Will there be a large US recession in the next 5 years?

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D-503
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Will there be a large US recession in the next 5 years?

Postby D-503 » Sat Mar 17, 2018 6:25 pm UTC

I've been listening to some of Peter Schiff's podcasts. He has a foreboding view of the US's economic future. To summarize my take aways from listening to him:


1. The budget deficit is growing while at the same time the trade deficit increases US debt held in foreign countries.
2. Because of that the government may be unable to pay off it's bonds without creating new money which causes inflation and reduces the value of the bonds.
3. Because of the inflation risk the government will have to offer higher interest rates for people to be willing to buy its bonds.
4. However, increasing interest rates will slow down the US economy and increase the trade deficit which will also increase inflation.
5. US productivity growth is stagnating thus does not provide a way out of the increase in inflation.
6. Gold is a good investment because US bonds will be seen as a less safe store of value due to inflation. Gold is an established alternative that the world could move towards.

I am interested in hearing some opposing views and other predictions about upcoming shifts in the economy.

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CorruptUser
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Re: Will there be a large US recession in the next 5 years?

Postby CorruptUser » Sat Mar 17, 2018 6:54 pm UTC

A good rule iof thumb is any time someone tells you to buy gold, ignore anything else they have to say.

When the end comes, which would you rather have; a silo full of gold, or a silo full of grain? Trick question, both are taken by the guy with a silo full of bullets. When the US debt collapse occurs, your gold and silver will be worthless because guess what the government will seize to pay off the debts? It wasn't that long ago when it was illegal for Americans to own silver...

D-503
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Re: Will there be a large US recession in the next 5 years?

Postby D-503 » Sat Mar 17, 2018 8:50 pm UTC

I don't think he believes gold is a good investment because it would hold value in a post apocalyptic world. The idea is that runaway inflation could make investments that are backed by US dollars and US buying power riskier, and since gold is immune to inflation its value as a store of value will increase.

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Re: Will there be a large US recession in the next 5 years?

Postby elasto » Sat Mar 17, 2018 9:26 pm UTC

D-503 wrote:1. The budget deficit is growing while at the same time the trade deficit increases US debt held in foreign countries.

While this is true, how is this any different to most of the last few decades? Where does he get a timescale of five years from therefore?

But, yes, most of the West is going to have to rebalance their economies eventually. A continuous trade deficit obviously isn't sustainable indefinitely.

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Re: Will there be a large US recession in the next 5 years?

Postby D-503 » Sun Mar 18, 2018 6:02 am UTC

The five year timescale is one I made up for the purpose of discussion. There will always be another recession eventually but 5 years seems like a reasonable period for making meaningful predictions.

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Re: Will there be a large US recession in the next 5 years?

Postby elasto » Sun Mar 18, 2018 3:48 pm UTC

Lots of things are going to happen eventually. We're going to get hit by an asteroid. Yellowstone is going to blow. Not sure there's any reason to expect them to happen in the next five years though.

Not sure there's any reason for a US recession in the next five years either, especially with Trump's giveaway. Trouble is definitely being stored up for the future though. Economic stimuli like the tax cuts boost in the short term but leave nothing in the bank when the inevitable recession does hit. And the wrong kind of stimulus can pump up a bubble and make the subsequent correction/recession that much more painful.

A better use of that cash would be investment in core infrastructure imo. Roads, telecoms, R&D etc. Stuff that gives a boost to the economy come rain or shine.

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CorruptUser
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Re: Will there be a large US recession in the next 5 years?

Postby CorruptUser » Sun Mar 18, 2018 6:11 pm UTC

I always say, put your money where you mouth is. If you can predict the market, boom or bust, you can make a fortune either buying tons of call or put options. Yet none of these "market gurus" happen to be billionaires. An old faculty member of my alma mater, a mathematician, figured out some stuff about the market and is now a billionaire; THAT is what a real "market guru" looks like. These guys preaching doom and gloom? Not actually bright.

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Re: Will there be a large US recession in the next 5 years?

Postby D-503 » Mon Mar 19, 2018 1:07 am UTC

elasto wrote:Not sure there's any reason for a US recession in the next five years either, especially with Trump's giveaway. Trouble is definitely being stored up for the future though. Economic stimuli like the tax cuts boost in the short term but leave nothing in the bank when the inevitable recession does hit. And the wrong kind of stimulus can pump up a bubble and make the subsequent correction/recession that much more painful.


I have some doubts that Trump's policies are going to provide that much economic stimulus in the short term either. The drop in corporate tax rate will create a bump and he said he wants to reduce the trade deficit and invest in infrastructure which would also help if it actually happens. However, reducing taxes without reducing spending will speed up inflation. His terrifs are going to hurt the economy, and the NAFTA renegotiation could end poorly.

One reason to think that a recession could come within the next 5 years is that recessions have historically occurred every 5-15 years and the market has more or less been on a bull run for the last 10 years.

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Re: Will there be a large US recession in the next 5 years?

Postby duckshirt » Mon Mar 19, 2018 6:04 am UTC

D-503 wrote:I am interested in hearing some opposing views and other predictions about upcoming shifts in the economy.


You should know Peter Schiff has basically been predicting a recession nonstop since the last recession. Some more liberal members on here may roast him, though I won't. I listened to some of his stuff a few years ago and found it interesting, he does seem decently informed about history and defending his libertarian angle. His pre-2008 videos are pretty entertaining (though I think he was wrong about what would happen to the US dollar). But, he has pretty much lost all credibility and become a "broken clock" to me now. Every time a new BLS jobs report or Fed meeting comes out, he cherrypicks a few bad numbers as proof that a recession is totally coming this time.
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Re: Will there be a large US recession in the next 5 years?

Postby LaserGuy » Mon Mar 19, 2018 7:12 pm UTC

The United States typically has a recession every ~8 years, so predicting one within the next five when the last one was 10 years ago seems like a fairly safe bet just based on historical trends. The trick is predicting exactly when it's going to happen, what segments of the economy are going to be the catalysts for it, and how bad it is going to be.

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Re: Will there be a large US recession in the next 5 years?

Postby duckshirt » Mon Mar 19, 2018 7:42 pm UTC

LaserGuy wrote:The United States typically has a recession every ~8 years, so predicting one within the next five when the last one was 10 years ago seems like a fairly safe bet just based on historical trends. The trick is predicting exactly when it's going to happen, what segments of the economy are going to be the catalysts for it, and how bad it is going to be.


My understanding is ~8 years is just the average. If you're tossing a coin and flipped 3 heads in a row, you aren't "due" to flip tails and similarly we aren't more "due" for a recession just because it's been ~9 years since the last one, it's still as likely as always.
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Re: Will there be a large US recession in the next 5 years?

Postby ucim » Mon Mar 19, 2018 9:07 pm UTC

...except that coin flips are independent of each other, and recessions aren't. Recessions are dependent on the state of the economy, and that is dependent... not on when the last recession was (that's too simple), but on where the economy is with respect to where it should be. FSVO "where". And that is related to the history of the economy, and that includes the last recession.

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Re: Will there be a large US recession in the next 5 years?

Postby LaserGuy » Mon Mar 19, 2018 9:47 pm UTC

duckshirt wrote:
LaserGuy wrote:The United States typically has a recession every ~8 years, so predicting one within the next five when the last one was 10 years ago seems like a fairly safe bet just based on historical trends. The trick is predicting exactly when it's going to happen, what segments of the economy are going to be the catalysts for it, and how bad it is going to be.


My understanding is ~8 years is just the average. If you're tossing a coin and flipped 3 heads in a row, you aren't "due" to flip tails and similarly we aren't more "due" for a recession just because it's been ~9 years since the last one, it's still as likely as always.


8 years is the average, yes, but the variance isn't that large (though, granted, there also isn't that much data that either). Not having a recession in 15 years be an outlier.

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Re: Will there be a large US recession in the next 5 years?

Postby CorruptUser » Mon Mar 19, 2018 10:25 pm UTC

Recessions often are caused by human idiocy. The 2007 crash? It was basically The 1970s banking crisis on steroids. In the 70s, the banks lent to people that'd never pay back, and sold the loans to commercial banks that were run by incompetents who didn't check that the loans were proper in the first place. Traditionally, home loans required the lessee to put up 20%, meaning if they wanted a $50k home they needed $10k and the loan would be for $40k. By lowering the requirement to 5%, in theory someone with only $2500 could get that home, but in reality the person with $10k ended up getting a loan for $190k, and home prices were on their way to quadrupling. All the commercial banks saw was that homes were increasing in price, so just get as many people in those homes and don't worry, they'd all be millionaires. That didn't happen, and it crashed. But it was limited directly to the commercial banks. In the 2000s, the repeal of glass Stiegel meant that instead of commercial banks, the small banks could resell the loans to mutual funds, and so the housing bubble was even worse...

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Re: Will there be a large US recession in the next 5 years?

Postby Tyndmyr » Mon Mar 19, 2018 11:42 pm UTC

duckshirt wrote:
LaserGuy wrote:The United States typically has a recession every ~8 years, so predicting one within the next five when the last one was 10 years ago seems like a fairly safe bet just based on historical trends. The trick is predicting exactly when it's going to happen, what segments of the economy are going to be the catalysts for it, and how bad it is going to be.


My understanding is ~8 years is just the average. If you're tossing a coin and flipped 3 heads in a row, you aren't "due" to flip tails and similarly we aren't more "due" for a recession just because it's been ~9 years since the last one, it's still as likely as always.


Ultimately, yeah. Sure, it's not wholly random, but if people can't predict it reliably, then it might as well be. The period between recessions isn't routine, and varies significantly. At any given time, many people are predicting both booms and busts, and it seems highly challenging for even specialists to get the prediction right, so I'm not confident that most people actually know. Randomly guessing right doesn't seem very useful.

CorruptUser wrote:I always say, put your money where you mouth is. If you can predict the market, boom or bust, you can make a fortune either buying tons of call or put options. Yet none of these "market gurus" happen to be billionaires. An old faculty member of my alma mater, a mathematician, figured out some stuff about the market and is now a billionaire; THAT is what a real "market guru" looks like. These guys preaching doom and gloom? Not actually bright.


This is also a factor. Making a prediction and writing a book is low risk. It pays out either way, so long as people buy the books. I'm more interested in the actual actions of those with a history of making good calls.

Though even there, luck can be a factor. Enough people guessing can result in a handful of people who, purely by random chance, are guessing right.

It's also important to look at the pattern of guessing. If someone ALWAYS predicts doom and gloom, then it means absolutely nothing if they "called" the last several downturns. A broken clock will eventually be right, but it's not actually predictive. The same is true of perpetually bullish predictors. You or I could adopt either model, but it doesn't really mean much of anything, and the logic used to frame such a prediction is not actually being tested if you do something like that.

Also got to keep in mind that on many things, we're operating with limited data. Does great depression era data accurately model today's market? Probably not. So, we're judging a fairly long period event with an inherently limited amount of modern data. I'm confident there will be a recession eventually, but things like the job market contracting tend to happen after a stock market contraction, not before, so they're not very predictive. It's a bit like throwing darts.

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Re: Will there be a large US recession in the next 5 years?

Postby pogrmman » Tue Mar 20, 2018 1:31 am UTC

There is also the whole issue that the market isn’t necessarily entirely isolated from those “predicting” what will happen. If loads of people start predicting a downturn, then it wouldn’t be surprising to see investors/algorithms selling off stocks (thinking it’s as high as it’ll get), leading to a downturn. Sure, there are many, many, many other interacting factors, but it’s not like market predictions don’t effect the market.

It does seem pretty worthless to try and guess — it’s like picking lottery numbers (to some extent). I wouldn’t be surprised to see another recession, probably linked to the student loan bubble. I mean, something has to happen with regards to that.

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Re: Will there be a large US recession in the next 5 years?

Postby Thesh » Tue Mar 20, 2018 2:31 am UTC

The next crisis will occur in Spring of 2019, when the stock market tanks due to the President being a mentally unstable moron as well as a lot of shady business practices leading to overinflated stock prices, which triggers a banking crisis due to large amounts of cheap debt that was used to finance the purchases of these overinflated stocks with the assumption that they would keep going up. This will be termed the "Obama recession" by Republicans.

Also, the value of domain names relating to shadow banking will skyrocket.
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Re: Will there be a large US recession in the next 5 years?

Postby duckshirt » Tue Mar 20, 2018 5:33 am UTC

LaserGuy wrote:
duckshirt wrote:
LaserGuy wrote:The United States typically has a recession every ~8 years, so predicting one within the next five when the last one was 10 years ago seems like a fairly safe bet just based on historical trends. The trick is predicting exactly when it's going to happen, what segments of the economy are going to be the catalysts for it, and how bad it is going to be.


My understanding is ~8 years is just the average. If you're tossing a coin and flipped 3 heads in a row, you aren't "due" to flip tails and similarly we aren't more "due" for a recession just because it's been ~9 years since the last one, it's still as likely as always.


8 years is the average, yes, but the variance isn't that large (though, granted, there also isn't that much data that either). Not having a recession in 15 years be an outlier.


A random event is by definition predictable in the long run and unpredictable in the short run. It would be something like a poisson distribution. With that said, you guys are right, economic growth rate isn't TOTALLY independent. If we have a quarter of yuge growth, it's unlikely we'll have a huge contraction the next quarter or vice versa.
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Re: Will there be a large US recession in the next 5 years?

Postby elasto » Wed Mar 21, 2018 10:25 pm UTC

duckshirt wrote:With that said, you guys are right, economic growth rate isn't TOTALLY independent. If we have a quarter of yuge growth, it's unlikely we'll have a huge contraction the next quarter or vice versa.

Reminds me of one of my favourite coding books when I was growing up in the 80s, one chapter of which taught you how to code an AI that could predict whether or not it would rain tomorrow.

When it came to judging how well the AI performed, they pointed out that you could predict tomorrow's weather with about 70% accuracy simply by guessing it would be the same as today's...

(In the examples it actually hit about an 80% success rating, so it was indeed doing something a bit more interesting than that.)

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Re: Will there be a large US recession in the next 5 years?

Postby Zamfir » Thu Mar 22, 2018 6:41 am UTC

I think quarterly growth data works the other way round. You regularly see peaks up and down, with high peaks typically followed by deep downs. Because growth rate is a derivative, and therefore multiplies noise in the data. Just as an example, a quarter can include a workday or weekend day more or less, which shows up as a few tenths of percents of difference in output over the quarter, or about a percent-point change in yearly growth rate. Same for weather, or even accounting artifacts.

If you see a huge peak in growth, it usually means that some tax change encouraged businesses to shift income forward or backward, and you see the inverse peak in a neighbouring quarter.

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Re: Will there be a large US recession in the next 5 years?

Postby CorruptUser » Fri Mar 23, 2018 8:57 pm UTC

Given the current trade war, the recession may happen in the next 5 months, let alone years...

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Re: Will there be a large US recession in the next 5 years?

Postby Dr34m(4+(h3r » Sat Mar 24, 2018 7:52 pm UTC

I kind of hope yellowstone blows soon.


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