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Pedro Nicolaci da Costa is director of communications at the Economic Policy Institute and a fellow at the Peterson Institute for International Economics. He has been writing about economics and financial markets since 2001. The opinions expressed in this commentary are his own.
And global markets are reacting. While the Dow and S & P's daily gyrations steal the headlines, Bond are Wall Street's sleeping giant. What happens with Treasury notes?
Short-term bond yields have recently been exceeded in the past, and are more alarmingly, have preceded just about every recession since World War II, with around a 1 1/2 year the G. Longer-dated Treasuries offer a higher yield than the short-dated ones because investors demand additional compensation for risks. However, if you want to make a big change in the future, you need to make a change in the yield curve.
But with the economy still growing around 2% at last blush – despite a noticeable slowdown from 2018 – and unemployment remaining below 4%, many experts argue this time is different from past downturns.
Surely, there is a recession around the corner, optimists counter: The economy is still benefiting from last year's sharp increase in government spending and the Federal Reserve is now on a permanent break and even after two years of hikes.
But what if the bond market's apparent malaise, the deepest inversion curve since 2007 (remember what happened then?) Were signaling something darker and potentially longer lasting than a turn in the business cycle?
Indeed, the yield curve can be used for global markets in the United States. democracy and human rights.
Take note of one irony: Yes, the yield curve is inverted pattern shows a strong appetite for US government bonds when confidence in the country's political stability is waning. That should not be enough, however: It is merely a sign of frightened investors. When Standard & Poor's downgraded US Treasuries in 2011, for instance, bonded prices.
The US-driven trade war, which went from counterproductive to just plain weird over the last week, is both a reflection of Trump's scorched-earth strategy and a driver of the yield curve's reversal, because of the long-term multi-pronged conflict lasts, the higher the chances of an economic contraction.
Just as he was purportedly trying to negotiate a cumbersome, wide-ranging deal with china, Trump obliterated any smidgen of confidence might be left in his team with a single tweet, threatening new tariffs on Mexico despite a pending trade deal between the US, Mexico and Canada. He then abruptly revoked India's special trading status with the United States, further confounding the outlook.
The trade wars are arguably hitting Trump's vaunted base hardest as farmers across the US
And trade is just one of the world's largest areas where chaos itself appears to be the strategy. Take Federal Reserve policy, which is closely linked to the market. Truth is all about the norms of the central bank's independence, politically, and erratically bashing Fed Chair Janet Yellen and then going after his own pick to replace her, Jerome Powell.
More recently, he asked for more powerful candidates for the Fed's powerful and influential board of governors who were not only lacking in basic skills but were also tarnished by harassment and racism scandals. When those two, Herman Cain and Stephen Moore, finally, an economist whose advocacy for a return to commodity-related currencies is not anachronistic but would also be deeply destructive.
And these are the light scandals. There is the constant abuse of democratic institutions and the press. There are the threats to jail political opponents, the juvenile insults, the stomping all over the justice system, the impunity for crimes committed in plain sight, the praise for human rights abuses and autocrats. And yet, there is a solid, ongoing support for this president, no matter how lowly sinks morally and politically.
In short, there is a global reevaluation of what America really is, what it stands for – and what is its changing role in the world for the future of geopolitical and economic stability.
Those are heavy questions that markets can be ill equipped to handle. Perhaps a little yield curve reversal is just the bond market's squeamish reaction to America's vertiginous descent into everyday life that is more consistent with a country-style emerging market than the world's largest and preeminent economy.
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