This article was originally published by Michael Snyder at The Economic Collapse Blog
We Are Getting Very Close To An Inverted Yield Curve – And If That Happens A Recession Is Essentially Guaranteed
If something happens seven times in a row, do you think that there is a pretty good chance that it will happen the eighth time too? Immediately prior to the last seven recessions, we have seen an inverted yield curve, and it looks like it is about to happen again for the very first time since the last financial crisis. For those of you that are not familiar with this terminology, when we are talking about a yield curve we are typically talking about the spread between two-year and ten-year U.S. Treasury bond yields. Normally, long-term rates are higher than short-term rates, but when investors get spooked about the economy this can reverse. Just before every single recession since 1960 the yield curve has “inverted”, and now we are getting dangerously close to it happening again for the first time in a decade.
On Thursday, the spread between two-year and ten-year Treasuries dropped to just 79 basis points. According to Business Insider, this is almost the tightest that the yield curve has been since 2007…
The spread between the yields on two-year and 10-year Treasurys fell to 79 basis points, or 0.79%, after Wednesday’s disappointing consumer-price and retail-sales data. The spread is currently within a few hundredths of a percentage point of being the tightest it has been since 2007.
Perhaps more notably, it is on a path to “inverting” — meaning it would cost more to borrow for the short term than the long term — for the first time since the months leading up to the financial crisis.
So why is an inverted yield curve such a big event? Here is how CNBC recently explained it…
An inverted yield curve, which has correctly predicted the last seven recessions going back to the late 1960’s, occurs when short-term interest rates yield more than longer-term rates. Why is an inverted yield curve so crucial in determining the direction of markets and the economy? Because when bank assets (longer-duration loans) generate less income than bank liabilities (short-term deposits), the incentive to make new loans dries up along with the money supply. And when asset bubbles are starved of that monetary fuel they burst. The severity of the recession depends on the intensity of the asset bubbles in existence prior to the inversion.
What is truly alarming is that the Federal Reserve can see what is happening to the yield curve, and they can see all of the other indications that the economy is slowing down, but they decided to raise rates anyway.
Raising rates in a slowing economy is a recipe for disaster, but the Fed has gone beyond that and has declared that it intends to start unwinding the 4.5 trillion dollars of assets that have accumulated on the Fed’s balance sheet.
Janet Yellen is trying to tell us that this will be a smooth process, but many analysts are far from convinced. For instance, just consider what Peter Boockvar recently told CNBC…
“They desperately want this to be an easy, smooth, paint-drying type of process, but there’s no chance,” said Peter Boockvar, chief market analyst at The Lindsey Group. “The whole purpose of quantitative easing was to inflame the markets higher. Why shouldn’t the reverse happen when we do quantitative tightening?”
I hope that there are no political motivations behind the Fed’s moves. During the Obama era, interest rates were pushed all the way to the floor and the financial system was flooded with new money by the Fed. But now the Fed is completely reversing the process now that Donald Trump is in office.
When the inevitable stock market crash comes, Trump will get most of the blame, but it will actually be the Federal Reserve’s fault. If the Fed had not injected trillions of dollars into the system, stocks would not have ever gotten this high. And now that they are reversing the process that created the bubble, a whole lot of innocent people out there are going to get really hurt as stock prices come crashing down.
And if you thought that the last recession was bad for average American families, wait until you see what happens this time around. As Kevin Muir has noted, it is utter madness for the Fed to hit the breaks in a rapidly slowing economy…
There are a million other little signs the US economy is rolling over, but that’s not important. What is important is the realization that until financial conditions back up, the Fed will not ease off the brake.
To top it all off, the Fed is not only braking, but they are also preparing the market for a balance sheet unwind. This is like QE in reverse.
It’s a perfect storm of negativity. An overly tight Fed that is determined to withdraw monetary stimulus even in the face of a declining economy.
Even if the Fed ultimately decides not to unwind their balance sheet very rapidly, rising rates will still significantly slow down economic activity.
Rising mortgage rates are going to hit the housing market hard, rising rates on auto loans are horrible news for an auto industry that is already having a horrendous year, and rising rates on credit cards will mean higher credit card payments for millions of American families.
And this comes at a time when indicator after indicator is already screaming that the next recession is dead ahead.
Today, an unelected, unaccountable central banking cartel has far more power over our economy than anyone else, and that includes President Trump and Congress. The more manipulating they do, the bigger our economic booms and busts become, and this next bust is going to be a doozy.
There have been 18 distinct recessions or depressions since the Federal Reserve was created in 1913, and if we finally want to get off of this economic roller coaster for good we need to abolish the Federal Reserve.
As many of you may have heard, I am very strongly leaning toward running for Congress here in Idaho, and one of the key things that is going to set me apart from any other candidate is that I am very passionate about shutting down the Federal Reserve. I recently detailed why it is imperative that we do this in an article entitled “The Federal Reserve Must Go”. Central banks are designed to create government debt spirals, and the size of the U.S. national debt has gotten more than 5000 times larger since the Fed was initially established.
If we ever want to do something about our national debt, and if we ever want to get our economy back on track on a permanent basis, we have got to do something about the Federal Reserve.
Anyone that would suggest otherwise is just wasting your time.
Michael T. Snyder is a graduate of the University of Florida law school and he worked as an attorney in the heart of Washington D.C. for a number of years.
Today, Michael is best known for his work as the publisher of The Economic Collapse Blog and The American Dream.
If you want to know what is coming and what you can do to prepare, read his latest book [amazon text=Get Prepared Now!: Why A Great Crisis Is Coming & How You Can Survive It&asin=150522599X].
“If something happens seven times in a row, do you think that there is a pretty good chance that it will happen the eighth time too? ”
But … but … this time its different!!!. NOT !!! 🙂
Heads I win, Tails you lose every time. Wanna Play.
How about Roulette? Red or Black? OR
7 Day in a row the sun shines. 8th day is Rain.
Kind of a stupid comment, if you ask me.
*4 times in a row in the last 20 years after the Silver to Gold Price Ratio hit 80 to 1, within 9 months, it dropped to 47 to 1, Every single time. Except this time when I invested. Silver is sitting now sitting at 75 to 1 Price Ratio and $16.69 An its a year and a half later.
So when it come to predicting what happens in a row? You can throw everything out the window, when it is Heavenly Humanly Manipulated. And the Money printing machines keep rolling long printing Billions monthly. One thing for sure, is none of that money is going into my pocket.
I meant to say Heavily Manipulated. Heaven is no such place. Out of 5 Trillion people on this earth over 60 trillion years that lived on planet earth, how many got ever lasting life? That you can show real proof of. Answer: Big Fat ZERO. Its a friggin lie. Its amazing how many millions of people with throw their entire Faith an money into a Myth. Put it all on Red and let it ride Pastor. You may win a few rounds, then you get fleeced. How many people in a row got ever lasting life? Answer is still zero.
And yet, maybe we have been trying for eternal life for 7,000 years for eternal life, who’s to say the eighth time we won’t make it? As you said, “7 day in a row the sun shines. 8th day is rain.”
It is pretty obvious that the Feds actions are purely political.
They want a market crash, to shut Trump down. I’m not in equities andI’m debt free so I don’t care, but a lot of people are going to get hurt, which is unfortunate.
Sweet, a Trump market dump
Yeah why dump on President Trump, he has little to nothing to do with the mess we are in and it is both the fault of Democrats first and foremost and Republicans who has sold out to special interests. They spend the wealth of the nation like there was no tomorrow or a day of reckoning. God help us for the sins of our nation have come home to “roost” as they say. Pray for YOUR president, ask God to give him wisdom to govern this nation for the glory of God and the good of all of its people. He needs our prayers NOT our half witted condemnation. Sorry if I have offended you but someone needs to say it. We are in trouble!!!
The SOONER that the FED shuts the economy down and shakes out the hubris, the sooner that TRUMP’S economic plan can be implemented with very low corporate taxes and infrastructure spending that helps corporations the most.
It will also put America back to work building things.
If the FED can cause a crash this year and spend the next year and a half clearing out the hubris, then implementing TRUMP’S Stimulus, TRUMP has a fair chance of getting reelected.
Yeah, that’s the way it should go down after mopping up NKorea. 🙂
i have to agree , but why do i get the feeling the market will crash in 2019 just ahead of the election ?
These deep state asshats arent concerned with the american people , they are worried about retaining power .
The shit is going to blow sky-high friends!
Civil war is coming, according to the Oathkeepers. I believe it is just around the corner.Who is giving the orders to kill Republicans, take a wild guess. Hillary, Obama, Sanders, Schumer, Pelosi, Cummings,and t h e rest of the powerful Democrats, and and Democrat lunatic from the California funny farm.
Didn’t obama say if they bring a bat, we bring a gun to the baseball practice
Yes
but is it going to be nearly as fun as the last time?
design crash, kickem when their up, kickem when there down.
two party tag team. ALL MINIONS MUST PAY MORE!
MORE, they want MORE???? I’m bled dry.
Gee, who could have guessed that a reality TV star with no government experience, 4 bankruptcies, 5 kids from 3 different marriages, 11 charges of sexual assault, and 4000+ lawsuits who has stiffed employees and others in business transactions could be so bad at being President? Nah, going forward let’s not hold dear Trump responsible for anything.
What a bunch of fools.
And Hillary was better?
No, Jim, she wasn’t. Not at all. My point is he isn’t much better and putting your faith and trust in him as most of you here do everyday is going to end in HUGE disappointment. Yes, she’s bad but he’s not much better.
Get your heads on straight.
Anonymous1, we’ve got our heads on straight. You need to get your head out of your ass and your ass out of mommie’s basement, but I doubt if you do. So go f#$% off!
Deplorable bh or bh 1776 (whoever you are at the moment) weren’t you, yourself, deriding your beloved leader not so long back in some of your whining posts? Please, be consistent in your natural idiocy.
Your eyes are useless if your brain can’t discern the truth. Try engaging critical thinking instead of just criticising.
Trump is not stupid…could you accomplish all that he has…our faith is not in him at all but the Sovereign God who puts all elected leaders in charge, yes all of them good and bad to judge our nation or reward it. God can use anyone for good even a man like Donald Trump who needs a good dose of humility and I think he is getting there. There is prophecy that was made by a man in 2007 that said he would become a 2 term president. God would change his heart AFTER he got into office. So I am praying for God to help the man. If he answers our prayers is that a bad thing? If we condemn him will that help us now? THINK & PRAY
Trump is our President, get it? Trump is OUR President get it? He was fairly elected and Hillary can go back in the woods and stay there.Maybe have a gingerbread house built and maybe lure innocent children in when they stop by. The elephant eared mullah is still out there stirring up more hatred and has to becstopped.
We are NEVER given real choices, that would benefit We the People .. if you haven’t realized that by now .. lift the rock
and if Trump is your only wiping boy, then you aint been paying attention for like, FOREVER!
Think you meant whipping boy. Not wiping boy.
Yea, and coming from a douche bag with a name like “Anonymous1”. All of your kind are just jealous. Deal with it. He won. Dont like it? Move.
Dmonic, I’ll agree on that one. So Michael ‘Chicken Little’ Snyder is back? I’ll have ‘chicken little’ for dinner tonight, LOL!
Dmonic, BTW, anonymous1 is a douche bag, LOL!
Another douche with out a bag. You loser lost and need to go home to mommies basement and kick yourfeet and throw a tantrum. No one else cares to hear from life forms lower than pond scum.
Ya Liberal commie troll never Trumper. Who ya gonna shoot today? Trump is our President so F off. We are in the process of Saving our nation from you haters.
CSS, BRAVO! Did I say anonymous1 is a douchebag? OK, just checking.
I love trump.
Your name says it all. You liberal socialists should all move to another socialists like Cuba or the like.
You all keep pushing like no get out but fail to understand that those of us work served or are serving our country and have always worked to support our families will rise up and put you all out of our misery! Keep up and see where you are when it all collapses around you ! We will then see who are the True Fools!
Mac, spot on. The libturds need to find a country that works for them.
Yea, we need more politicians with ‘government experience’. And a good hard nut kick.
Scary that people who think ‘government experience’ is a GOOD thing vote, drive cars, and have kids.
You know those “things” aren’t what’s bothering you about Trump.
JFK tried to do the same thing, he got a public execution. Tread carefully friend.
ZH has had several articles lately about a slowing in the credit markets, both in commercial and personal. This is also a marker for a slowing economy.
Ultimately this is NOT going to end well for a bunch of folks.
The Deep State globalists are getting desperate. Their baseball shooter on antidepressants came up short.
How can they start a revolution with assassins who can’t shoot straight?
Yeah, did someone forget to give Jimmy an SKS that was SIGHTED IN?
Either that or Jimmy needed to do a little more practicing.
While the SKS can’t compete with a good bolt gun, a decent one will hold around 2″ groups @ 100 yards. Either they didn’t intend for him actually kill a lot of people or he just screwed up and couldn’t hit anything.
An SKS is easily good for ballfield ranges. Fortunately, this SSRI eater couldn’t shoot.
off topic:
Girl in MA convicted of manslaughter for sending her boyfriend texts encouraging him to go through with suicide. Apparently, they were both on SSRIs. No surprise here. Even big Pharma’s commercials warn of “suicidal thoughts or actions”. Too bad she wasn’t in the truck with him.
Seems USA won’t get over its love affair with this poison until herds of users off themselves. The gene pool needs a good scrubbing.
During an argument, it seems to be somewhat common for high school aged kids to tell their opponent “Kill yourself!”
Oh No! Inverted yield curve! Well if that happens they will have to lie about the numbers again. Oh wait, that’s no problem then? Cause they always lie about the real and phony numbers.
Sir if you run for a congressional seat in Idaho on deleting the Fed reserve. Your life will be targeted,when your lest expecting it. Take care to be on alert at all times. May God bless you and protect you.
Remember Ron Paul.
He ran on “End the Fed”
It’s a long hot day in Southern California.
It is advantageous to arise before sun up. Work hard while it is light enough to see, but still cool; and quit at 11:00 o’clock am. That gives you five hours of hard work before the heat starts zapping your energy.
It is amazing how well adjusted to the heat Mexicans are. But white people can’t handle the heat so well. It is therefore highly advisable to rise before sunup in Summertime, paleface. ?
__
“SOME white people can’t handle the heat so well.”
I’m 54 now but when my tan was indistinguishable from a Mexican’s, I would work them under the wagon in the heat of the day handling hay. Can’t remember what they used to call me. It roughly translated to “work crazy white asshole”. Thing is, my tan was darker than some of theirs! I’m an IT guy now. But, were I to return to that work, it wouldn’t take me long to acclimate. Longer than when I was 22 but not all that long. Its about desire not genetics or age.
NetRanger:
Take it easy old boy. Desire/motivation is very important but genetics and age DO matter.
Your dark tan indicates your particular genetics. Some people’s skin just burns. Others wind up with skin Cancer. But it is not just skin deep. Some people are energized by hot weather. Others are made weak to the point of fainting or developing a fever which can lead to a stroke.
Age is a factor for everyone. I have known people who were raised on farms and ranches. Robust and healthy well into their late seventies and eighties; tragically pushing it by doing manual labor at the peak of a hot day with temps over 105. Stroke.
Just because you are a healthy dude with great genes and a hard working ass (that doesn’t sound right), don’t push your luck. Thirty five years later, you could wind up with a head ache you don’t need. I do envy healthy people. I have never been that blessed with stamina. I’m lucky to be alive. More power to you. You have a lot to thank the Creator for.
__
B from Ca= The Sun does not cause Cancer
NetRanger, LOL! Damn good point about SOME white people. I was born and raised in TN. I grew up under the hot SOUTHERN sun. Northerners come down here and can’t handle our climate. If Yankees can’t handle the Southern heat, get out of the Southern kitchen, LOL!
As a Northener, I can handle any heat and humidity down south. What I can’t handle is the uneducated and ignorant southern populace. At first, meeting and chatting with husband and wives who started out as brother and sister (until one hit puberty) was fascinating, but the low level intelligence wore me out faster than any hot sunny southern day.
Trabajo loco culo blanco…
Trees give off their oxygen early in the morning. Good time to walk or jog is EARLY morning
before vehicle exhaust becomes rampant.
In Phoenix today, it hit 100 degrees at 11 am. Needless to say I left town after an early lunch.
Work is for people without an RV and a metal detector. 🙂
When prices start to skyrocket those EBT cards won’t buy squat. Then look out.
I was prepping when Reagan was President (Doing Training) Prepping when Bush was President (Still Training) Prepping when Clinton was President (Still Training) prepping when Bush was President (US Army Training) Prepping when Obama was President (Training and storing up supplies) Do you think I am going to stop Prepping because your websites commentators have all swallowed Trumps flashy lure hook line and sinker? Y’all are crazy man whores for Trump. Like he is going to walk up and hand you a congratulations check for being a shill that voted for him.
Is there a difference between a drop and an inverted climb / yield curve.
They keep using the word recession. We have been in a depression since 2008. The only difference is the F.R. bank keeps printing mountains of money. More and more of that money is finding it’s way into circulation. It’s only a matter of time when a loaf of bread costs $20,000. That’s ok because your making a $1,000 an hour.
Why is Janet Yellen? She does not belong there like the sodomite that appointed her.
Please REMOVE HER Mr. Trump. She is a racist trying to crash your PARTY. (no pun intended)