment, while someone calling it a conspiracy theory is down-voted. That is sad. The Fed was founded in 1913. The US had recessions in 1785, 1789, 1796, 1802, 1807, 1812, 1815, 1822, 1825, 1828, 1833, 1836, 1839, 1845, 1847, 1853, 1857, 1860, 1865, 1869, 1873, 1882, 1887, 1890, 1893, 1902, 1907, 1910. Do you notice how frequent recessions were, pre-Fed? The average duration was also much longer. Blaming recessions on the Fed (who are trying to manipulate the business cycle) doesn't jibe with the data.
- davidw 7y ago
  > This is the top comment, while someone calling it a conspiracy theory is down-voted. That is sad. Perhaps it's my perception, but I've noticed this more lately. I mean, there's always been a perception, for as long as I've been on this site that "things used to be better", so take that with a grain of salt, but objectively, if we don't have the "antibodies" in this community to reject obvious conspiracy theories like this... we're in a bad spot.
- burlesona 7y ago
  Also note how few of those made any real impact on the people of the time or were noteworthy enough that the average person has heard of them. I think the current finance era may come to be viewed in the same light as the fire-fighting practices of the past century. Always working to prevent the little fires leaves the forest unhealthy and sets up an eventual inferno that no one can control.
  - aguyfromnb 7y ago
    >Also note how few of those made any real impact on the people of the time or were noteworthy enough that the average person has heard of them. Indeed. That's the norm with recessions. It just so happens that the last one, the one we all remember (2008) was...really bad. It will affect people's perceptions for the rest of their lives, much like the Great Depression.
- hogFeast 7y ago

Most recessions are easy to predict because they’re intentionally triggered by central banks with the aim of controlling inflation by putting a lot of people out of work.

H8crilA 7y ago

Those are actually somewhat rare. US in the late 70s with Paul Volker and the famous British Pound short by Soros which interrupted the government chocking off the economy with high interest rates, broke the pound and saved the UK from a recession. Do you have more prominent examples? It's usually policy error in the other direction - keeping easy money for too long. I.e. you don't handle a catastrophe by fixing the down leg (that's emergency measures with bad side effects), you prevent the up leg. Alan Greenspan will be forever remembered and hated by some after his efforts to create the dotcom and the housing bubble.

rapsey 7y ago
The Japanese central bank single handedly caused the lost decade.
- mcguire 7y ago
  Single handedly?
- hogFeast 7y ago
  They didn't. That is a misconception borne out of reading our methods of economic policy onto a different context. The MoF, not the BoJ, controlled not only monetary policy but pretty much all aspects of the economy (they even directed lending by banks at the level of individual loans). This changed in the late 90s but through to the early 90s, it was all the MoF.
surfmike 7y ago
The policy error in 2008 was not enough easy money early enough. https://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2019/5/cj-v39n2-12.pdf https://www.cato.org/sites/cato.org/files/serials/files/cato...
hogFeast 7y ago
It happened in 1958 (it may have been '56, my memory is poor), and 1920-1. In the case of the Fed, the last central banker to take this approach was Martin in the 1960s ("leaning against the wind")...and his legacy ended up being inflation. You are basically correct but these factors are essentially structural. For example: is the central bank independent from the govt? How much oversight is there over policy decisions? Etc. In the West, it has been politically impossible to actually do this. Your understanding of early 1990s Britain is not correct. The UK was forced to raise rates because of the ERM and rising inflation. The govt ran the BoE so it should be quite obvious that they had no desire to slow the economy down but were forced to do so.
- H8crilA 7y ago
  They wanted high rates because ERM was the main policy goal of the prime minister. Super high rates were also choking the economy. It was a choice between ERM and easier recession, and the breakage of the pound forced them to no ERM and easier recession. The bundesbank was the one to put the final nail in the UK Euro coffin. Also, this is not about the FED being dependent or independent from the government. This is about the widespread idiocy of thinking that expensive assets = well-being of the country. Dotcom and 2008 (and today, but let's wait for it to burst first) are all FED's pedal-to-the-metal work.
  - hogFeast 7y ago
    > They wanted high rates because ERM was the main policy goal of the prime minister. Again: no they didn't. They didn't "want" high rates. You understand how dependent the Conservatives were on home owners and the structure of UK mortgages? The reason ERM was the main policy goal of Major was inflation. The Bundesbank was the immediate cause but the reason they got into that position was inflation (if you read the research, even the die-hard Lawson fans believe that the ERM set the stage for the 1990s). Yes, the nature of the relationship between the central bank and the govt determines the response to those events. Do you realize that there have been substantial changes in this relationship since the Fed was created? The Fed is politically unable to respond. I don't understand the relevance of your point about expensive assets...that determines nothing, the market will go up and down regardless of anything.

madengr 7y ago

Then why not short sell stocks and become rich?

abcpassword 7y ago
Because it can’t actually be predicted or they would do just that.
take_a_breath 7y ago
Stocks aren’t necessarily an indicator of economic strength. The S&P 500 is in an earnings recession right now, but continues trading at all-time highs. The market can stay irrational longer than you can stay liquid.
- tryptophan 7y ago
  This is not true. Sp500 earning are near ATH. https://www.multpl.com/s-p-500-earnings https://www.multpl.com/s-p-500-earnings
  - take_a_breath 7y ago
    Your chart is earnings per share, it’s also from June. That has increased because of all the stock buybacks following the new tax law. Total earnings are down. MarketWatch - https://www.marketwatch.com/story/the-sp-500-is-in-its-first-earnings-recession-in-three-years-2019-09-18 https://www.marketwatch.com/story/the-sp-500-is-in-its-first... CNBC - https://www.google.com/amp/s/www.cnbc.com/amp/2019/06/24/analysts-now-expect-the-earnings-recession-to-last-through-the-third-quarter.html https://www.google.com/amp/s/www.cnbc.com/amp/2019/06/24/ana...

ur-whale 7y ago

That sounds like a conspiracy theory. Also, I fail to see how this theory applies to the recession of '08.

viburnum 7y ago
I said most. Occasionally there are bank crises (like in 2008). This isn’t a big secret, it’s right there in FOMC meeting notes. Google Greenspan and punch bowl. Google Kalecki and politic aspects of full employment.

GuB-42 7y ago

Conspiracy aside, that doesn't make it easy to predict. It is like saying that wars are easy to predict because they are (obviously) the result of governments declaring war. Same thing for companies, even if a layoff is planned, no one knows exactly when it will happen, not even the people who planned it. It may be earlier than expected, or later, or not at all depending on the results, the whims of the market, the legal framework...

BenoitEssiambre 7y ago
While it doesn't make things predictable unless you can predict central banker's whims, this is no conspiracy theory. It's a fairly accurate description of mainstream Keynesian macroeconomics. I might tone it down by saying bad recession happens when central banks accidentally overdo their inflation control but sometimes it doesn't seem so accidental, and more a question of incompetence. Like when central bankers refused to use negative interest rates even though the natural rate was clearly plunging into the negative. In 2009 their own Taylor rule models put the correct rate at negative 4% (https://www.brookings.edu/blog/ben-bernanke/2015/04/28/the-taylor-rule-a-benchmark-for-monetary-policy/ https://www.brookings.edu/blog/ben-bernanke/2015/04/28/the-t...). Central banks kept interest rates very high at zero.

aguyfromnb 7y ago

>intentionally triggered by central banks with the aim of controlling inflation by putting a lot of people out of work This is the top comment, while someone calling it a conspiracy theory is down-voted. That is sad. The Fed was founded in 1913. The US had recessions in 1785, 1789, 1796, 1802, 1807, 1812, 1815, 1822, 1825, 1828, 1833, 1836, 1839, 1845, 1847, 1853, 1857, 1860, 1865, 1869, 1873, 1882, 1887, 1890, 1893, 1902, 1907, 1910. Do you notice how frequent recessions were, pre-Fed? The average duration was also much longer. Blaming recessions on the Fed (who are trying to manipulate the business cycle) doesn't jibe with the data.

davidw 7y ago
> This is the top comment, while someone calling it a conspiracy theory is down-voted. That is sad. Perhaps it's my perception, but I've noticed this more lately. I mean, there's always been a perception, for as long as I've been on this site that "things used to be better", so take that with a grain of salt, but objectively, if we don't have the "antibodies" in this community to reject obvious conspiracy theories like this... we're in a bad spot.
burlesona 7y ago
Also note how few of those made any real impact on the people of the time or were noteworthy enough that the average person has heard of them. I think the current finance era may come to be viewed in the same light as the fire-fighting practices of the past century. Always working to prevent the little fires leaves the forest unhealthy and sets up an eventual inferno that no one can control.
- aguyfromnb 7y ago
  >Also note how few of those made any real impact on the people of the time or were noteworthy enough that the average person has heard of them. Indeed. That's the norm with recessions. It just so happens that the last one, the one we all remember (2008) was...really bad. It will affect people's perceptions for the rest of their lives, much like the Great Depression.
hogFeast 7y ago