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Fox Business News reported that "the United States will experience its worst collapse since the Great Depression in 2024
There are three main arguments:
0 1
Available currency volume
Due to the massive printing of money during the epidemic, which led to overheating of the economy and inflation, the Federal Reserve has significantly raised interest rates since 2022, while the Biden administration and Congress still maintain government spending far higher than that before COVID-19.
Through monetary tightening policies, the inflation rate has decreased, but the decrease is not enough to lower prices.
Most consumer goods and services, as well as rents and housing prices, are still far higher than before the outbreak of COVID-19.
It is incredible that the current money supply - cash, checkable deposits, and bank savings accounts - has significantly decreased.
This means that although prices are still rising, the amount of available currency is still declining, bringing unprecedented pressure to American households.
The latest economic data shows that the annual growth rate of M2 money supply has been negative for the past three quarters, indicating that available currency is rapidly decreasing.
In the past 110 years, the only time Americans saw such a sharp decline in the money supply was in the early 1930s, during the peak of the Great Depression. However, this time there is a significant difference in the situation.
In the 1930s, when the annual growth rate of the money supply turned negative, prices also fell. In our current situation, despite the collapse of the money supply, prices are still rising.
As far as we see today, this has never happened.
02
Household savings
The conclusion drawn by the San Francisco Federal Reserve calculation is that these savings were completely depleted by the end of September.
Bloomberg calculations show that the poorest 80% of the population now has less cash on hand than before the COVID-19 outbreak.
Due to the Federal Reserve's policies and inflationary spending by the Biden administration, the money supply has decreased, causing difficulties for American households.
More and more people are having to use savings and debt to pay for basic living expenses, such as food, electricity, and housing.
According to survey data from the Federal Reserve, the top 80% of people in terms of income represent the vast majority of Americans, and their actual household savings are now lower than before the outbreak of the pandemic. The savings of the highest income earners may decline below pre 2020 levels in the next 12 months.
The combination of high prices and reduced money supply has forced people to rely on credit cards and other forms of consumer debt, which is more common than ever before.
03
debt
This spring, the total credit card debt of Americans exceeded $1 trillion for the first time, setting a new historical high. Higher prices, more government spending and debt, and lower levels of household savings.
Bloomberg Economic Research's outlook for the future is that credit card default rates are significantly increasing, especially among young Americans, and the situation in some car loan markets is also deteriorating.
Combined with the official resumption of student loans delayed during the pandemic on October 1st, this program can suck $8 billion out of consumers' wallets every month.
As well as unstable oil prices, crude oil once climbed from a summer low of nearly $25 to over $95 per barrel. The worsening conflict between Palestine and Israel now poses risks to oil supply, and the combination of these factors will increase the risk of soaring oil prices, further weakening consumer power.
In addition to personal debt, there is treasury bond. This time, the US debt has exceeded $33 trillion. Since the debt ceiling was lifted in June, it has inflated by $2 trillion in just four months.
The above is the reason why Fox News believes that the US economy will experience an unprecedented collapse in 2024.
It should be noted that Fox News, as the mouthpiece of the Republican Party, has the necessity and possibility of serving politics, so everyone needs to make their own judgments.
But even if the editor has always disliked Fox News, the above reasons are not sufficient, but I think the conclusion can be deliberated. The most obvious indicator before the recession is the reversal of long-term and short-term treasury bond bond yields. Let's expand on it now.
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This is a comparison of the yields of 10-year treasury bond versus two-year treasury bond in the past five years. It is obvious that after the interest rate increase, there is an inverted curve, and it goes deeper and deeper.
The yield of 10-year treasury bond vs the yield of two-year treasury bond is inverted
As early as this spring, data from the Federal Reserve Bank of New York showed that the likelihood of an economic recession in the United States within the next year had skyrocketed to 58%, the highest level since August 1982, up from 40% before the subprime mortgage crisis in November 2007 and 46% in December 2001.
The New York Federal Reserve Bank's model uses the slope or "term spread" of the bond yield curve to predict an economic recession in the United States over the next twelve months.
The term spread refers to the yield difference between the 10-year treasury bond and the three-month treasury bond. When the yield of short-term bonds is higher than that of long-term bonds, the bond yield curve is considered inverted.
Since 1970, the inverted bond yield curve has reliably predicted the first eight economic recessions in the United States.
Why does an inverted yield curve indicate an economic recession?
When the yield curve is inverted, investors are concerned that the current high level of short-term yields will push the economy into recession, forcing the central bank to cut interest rates in the future, thereby discounting the current low long-term yields. That's why inverted yield curves are often a precursor to economic recession.
Treasury bond yield curve upside down: what state are we in now?
In March this year, the term spread of treasury bond was -1.15%, because the 10-year interest rate was about 3.5%, and the three-month yield was about 4.65%.
The yield gap between 10-year and three-month treasury bond worsened to -1.6%. The three-month yield soared to 5.2%, while the 10-year yield traded at around 3.6%. Maintaining such interest rate differentials or further, there is a 57.8% chance of an economic recession occurring before March 2024. This is the forecast for the first quarter of this year.
In history, the lifting of the inversion of short-term and short-term interest rates must be due to the market turning to expectations of interest rate cuts, with short-term interest rates plummeting until they fall below long-term interest rates.
But now long-term interest rates are soaring to catch up with short-term rates, indicating that the Federal Reserve will maintain high interest rates for a longer period of time.
Earlier, we also talked about the massive debt of the United States. Now, combined with this long-term high interest rate, who can fill in such a large scale of interest expenditure?
In addition, there are currently four unresolved risks:
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Even with the strong performance of US GDP and employment data in the third quarter, Bloomberg's latest model predicts a 50% chance of an economic recession by the end of the year. Because they saw some economic indicators in the context of monetary tightening. For example, the National Bureau of Economic Research (NBER) has identified six indicators that have a significant impact on economic recession, including income, employment, consumer spending, and factory output indicators. NBER is likely to announce that the US economic recession began in the last few months of 2023. In addition to those, there are currently several unresolved factors that are like sharp swords hanging on the US economy, which will come down at some point.
1. Credit squeeze
Interest rate hikes may not have stopped, and businesses face the risk of harder loans and higher costs. The latest data shows that about half of large and medium-sized banks are implementing stricter standards for commercial and industrial loans. Except during the pandemic, this is the highest proportion since the 2008 financial crisis. This impact is expected to manifest in the fourth quarter.
From historical data, it can be seen that when companies are unable to easily borrow, it often leads to weak investment and recruitment, such as the peak of credit tightening in the last two economic recessions in 2008 and after the millennium.
2. Government shutdown
Although the government shutdown that was originally facing this week was avoided at the last moment, it has not been lifted yet. It has only been delayed until November, and the downfall of House Speaker Kevin McCarthy is not a good omen. This risk may ultimately cause greater damage to the fourth quarter GDP data. Millions of government employees cannot receive wages, and institutions and enterprises that rely on government funds are about to close down.
Bloomberg Economic Research estimates that every week a government shutdown causes an annualized GDP growth rate to decrease by about 0.2 percentage points. Once the government reopens, most (but not all) of the losses will be recovered.
3. Auto workers strike
The United Auto Workers' Union (UAW) has called on the three major American car companies to hold strikes, marking the first time they have simultaneously become targets of strike attacks. Last Friday, the strike expanded to about 25000 workers. The long supply chain in this industry means that downtime may have a significant impact. In 1998, General Motors held a 54 day strike with 9200 workers, resulting in a reduction of 150000 jobs.
4. Global situation
There is also a larger external factor, as the instability in other regions of the world and weak economic prospects may also drag down the United States.
The Palestinian Israeli conflict has worsened, and the Russia-Ukraine conflict has brought huge shocks and uncertainties. The speed of loan contraction in the euro area is faster than that at the height of the sovereign debt crisis, which indicates that the region's stagnant growth will further slow down.
During economic recession, low risk and high return investment methods are the preferred choice.
Original price $299, limited time top 100, free
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Thousands of dollars can open up real estate investment in the United States
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Reference article:
https://www.foxbusiness.com/economy/new-data-reveals-crash-not-since-great-depression-could-hit-2024
https://qz.com/why-is-the-atlanta-fed-projecting-nearly-6-us-gdp-grow-1850744605
https://www.businessinsider.com/us-economy-recession-prediction-model-2023-10?amp
https://www.businessinsider.com/taylor-swift-beyonce-barbenheimer-lift-us-gdp-8-billion-bloomberg-2023-8#: ~: text=High% 2Dprofile% 20concept% 20tours% 20by, countries% 20% E2% 80% 93% 20including% 20Montenegro% 20 and% 20Barbados