Known among economists and Wall Street traders as a “yield curve inversion,” this economic indicator has hit the three-month mark. When this has happened all 7 times previously, the result was an economic recession.
We are now in the longest expansion in history, yet the data is all pointing to an upcoming recession – one that could make the Great Recession look calm by comparison. The inverted yield curve has been ongoing for three months now. That refers to when long-term interest rates are paying out less than short-term rates. It’s been a gloomy sign for the economy in the past and if history is any indication, we will soon be in for a very bumpy ride.
According to a report by NPR, the inverted yield curve has been flattening out and sloping down for more than a year, raising concerns among some analysts that investors’ long-term view of the market is not positive and that an economic downturn is looming. As of Sunday, the yield curve has remained inverted for three months, or an entire quarter. For over a half a century, this has been a clear signal that the economy is heading for a recession within the next nine to 18 months, according to Campbell Harvey, a Duke University finance professor who spoke to NPR on Sunday. His research in the mid-1980s first linked yield curve inversions to recessions.
“That has been associated with predicting a recession for the last seven recessions,” Harvey said. “From the 1960s, this indicator has been reliable in terms of foretelling a recession, and also importantly, it has not given any false signals yet.”
“Yes, the economy looks good right now,” Harvey added. “But the yield curve is about the future,” he said. “It captures the expectations of the broad market in terms of what might happen in the future.” However, others disagree that this means the United States economy is hurtling towards a recession. Randal Quarles, the Federal Reserve’s vice chairman for banking supervision, has declared that the gap between short- and long-term interest rates does not mean the U.S. is moving toward a recession, wrote NPR.
With consumer confidence dropping, Harvey says the inverted yield curve could be a sort of “self-fulfilling prophecy.” However, considering very few American consumers are even aware of what this economic indicator is and the data points surrounding it, that seems unlikely.
The idea of an inverted yield curve remains hard to grasp, so Harvey suggests to think of it this way: a yield curve is the difference between a short term cash instrument, like a three-month government bill, compared to a long-term one, such as a 30-year government bond. When the short-term ones are paying out more than the longer-term ones, something is wrong. And economists call it an inverted yield curve. “If you lock your money up for five years, you expect to get a higher rate than, say, locking it up for six months,” he said. “But in certain rare situations, things get backwards and it turns out the long-term interest rate is lower than the short-term rate, and that’s called an inverted yield curve. That’s exactly the situation we got now, and it is a harbinger of bad news.”
In order to prepare for a recession, you’ll need to get your personal finances in order. We harp on this a lot, but it’s only because we want everyone to be prepared for what’s coming. Pay off your debts and save up an emergency fund so you can weather the storm. Obviously, the less money you have going out, the less you’ll need coming in. Dave Ramsey’s book The Total Money Makeover is a great resource. Also, consider signing up for James Davis’ newsletter at Future Money Trends. It’s free and you get it via email. He’s got excellent tips about how to grow your personal wealth even during an economic crisis.
It Took 22 Years to Get to This Point
The health "experts" are "on alert" after the first case of bird flu has been found in a child....
This article was originally published by Michael Snyder at The End of the American Dream under the...
This article was originally published by Tyler Durden at ZeroHedge. Update(1315ET): After months...
Commenting Policy:
Some comments on this web site are automatically moderated through our Spam protection systems. Please be patient if your comment isn’t immediately available. We’re not trying to censor you, the system just wants to make sure you’re not a robot posting random spam.
This website thrives because of its community. While we support lively debates and understand that people get excited, frustrated or angry at times, we ask that the conversation remain civil. Racism, to include any religious affiliation, will not be tolerated on this site, including the disparagement of people in the comments section.
A recession is coming! The Sky is Falling! Wolf Wolf! worthless article. same old bullshit.that has been going on for more than a decade.
The other night in bed, after 3-4 hour of hot Love’n, my wife and I had a long talk about the Yield Curve being inverted. Very-very stimulating (sarcasm).
The country is splitting apart, the Left is on the march, we might go to war with Iran/Russia/ China, who gives a poop?
You dirty dog you! LMAO
Howdy Y’all,
This persistence of inversion is disturbing, however the larger picture is ‘above my paygrade’ as it were. Were DK still hanging around I’d all but be willing to PAY to hear his take on the market activities today. Frankly I was expecting damn near every index to be at least 10% UP given all the hoopla about an ‘agreement’ being reached between the Don and Xi. In light of that today’s activity seems muted – a paltry response – on the part of markets broadly.
I firmly believe that Trump’s caving on the Huawei issue is quite nearly the worst thing he could have done…once China cements itself as the World’s back-bone telecommunications operator virtually nothing will be beyond their scrutiny. You don’t think that the massive efforts that the Chinese have put into super-computing are for innocuous purposes do you? Rest assured those efforts are exclusively an effort to have at thier disposal sufficient computing power to break heavy encryption on the fly…much as our own NSA currently does with the three IBM Jaguar SC’s it employs at thier underground facility in Utah.
What happens when they have the capacity to subvert our nuclear command and control functions…which DO pass at many points over civilian telecom circuitry?
Given what I’ve lately discovered about the nature of the booming trade in organ tranplantation in China, specifically HOW organs are sourced such that foreigners arriving have essentially ZERO wait times to receive said organs, I’ve arrived at the inescapable conclusion that China must needs be reduced to and then held AT the stone age level for all of future history.
After you look up the atrocities being committed against Falon Gong and other dissidents, largely ethnic – which make anything Josef Mengele EVER did pale into insignificance – along with the draconian ‘social reliability score’ and the ramifications of THAT to those under it’s purvue that the Chinese government is now employing universally, then you’ll begin to understand beyond any remaining doubt that America, indeed, the World has but one true Enemy…China.
A few thousand years ago the Israelites knew how to treat with vermin like we face today, ‘Aggressive Negotiation’ indeed.
Darn, I thought this site had died over the weekend. Looks like it is still alive. Too bad more people don’t pay attention to it.
I believe my bid for a Tbill purchase has been accepted and they will be bought tomorrow or so, it is all done by internet bank transfers these days.
The inversion is an interesting doom porn.
Why invest in a 10 year bond at X percent
knowing you’re dealing with people that artificially
inflate the costs of everything,( PMs included)so
they can pay debt at a future date with “cheaper dollars”.
My credit union advertises 5 year CD’s at 2.0%
Why should I lock up those funds for 5 years when
I can get us idiot taxpayers to pay me 2.4%( annualized)for
an investment I can change from month to month?
So much for inversion, the enemy
is inflation.
Citi is paying 2.5% with no strings.
The chart shown is a sample of the illogical stupidity around here.
As useful as that infamous stock market death-cross, which this site and shitforzerobrains rolls out occasionally, 99 44/100ths of the time it is pure bullshit.
Just ask Mike “Bologna” of goldsiver, any day now the dollar collapses and silver will go to $50k, so buy his metals NOW [metals which he claims will be worth 100X tomorrow] using the same dollars he claims will become worthless tomorrow.
Do exactly opposite of what the doomsday shysters want you to do and you’ll be just fine.
No collapse coming, just moral decay and the total loss of personal responsibility.
LOL I’ve noticed that the other well known HennyPenny author Rickards has finally come to his senses and said one truth in his latest youtube infromercial regarding the death of BitCoin.
I love the part where in the near future the amount of electricity wasted in order to mine and service the block chain will exceed the total amount of electricity used in Japan.
illuminatisilver.com has about the best perspective I’ve seen so far. Although it will piss off all the metal bugs who believe metal would be worth anything in a collapse, more like 1 ounce of gold for a slice of stale bread.