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Why mainstream analyses of the upcoming recession are wrong

26 5 0
12.09.2019

A recession is coming!

Is it?

If so, when? And we should ask why.

A headline in Fortune said "A Majority of Economists Think the Next Recession Will Come by the 2020 Election".

Business Insider's headline was "More than 70 percent of economists think a US recession will strike by the end of 2021".

There is a huge political difference between the two.

Donald Trump's bid for re-election is dependent on his base plus a good economy. In our most simplistic mental model, if a recession comes before November, 2020, he loses.

If it waits at least until December, 2020, it is more likely to be a Merry Christmas and a Happy New Year for the Donald and all the assorted other Trumps.

If there isn't a recession before the election and a Democrat wins anyway, but there's a recession shortly thereafter, then Trump and the Republicans will blame the recession on Democratic policies or, if they had not yet been implemented, on the mere psychic effect that they might occur. That will make change more difficult.

Obviously, if there's a recession before the election, and Donald loses, then it will be easier for the new administration to pursue a new agenda.

Before you start calculating the odds and placing your bets based on the two headlines, please note that the Business Insider headline says "by the end of 2021". The study, which was also picked up by the AP, the Economic Times, Money.com, and many others, actually has about half of the economists saying it will come in 2020 and half predicting 2021.

Recession predictors are mostly pointing to one indicator, the bond yield curve.

This refers to US government bonds. They are issued with a face value - a preset amount of interest they'll pay. Then they are placed on "the market." Demand moves the price up or down. If there's little demand, the treasury can issue bonds that pay more, making them more attractive.

The bonds vary in the length of time........

© Al Jazeera