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Monday, 12 February 2018

Every 10 year a new US recession

Last week, libertarian US senator Rand Paul voted against a bipartisan agreement on lifting the US debt ceiling for 2 years. He may have remembered its original intention: to control the ever increasing US government debt following annual deficits. His position was, however, ridiculed as he had voted in favour of the recent $ 1,500 billion tax cuts. The combination of higher spending and tax cuts is a toxic cocktail for annual deficits and government debt.

The EU's Stability and Growth Pact puts "limits on government deficit (3% of GDP) and debt (60% of GDP)". The US deficits are projected to reach above 5% of GDP while US government debt is projected to increase from about 80% to 100% or more (eg, Economist, Trouw). The Economist calls this "America’s extraordinary economic gamble" given that "fiscal policy is adding to demand even as the economy is running hot".

The US might, however, do this to prevent a new recession. 

Historically, the average US recession takes place every 10 years, and the last one was in 2008. Hence, the 2017 predictions about a 2018 recession (eg, BICNBC, FTGPF, Wiki).

Recent market turmoil (eg, rising interest rates, volatile stock markets, impending Canadian real estate crisis) could - indeed - indicate a new recession.

In my 1 December 2017 blog, I mentioned the various economic cycles - or waves and their average historic timelines.

The accompanying 2008 graph by Charles Hugh Smith was also used in my 2016 blogs Crisis? What crisis? and Conflict, Chaos and Change.

The graph still feels like a fair representation of what happened and what is about to happen. 

Early March 2016, Jeremy Grantham of GMO predicted the burst of the 3rd asset bubble - within 1-3 years after 2016 - which would result in a "bloodbath" (eg, City AMFD, my 2016 blog, WSJ).

Lao Tzu once said: "Those who have knowledge, don't predict. Those who predict, don't have knowledge". The above doesn't feel like a prediction at all. It almost feels like a certainty. I'm genuinely worried about the next 5 years. Alan Greenspan's irrational exuberance (eg, bitcoin, paintings, real estate prices) has been back for a while, and fueled by quantitative easing.

Fool's Overture (1977) by Roger Hodgson (lead singer of Supertramp)

History recalls how great the fall can be
While everybody's sleeping
The boats put out to sea
Borne on the wings of time
It seemed the answers were so easy to find


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