Doug Duncan: Even US Government Economists Predict Trouble Ahead

by | Apr 17, 2018 | Headline News | 28 comments

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    This report was originally published by Adam Taggart at

    Doug Duncan is not your average beltway economist.

    The chief economist for Fannie Mae is surprisingly outspoken about the troublesome outlook for the US economy. He’s worried about the rising cost of debt service as outstanding credit continues to mount at the same time interest rates are starting to ratchet higher, too.

    He predicts the US will enter recession within a year, concurrent with a topping out of America’s real estate market. It wouldn’t surprise him to see the stock market falter, too, as central banks around the world begin a coordinated tightening of monetary policy and — similar to the thoughts recently expressed within our podcast with Axel Merk — Doug expects Jerome Powell to be much more reluctant to intervene in attempt to support asset prices. Having met personally with Powell, Doug thinks the Fed is now happy to see some of the air come out of the Everything Bubble (just not too much and not too fast) — a market change from past Fed administrations:

    Our forecast definitely sees slowing economic activity, particularly in the second half of ’19. Part of it has to do with the length of the expansion. Just because an expansion is long doesn’t mean it’s going to end; but they all have eventually ended, and this one is getting pretty old. I think if it’s not the second longest, it’s getting to be the second longest that we’ve ever had shortly.

    The tax bill was viewed differently by different parties, but the capital markets initially took that — plus the $300 billion agreement to get past the expiration of government funding plus the budget agreement — they took all those things as inflationary. The tax bill itself has a lot of temporary provisions – some of them don’t expire for up to seven years – but some start expiring as soon as three years out. Like, on occasions, take actions today which they see having benefits up until that time of the expiration of those terms, plus the spending component – the $300 billion – also will likely take place in the next four quarters. That suggests that the second half of ’19 we may well see the impulse from those things starting to fade. And that will be happening at the same time as the Fed, if it does what it says its going to do, will be continuing its tightening(…)

    So,what keeps me up at night? Well, I don’t like the idea that we have a debt to GDP ratio of 100 percent. I don’t think we’re Japan because we have a more entrepreneurial economy, not a mercantilist economy, but that doesn’t mean that debt doesn’t reduce your flexibility. It definitely reduces your flexibility, so it raises risks from that perspective.

    The trade negotiations, obviously, are of a concern. Milton Freeman said a good free trade agreement can be written on one page. NAFTA was two thousand pages. It would be silly to suggest Trump doesn’t have a point that there’s not something in that two thousand pages that didn’t work against American interests. On the other hand, if you’re going to throw $150 billion of tariffs at the second largest economy in the world, you should expect a reaction. Those who read the history books and the Smoot Hawley tariffs and the Depression and have some understanding of the relationship between the two of those have to be a bit nervous. The Fed, I’m sure, is looking at that.

    And the domestic economy, the thing that probably troubles me more than anything else is the decline in new business formation. It’s been underway for thirty years. I’ve got staff that are working just trying to understand that. There’s a couple reasons why I worry about that. I just make a comment about ours being an entrepreneurial economy which means it is ‘dynamic’ – people don’t care if the average income is higher than theirs if theirs is the median. If they expect that there’s an opportunity for them to grow and gain one of those high incomes, then they’re OK. But if they lose that hope, that leads us to some different possible political economy outcomes which I don’t view as particularly optimal.

    But from a self-interested perspective — remember that we’re in the housing and new business formation space – it used to be the case that a when small business would start, it couldn’t afford to pay the same wage rate as a large business did because it didn’t have the scale or the output or that kind of thing. But what the worker who got the lower wage job also got was training on how to get to work on time, how to work a full day. They would pick up some skills and some behaviors that worked broadly in the employment market. Over time they would move up, and most of them would eventually get to the middle class and buy a house. That’s breaking down.

    If that engine of growth for people has been cut off, then we could be facing a permanent underclass which carries a whole different set of connotations for a society which, to me, is pretty troubling.

    Click the play button below to listen to Chris’ interview with Doug Duncan (45m:19s).

    To read the transcript of this podcast, please click here.


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      1. I hate inflation. I’m on a relatively fixed income.
        I don’t get social security although I can.
        We could use a good depression as most everything
        is overpriced. My property value has increased
        400% since I purchased it.
        I made significant improvements, but not that much.
        Thankfully where I live they can only raise taxes
        3% per year on the original Basis price.
        Agreed a great many Americans will suffer either way.
        But most those Americans are Democrats and I don’t really
        care about them.

        • “. . . most those Americans are Democrats and I don’t really
          care about them.”

          Couldn’t have said it better. Can’t wait to watch them twitch, whine and squeal.

          • Rellik and Blame-e, agreed about libturds. They will be toast. The REAL world will chew them up and spit them out like worn-out chewing gum.

            • Sooner the better

        • At one time savers were considered responsible and it was something to aspire to be. Savers rightfully should benefit from dropping prices as they prepared. At one time saving and investing was the Republican / Conservative strategy of economic planning while living for today at the expense of tomorrow was the plan of the Democrat / Liberals. It appears that the former has went the way of “Leave It To Beaver”.

        • “He predicts the US will enter recession within a year, concurrent with a topping out of America’s real estate market. ”


          I follow the major real estate markets outside of LA, DC & NYC; primarily in the mountain west and southwest. The most desirable housing markets HAVE and ARE experiencing dramatic price reductions in a desperate attempt to EXIT before the Crash comes.

          Bargains abound !!! 🙂

          • ARE YOU SERIOUS? I’m trying to find a place for months here in AZ,and people are asking ridiculous prices for what amounts to crap! Get a grip DK !

            • Asking prices are just that: ASKING PRICES !!! Realtors typically list at a very high PRICE so that a buyer can negotiate DOWN and feel like they have got a “deal” when in actuality the price of that “deal” is real market value or better.

              Of course I concentrate on the high end but from time to time I view from the bottom up. There are bargains on the lower end too; but it’s going to get even better this summer.

              Tucson is dropping like a rock. 🙂

        • Actually, most Americans are conservative. It’s just that the Democrats own the major cities on both coasts and the media, so it appears as if everyone is a liberal. Also, not sure why you are cheering a depression. Sure most things are over-priced, but that also includes the stock market. What do you think of a depression that wipes out your savings, 401K, pension or IRA? That said, I’m not saying a market correction isn’t warranted but if that happens without additional adjustments e.g. control on spending, we are all effed.

          • I don’t have savings pension or 401K so I don’t care bring on the depression. Inflation steals the value of everything. a great culling is needed. Too many parasite takers and too few producing makers.

      2. Banana republic. Not talking about the clothing store.

      3. There is only one way to stop this. End all interest for a period of time due or to be paid until the initial principles are off the books – paid in full. Who will really get hurt besides the financial institutions? Investors who don’t really work for a living? Who live off the debt income produced by the system of loans we now have? Darn. Poor babies will just have to get a job then. It’s really so simple the situation we’re in. We owe more and more, the amount going to pay the principals is getting less while the amount towards the debt service rises. We are at the crux point where it impossible to ever pay off the original sum. The longer it goes on, the greater the burden becomes. A reset is needed.

        • Its called bankruptcy

          if someone borrows to live beyond their means thats their problem
          I paid my debt off the hard way years ago.
          learned my lesson and cut back on everything .
          Now Ive got properties paid off and 100k in the bank.
          Anyone can do it!! I only make 40K per year and I did it!
          If you think the Jhawks are going to allow a “reset” your crazy!
          cut back, get rid of parasites in your life and flourish!!

          • tg, I’m on your side and in my own life have done as you. Paid off, no debts, no credit, no mortgage, truck loan, student… anything. My idea is based on what is right is all. A guy borrows – he should repay if he’s an honest man. It is the interest that is shylockery. My idea is that we all need to pay for what we get; just, to stop the insanity of interest until society gets back to rights. Then, once that is done – have fixed rates at realistic levels. Allow no loans in the future to anyone without the real-world ability to pay off in a timely manner. End the strangle-hold of the ‘jhawks’ as you put it. Forever.

      4. Whether it is a democrat or a republican president, one day I will live in a million-dollar home! Unfortunately, it will be the same home I lived in for over twenty years but it will be assessed for real estate tax purposes at over a million dollars.

      5. I really don’t know whether prostitution or economists are the “world’s oldest profession”. Personally, I regard prostitutes as more honorable than economists. Certainly they are better at predicting the future!

        • Funny. Very funny !!! 🙂

          • Not economists, but bankers.

      6. Heartless, that reset is coming. There’s no way the national debt can ever be paid. They’ll end up defaulting on it because there’s no other choice. I’m debt-free so I’ll be OK. Got 4 years worth of food and other items stockpiled and working on the fifth year now. It’s going to be really ‘interesting’ as the old Chinese proverb goes.

        • Have you guys ever heard of Jubilee ? It only really applies in Israel.
          But I think America is going to experience it.

        • The Deplorable Braveheart

          The debt cannot be paid back because all money is created from deficit borrowing to fractional reserve banking. Paying it back literally reduces its supply. If its done significantly and rapidly a deflationary spiral (depression) occurs. The “masters of disaster” counter it in Bernanke fashion with helicopter money. The tragedy is capitalisms cornerstone, “supply and demand” is replaced with quasi central planning the cornerstone of communist failure. Nothing then has a true value, homes, autos, fuel, food…..The market place, a bedrock of capitalism no longer rules.

          With the above economically and the erosion/contempt/avoidance of the Constitution across the board and the Bill Of Rights were rapidly becoming something like the USSR (merged with fascism) of 1970.

          • US Debt is not created to be paid back. Never was. It is created to facilitate the wealth of the Uber Rich and give them a safe, viable, liquid bond market in which to park their excess cash while determining the best profitable opportunity for its redeployment into real, tangible assets.

            As the aggregate wealth of the Uber Rich increases, the bond market (US DEBT) must grow to service their excess wealth. 🙂

      7. All of us average folks should just tell all of the banks, etc to suck it and stop paying credit cards and things of that nature. You have to pay for the house and car but to hell on the rest of the crap…they can suck it good’

      8. he’s probably about right with recession mid-2019.

        the feds actions, a slowing ecnomy, and it is slowing as evidenced by a yield curve inverting.

        the fed is going to get its third rate raise in the summer and fourth in the fall. anyone thinking this economy and the majority of people who have maxxed out credit cards, 100% mortgages and 7 year car notes because they cannot afford to make payments on a 3 year note can handle that is a fool.

        expect increases in defaults of all of those to rise steadily likely after the fall rate raise as that will be a 1% increase, and this economy cannot handle a pathetic 1% increase because most people and the govt are debtors.

      9. For gods sake,I’m just trying to find a decent place to call my own. Housing prices are way up,and as soon as something comes on the market within my means,it’s snapped up. How about the guy who paid $100,000 cash,for a home appraised at $85,000? How do I compete with something like that?

        • Don’t compete. Wait. The reset is coming. Position yourself to profit from it. Sell when everyone else is buying. Buy when everyone else is selling.

          In Tucson where you live, there are some interesting acre +/-lots on the westside. If you need shelter there are many foreclosures on the lower end of the market, and many ways to acquire.

          Cash will be king. Even just a little bit. 🙂

          • I have no clue where you are getting your info from. Here in Pima County the supervisors raise property taxes as often as people change socks. Raise taxes for this,raise it for that. I’m forced to look in Cochise County, which is hours away from work. Still looking,but ya know what,DK,as soon as I find a place,I’ll invite you over for a beer,I will,so don’t go away. My word,my honor.

            • If you are looking to avoid property taxes, start a church and lease your property to the church. Arizona law allows family churches in residences or for that matter, virtually anywhere.

              Your property taxes will disappear. 🙂

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