Another Strange Recession

That Seventies Show

Toxic Brew

Misery Index

Velocity, Banks, and the Dollar

Incomplete Homework and Speech Recognition

Back in the good old days, recessions were simply the unpleasant part of the business cycle. Consumer choices, exuberant businesses, and monetary policy would periodically generate growth contractions. We debated the timing, but recessions didn’t come out of the blue.

Then in 2020, a recession did come out of the blue, or nearly so, when COVID unexpectedly changed behavior. Working from home, avoiding travel, etc., caused a sudden drop in services demand, and thus recession. This wasn’t part of the business cycle.

Now it’s 2022 and another strange recession looms. That’s right, I’m calling it: Recession is here, or will be soon. And unfortunately, it will be a global recession. Like the COVID recession, this one has little to do with the business cycle. It’s a recession of choice—not your choice or mine, but Vladimir Putin’s. He clearly miscalculated how hard capturing Ukraine would be and how the West would react.

Most recessions are preceded by an inverted yield curve, when long bond rates drop below short bond rates. Further, the inversion had to go relatively deep and last for some time to really be reliable as a recession predictor. When I called a recession in 2001 and in 2007, those conditions existed. Like a fever indicates something is wrong in your body, an inverted yield curve tells us there is something wrong in our economic body.

In this case, the economy was already slowing down and at stall speed. We’ll look at some data to demonstrate that. But this war will make it worse and the longer it goes the worse it will get. I don’t see the sanctions ending as long as Putin stays in power. Further, I think Western countries will change who they rely upon for energy in any event.

We always get through recessions and there will be a recovery. It’s not the end of the world, just a readjustment. But regardless, we’re here. And I think we’ll be here for quite some time.