Do not worry, a recession is still unlikely

The media tells us that the yield curve is reversed, which means that a recession is both certain and imminent. All media not intended for President Trump were pleased to report it to us. History also makes sense: a reverse yield curve, where short-term borrowings are more expensive than long-term borrowings, where long-term interest rates are lower than short-term ones, is generally the sign of impending recession.

The problem, however, is that the economic femur must be connected to the economic femur. I learned that from Paul Krugman, so it must be true. The sense being that if this thing happens here, we should be able to see that other thing happening there. Everything must add up. For example, if wages lagged behind productivity, the economy's share of labor must have declined. This is not the case (not during the period usually claimed), so wages are not lagging behind productivity. No matter what people tell us, it just did not happen. Everything must be balanced and the sums must be complete.

So it's with our reports from the inverse yield curve. Even the English are by noting it. Steve Hilton Argue as Steven Hilton had to do. And to be fair, looking at the detailed statisticsthere is a strong correlation between this event and an impending recession. Yet that still is not enough. Because, as Hilton says, everything else is fine.

Of course, we have these concerns about trade. What is the president, invited by Peter Navarro, going to be wrong then? But trade is not as important a part of the American economy. Almost everything else looks rather peachy. Unemployment is down at low generationaland employment (not quite the opposite) is at its highest generational level. Significant wage growth is finally occurring as well as economic growth, to our knowledge. There is no inventories constitution, this other precursor of the recession.

When our different sums are not really balanced in the economy, we must determine which is the outlier.

That's the yield curve. All the central banks of the planet are playing with interest rates. That's what quantitative easing really is. When all central banks and treasuries try to influence interest rates, we would be more than stupid to consider interest rates as an ordinary message. The likely answer here being what JP Morgan tells us. The detailed answer in reality is that while Europe and Japan are performing so much quantitative easing and manipulations that the interest rates on the public debt are negative, the money is flowing in the US markets. Which then, obviously, changes the interest rates here. In Denmark, there is even a bank that will pay you to take out a mortgage loan. No, really, there is Negative interest rates on the purchase of a house – these are not normal hours with numbers giving their normal messages.

The fact that foreigners deposit their money in America, the source of this reversal of returns, is not a sign that the United States is on the brink of a recession.

Is there a possibility that the United States is in a recession? At one point, it is a certainty since we have not abolished the business cycle. Imminent? This yield curve says yes, everything else says no. So, it is unlikely. Our only real and major problem here is that recessions are not predictable, both in theory and in practice. It is not possible to accurately predict one. In fact, we will find out after having it, it is the way we discover almost all of them.

Tim Worstall (@worstall) is a contributor to Washington Examiner's Beltway Confidential blog. He is a senior member of the Adam Smith Institute. You can read all his plays at the Continental Telegraph.