How does your story jive with the fact that the yield curves went back to normal? Either they are an indicator or they aren't.

Third option is that it is an indicator as long as people aren't treating it as one, but once people react to it then it ceases having the power to indicate what is happening.

Because after the inversion the market (and Fed) reacted? No indicator is infallible or static.

But the problem is that coronavirus is threatening the real “brick and mortar” economy — travel, restaurants, retail, etc. Its hard to address that without fiscal stimulus, and we haven’t seen much talk in terms of that yet.

Add to the list sub-prime auto loans, a huge amount of student loan debt...

Check out the graphs presented, particularly the last one. Default is very likely for those most likely to have student loan debt (younger workers in lower quality service jobs), but there isn't a systemic risk as the federal government is the insurer of last resort. These are loans in name only; they are, in actuality, taxes you can't default on (or so was traditionally thought; we're making headway in having the ability to default on these obligations and get out from underneath them [1]).

[1] https://www.natlawreview.com/article/student-loan-discharged...

https://www.thelocal.se/20191219/sweden-abandons-negative-in...

First, there is negative rates. Punishing people for holding cash. The ECB and Bank of Japan have done a lot of pioneering work there, the Fed will have already extensively studied what they did, what worked, what didn't work.

Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly.

Annual budget deficits will blowout, probably up to $2 trillion or more, with the next recession, so the Fed will have to print dramatically to fund that regardless.

Second, they have QE, monetizing debt & debasing dollar wealth, which is exactly what they'll unleash for the next recession. Inflation isn't much of a concern right now, so they'll feel free to 'print' rather wildly.==

I'm not sure I see where either of these options has worked. Can you share the successes of either of these measures?

In option 1, you have a stagnant Japan with a lost generation.

Option 2, is what we have been doing for 12 years and has led us to this point. The inflation seems to be hiding in asset prices (housing, stocks) not household items.

Since 2007, there has been one year with GDP growth [1] above the annual deficit as % of GDP [2]. That was 2015, with 2.4% deficit and 2.9% GDP growth. 2018 saw the US spending 3.8% of GDP in deficits to generate 2.9% GDP growth. Does that sound like a "strong" economy?

[1] https://www.macrotrends.net/countries/USA/united-states/gdp-...

[2] https://fred.stlouisfed.org/series/FYFSGDA188S

Their economy crashed in the 1980s and still hasn't recovered.

If that "success", I'll stick with failure.

[1] https://en.wikipedia.org/wiki/Household_goods

Then the Fed isn't out of ammunition.

The purpose of Fed easing would be precisely to generate/maintain target levels of inflation. The idea that the "Fed is out of ammunition" is that its conventional policy tool (rate changes) is seen as near a limit, such that the Fed can't generate further inflation if it wants to.

But here, you "smell the inflation," so by definition the contemplated actions are in fact ammunition.

I think people are confusing cause with an effect/correlation. Oil going down usually indicates a recession. Bad economy -> Lower demand for Oil -> Lower oil prices. In that case it's a signal/trailing indicator.

In this case it's: Increased oil supply -> Lower oil prices -> Everything gets cheaper to make -> Increased economic activity

That is no longer strictly correct. The ideal oil price for the US economy is a balance between high and low, which provides a high degree of employment for the US oil industry, oil production and export expansion remain high, and provides a reasonable price for US consumers when it comes to gasoline.

Oil in a range of perhaps $45 to $75, is ideal.

At $25-$35 you're going to eventually hammer the US oil industry and its jobs, as the hedges fall away. That will hit the US economy negatively at least as much as the low oil prices benefit consumers.

Russia is playing a bad game of chicken with Saudi Arabia and US oil, claiming they can endure ~$30 oil for a decade. It's false of course. Their personal incomes have been falling for six or seven years in a row. $30 oil will contract the Russian economy at worst, and stagnate it at best, so it would be ten more years of declining living standards in Russia (the last thing Putin wants to see, so it's a false bravado on his part, as typical).

Saudi Arabia and Iraq will be crushed fiscally by low oil prices. Saudi needs $83 oil to balance their budget. Canada will take a modest hit as well.

China is the prime beneficiary as a massive importer with modest production, they're in the position the US was in previously.

There would be increased economic activity if businesses don't close left and right because of a combination of decreased demand and supply as both consumers and workers self-isolate and live in quarantine, and the knock-on effects of China's reduced manufacturing capability (soon to be followed by reduced manufacturing capability of much of the rest of the world).

This stock market crash is just the tip of the iceberg.

The tops of political, administrative, business, and military hierarchies tend to be overwhelmingly old, and most susceptible to succumbing to this outbreak. As many of them die, as the bodies they govern are plunged in to chaos and societies around the world go in to crisis mode, the markets will respond even more adversely than they have already, as the markets don't like uncertainty, and there's no end in sight to such uncertainty for the foreseeable future.

There is little economic upside from this pandemic. Few ways of profiting from it except by shorting nearly everything and buying gold. The bond markets and treasuries are also likely to suffer as governments default.

The fraction of the price drop that can be attributed to large producers flexing market power versus the decreased demand is a tricky thing to determine.

If you lean bearish, you’re thinking 80s oil bust, S&L Crisis, and the Spanish flu.

Is it oil prices down -> large oil based economies at risk due to vastly lower margins -> global instability from inability to make payments?

This is a strong claim. Can you prove it?

https://www.marketwatch.com/story/the-federal-reserve-is-stu...

If you think it's easy to short things in a volatile market like this, then you've probably never tried to...

Modern history does not have an example of you know which party going on a tax cutting, over-spending, self-dealing, deregulation binge that did not end in a catastrophe. Add to that complete lack of competency when it comes to dealing with a not self-made crisis (a matter of time), and only a chump would think the good times would keep on rolling.

The market so far has absorbed the dumb trade war by pure optimism, and we only narrowly avoided a war with Iran. It all has been blind luck so far, and it just ran out.

I also moved $600k to cash, about 80% of it a month ago. Never done that in 20 years of investing, and probably wouldn't advise it to anyone now either. But when China locked down the whole country, I knew it was time to stand on the sidelines. Worst case, I'd lose out on a few percentage points of growth and jump back in once the threat had passed. I also still have significant indirect exposure through unvested employer stock.

To be clear, this is all fairly risky and ill-advised.

Good. Because I don't buy for a moment that without COVID-19 the situation would be what it is now. Hindsight is 2020 and predictions of doom and stock market collapse is a dime a dozen.

If you're not needing the money soon, you'll probably be fine with riding it out like you may have with the great recession. I'm pained by the stories of boomers and others who sold low during the great recession and didn't catch any of the gains when things started turning back around. This too shall pass.

It's likely however that those scenarios didn't attach a high weight to the probability like 20 million Italians living in a state of quarantine, or that 8,000 plus patients in China would die and industrial production levels would plummet.

[Usual caveat about reading too much into plays like this.]

Edit: Here's the thread, and sincere apologies for the flaketastic LW interface now, they don't even have a parent button and it took several seconds for the thread to render after the page loaded:

https://www.lesswrong.com/posts/jAixPHwn5bmSLXiMZ/open-and-w...

In 2017 after Trump announced tariffs and it was ~10 years since the last recession. I was concerned.

Maybe stock prices were fine, but multiple companies I've worked for became unprofitable and got rid of tens of thousands of contractors.

Recession? Definitions are toxic to the real problem.

Okay, then lets not use them. Is what we are seeing now primarily a consequence of of COVID-19 or not?

"is the 2008 crisis primarily a consequence of mortgages or not?"

In the grand scheme of things, no, it's a consequence of a bubbled economy that has been goosed with tax cuts, extremely low interest rates, and deregulation for too long and is overdue for a correction. The proximate cause is Covid but it just was the spark that lit the fire, there was lots of fuel building up.

https://en.wikipedia.org/wiki/Necessity_and_sufficiency

This is why you don't cut tax rates and keep interest rates super low when the economy is already roaring. Now we're out of options for dealing with a real financial crisis.

Trump of course understands none of this since he's a narcissistic con man who just understands "tax cuts = economy more better!". Insofar as he can be said to understand anything - he's not a man that can be described as intellectually curious.

Well, while he doesn't seem to have much understanding of economics or how to run a government properly, let's give credit where credit is due: he certainly seemed to understand how to get people to vote for him a lot better than his political competitors did.

This is false. The fact that he won the election is completely irrelevant to this point. The election isn't won by the candidate who understands how to get people to vote for him. If it was, he'd have lost.

Wow, this is an incredibly stupid post. I'm not a Trump supporter; that should have been obvious from my posts. And you think that getting more votes equals winning an election, in a place where the electoral system makes this not the case? And then you fire back at me with this idiotic post? You're beyond help. It's no wonder Trump won with people like you on the other side.