It's the economy, stupid
If the Federal Reserve does raise rates, how soon would a recession occur?
It finally happened - the media started talking about recession and it took less than a year on the Biden administration’s watch for it to happen. This shouldn’t come as any surprise to those paying attention, however - despite all the talk of full employment and recovery from the COVID-induced shutdown of 2020, the fundamentals, as they like to say, haven’t been strong from the start.
The precipitating phenomenon is, of course, inflation. The Consumer Price Index (CPI) is considered the measure of inflation and came in at over 6% to start the last month of the year, but the Producer Price Index (PPI), which measures the cost paid by producers of goods and services, is at over 9%:
Conventional wisdom states that the Federal Reserve will have no choice but to raise interest rates at some point in 2022 to avoid overheating the economy. Of course, the word from the authorities, especially the Biden White House, has been that inflation is “transitory” and that’s been their mantra since the beginning. Though “transitory” is being heard less often these days, the consensus on Wall Street seems to be that this is still the case:
This shouldn’t come as a surprise - the market continues to perform well, so it’s no wonder Wall Street wouldn’t want to upset it with a bleak prognosis. The problem is that most Americans don’t own stocks and inflation does have a deleterious impact on the lives of most Americans, no matter how hard the Biden administration or the media deplorably attempts to gaslight and shame the public on the matter. As such, inflation will have and already has political implications:
2022 being an election year, there isn’t much slack remaining before the regime takes a serious hit to its credibility. Not to mention chronic inflation leads to socially destabilizing outcomes that render irrelevant the question of who gets to run the country.
This brings us to the topic of recession. Hiking interest rates, historically, has led to downturns. If the Federal Reserve does raise rates, how soon would a recession occur? Bloomberg, this morning, began theorizing on timing:
At Deutsche Bank, strategist Jim Reid estimates the median and average time to a recession is 37 and 42 months after the first hike, respectively.
If the Fed hikes in June, that would point to a slump starting in July 2025 or December 2025. The earliest gap over 13 cycles studied is just eleven months which would mean the U.S. would begin nosediving in May 2023.
Taking the bond yield curve as a guide and using its historical shifts, a June 2022 hike may mean two-year yields fall below those of 10-years by June 2023, according to Reid. Recessions tend to occur around 18 months after that typically occurs, pointing to a recession at the end of 2024.
Prior to the pandemic, the earliest a recession occurred after an inversion was nine months, which would mean March 2023.
“At this stage, history would suggest a U.S. recession in 2024 or 2025 is a realistic assumption.” Reid told clients in a report. “It could come earlier but that would assume the earlier end of the historical template."
[bold mine]
Again, politics looms large here. 2024 is the next presidential election, so a recession beginning between now and then would likely sink the incumbent’s bid, so the incentive, as always, is to kick the can as far down the road as possible. Of course, if the incumbent were re-elected and a recession occurred during the second term, that would also have adverse consequences (see 2008 - 2016), but politicians tend to not look that far ahead.
But, again, this goes beyond politics. The lives of hundreds of millions are at stake and choosing between chronic inflation or a deliberately-induced recession is an impossible choice. Yet, the most unsettling aspect of the matter is that hiking interest rates may not even have the intended effect. Take a listen to what financial analyst Lyn Alden (whom I can’t recommend enough) has to say (13:55 - 40:00):
A point Alden hammers home constantly throughout her recent work is that the current inflationary environment reflects the 1940s, not the 1970s like the pundits say. The ‘40s, like the 2020s, were a high-debt environment whereas the ‘70s were a relatively low-debt environment. Furthermore, inflation is today is largely the result of government spending and money printing, not economic activity, which means that hiking interest rates wouldn’t curtail inflation, anyway. It’s for this reason Alden doesn’t expect the Federal Reserve to hike interest rates that much in 2022, making it more for show than anything else.
In future posts, I’ll be talking more about the economy, as it is often economics that precipitates or exacerbates political and even social crisis. For now, the bottom line is this: if the regime mouthpiece (the media) is starting to talk about a recession, so should you. If inflation doesn’t abate, the government will have to do something about it at some point unless it plans on losing elections in 2022 and, possibly, 2024. Unfortunately, any action the government takes is likely to trigger or accelerate the arrival of an economic downturn.
This means you need to prepare for economic hard times today, instead of waiting for the White House to give you permission to do so. By then, it’ll be too late. Forewarned is forearmed.
Max Remington writes about armed conflict and prepping. Follow him on Twitter at @AgentMax90.
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