The Trigger Of The Next Recession…(Depression…)
DailyCoin.org
July 8, 2016
Will there soon be a recession in the US? The track record of economists with respect to timely forecasts of recessions is not much to write home about. This is partly due to the fact that most economists don’t take recession probabilities sufficiently into account in their stochastic equilibrium models, and that they are generally subject to an “optimism bias”.
However, even if an economist expects a recession, forecasting its timing is practically impossible in view of the complexity of all the causal interrelations. Due to the non-linear inter-dependencies in a dynamic system, small causes can have large effects. In the course of a presentation on the predictability of the weather, meteorologist Edward N. Lorenz once asked “Does the Flap of a Butterfly’s Wings in Brazil Set Off a Tornado in Texas?” We are asking: could a bursting bubble in China, a Greek exit from the euro zone, Brexit, a failing Italian bank or maybe just a major loss at Deutsche Bank trigger a global economic crisis? Maybe it won’t take more than a verbal lapse by Janet Yellen?
Due to the never before seen density of economic interrelations, the relevance of such causal connections for the global economy is greater than ever. We believe that precise forecasts of recessions, especially predictions of when they will begin and how long they will last are hocus-pocus. Instead we have pointed to developments above, which document the system’s fragility and suggest a growing likelihood of a recession striking in the near future. Our focus has been on the US economy, as it is still the largest economy in the world. Moreover, the US dollar is the global reserve currency and the Fed’s decisions therefore strongly influence the global economy as well as global monetary policy. However, above all, the US economy is regarded as the model for pro-active economic interventionism and its performance is therefore very important for maintaining the current economic worldview.
Inter-dependencies naturally imply effects flowing in two directions: Numerous events could potentially trigger a recession in the US – including recessions in other parts of the world. There are the eternally shaky prospects of Japan; there are Italy, Canada and Taiwan, all of which are displaying economic weakness; there are large emerging economies such as Brazil and Russia, which are stuck in recession, respectively in stagflation. And there is China, which tries to avert the bursting of a real estate and stock market bubble with all its might, and with respect to which it cannot even be ruled out that in view of its untrustworthy economic data a recession is in reality already underway. In short, there are more than enough trouble spots in the world which could prove contagious for the US economy.
The Rest…HERE
