economy : How likely is a recession in the US in 2015?
Predictors of ’29 Crash See 65% Chance of 2015 Recession
The Jerome Levy Forecasting Center, based in Mount Kisco,New York, and run by Jerome’s grandson David, is again more worried than its peers. Its half-dozen analysts attach a 65 percent probability of a worldwide recession
Answer by Ugam Kamat:
The world would not hit a financial crisis in 2015, but there is a higher probability of the current bubble bursting in 2017 due to a three headed monster of weak foreign demand, tight government budgets and high income inequality. With this trio in place, the growth would not be propelled by an export bonanza or by a government investment boom.
The debt held by American households is rising ominously. Unless the government changes the economic policies, the debt balloon powered by radical income inequality is going to become the next burst. Falling government deficits are being replaced by rising debts on everyone else's ledger.
U.S. Federal Reserve and other European central banks are resorting to superloose monetary policies to combat the financial crisis. Long-term low interest rates and unorthodox programs to stimulate economies — like quantitative easing (QE) — could be laying the groundwork for more turmoil in financial markets.
Monetary policy can only do so much and beyond a certain point if you try to use monetary policy it does more damage than good. Supereasy money is causing the misallocation of capital in the global economy, with potentially huge consequences down the road. The assurance from the central banks to come to the rescue of the corporates in times of financial crisis has led to assets being pushed beyond their fundamentals and more vulnerable to adverse news.
With inflation not being strong in many European economies, this inflated asset valuation would continue for some time until things are so stretched that any signs of inflation, and a rise in interest rates, could precipitate a fairly strong market reaction. Central banks have artificially kept the real rate of interest somehow below what should be the appropriate natural rate of interest today and created bad investment that is not the most appropriate for the economy.
Under the current disastrous economic and tax policies, there would be rapid increases in debt for both corporations and households from atleast 2015 to 2017 which is estimated to be around $4 trillion, (one fourth of US GDP) which is a tsunami of debt. Many sectors of American economy are building to a bubble parallel and possibly larger scope than the conditions preceding the 2008 financial crises.
However we can't stop any of these. If the levels of debt and consumption go down, the nation would move into secular stagnation (anemic growth and high unemployment). The projects of growth as tabled by the US Congressional Budget Office (CBO) can't possibly be met unless Americans take on massive liabilities, piling debt upon debt. Without debt, the economy wouldn't move as it would be devoid of demand spending.
To paraphrase Voltaire’s words, Even if bubbles and debt did not exist, it would be necessary to invent them. And this is what we are exactly doing.