OVERVIEW OF RECESSION?--WHAT RECESSION!
In this interview, Kirk Elliott PhD is interviewed by John Michael Chambers. What exactly is a recession?
- Two quarters of negative growth in the economy
How do you tell if a recession is coming?
- Look at the bond market. It is the best barometer of what is coming down the road. This is what the Fed, Politicians, and banks look at.
How do interest rates tie in to policymaking?
- Lower interest rates when you want to stimulate the economy because it lowers the cost of credit and causes people to spend more.
- Raise interest rates in order to slow down the economy as when the cost of borrowing goes up, people borrow less, spend less, and therefore the economy should slow down if it is overheated.
Catch 22! Sometimes rates go up when the economy is crashing to stimulate more foreign capital investing in U.S. Treasuries. This is the kiss of death to an economy (i.e. it needs to be stimulated, however normal market forces demand higher rates because of the large injection of capital into the system, thus cheapening the currency).
This is where we are right now. President Trump needs rates to stay low through the election. There is a tendency for them to rise, so the political games begin.
Watch the video to get the rest of the story.