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Old 09-15-2019, 02:46 PM
Sam Stone is online now
Charter Member
Join Date: Jun 1999
Posts: 28,209
Predicting a recession is a lot like trying to predict whether the next grain of sand dropped on a pile will cause it to collapse. It's impossible, because of complexity. But even if it's impossible to literally predict, you can certainly see conditions that suggest that things are starting to get unstable.

Start with a bare table. Start piling up sand. At first, you can easily predict that with each new sand grain, the pile will get a little higher. But as the pile grows, stresses inside it get bigger and bigger. At some point, you think, "Okay, this thing will collapse any time now". But you can't predict the grain of sand that will do it, or even maybe whether the next 100 or 1000 grains of sand will do it. Just that the pile is getting to the point where in the past it showed a tendency to collapse.

That's what predicting a recession is like. Towards the end of a business cycle you can certainly see the strains in the system. The Yield curve being one of them. But you simply can't predict whether a recession or financial crash or some other collapse of meta-stability will hit today, or next week, or next month, or next year. You just know that the pile is starting to look mighty shaky.

That's where we are at now. Record debt, trade tariffs, a slowdown of the economy in Europe and Asia, interest rates near the zero bound, moribund long-term investment. We can see that the pile is getting pretty big, and pebbles are starting to roll down the sides, but we have no idea when the collapse will come, other than it sure looks like we're creeping up on it.