Is Another Economic Recession On The Horizon?
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Politics and Activism

Is Another Economic Recession On The Horizon?

Now, I am not necessarily saying that an economic recession is eminent. I'm just saying that it doesn't look good.

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Is Another Economic Recession On The Horizon?
SCPR

Now, I am not necessarily saying that an economic recession is eminent. I'm just saying that it doesn't look good.

The current economic recovery has been the slowest since WWII and the post-2009 economic expansion has been one of the longest in the last century. If history tells us anything, it's that the United States typically does not go more than five to seven years without a recession.

Despite the trend of positive job growth over the past 6 years or so, long-term trends show increasing levels of income inequality from the 1970s on. Between 1979 and 2007, the bottom 20% of workers took home less than 0.5% of National Income Gains; the top 20% of workers took over 75% of National Income Gains during the same period. Even more alarming, the top 1% of earners took home 38% of National Income Gains in the United States.

There is a current jobs crisis that is two-fold: lack of jobs, and lack of jobs that pay enough.

There are simply not enough jobs to go around. While the reported unemployment rate by the media is relatively low at four and a half percent, the real unemployment, the rate is still around 10%. Further, the current labor participation rate in the U.S.is at a dismal 63%—a 38-year low. Growing trade deficit is slowing job growth. Globalization is moving low-skilled jobs overseas and the growing trend of outsourcing is expanding higher up the job market. The U.S. workforce has already lost billions of dollars due to increased trade deficit with China as well as the displacement of millions of American workers from increased Chinese labor competition.

Roughly a quarter of the population makes the poverty wage which, for a family of 4 consisting of 2 adults and 2 children, would be on average $11/hour. However, by no means is the poverty wage the same as the livable wage. Varying by state, the living wage bounces anywhere between $19 and $30/hour. Evidently, the federal minimum wage is $7.25/hour. One can see how this may cause issues.

In terms of job quality, about 1/4 of jobs do not pay enough. The economic recession of '07 resulted in the loss of 8 million jobs: 60% being mid-wage jobs, 19% being high-wage jobs. Although 75 consecutive months of job growth seems great, the reality is that about 60% of jobs created since 2009 have been low-wage jobs. 11 out of the 15 fastest-growing job sectors are low-wage or very low-wage jobs. Manufacturing jobs are being automated out of existence or outsourced cheaply. The median household income is on the decline. The current jobs crisis could serve as a bad omen for the economic conditions of the future.

Other factors indicate that we should proceed with caution.

The severe decline in oil prices is alarming. Oil, among other commodities, can be a good indicator as to the condition of the global economy. Many countries such as Venezuela and Russia, whose economies rely on a good market value for oil, are suffering from the underperforming crude oil market. The consequences of low oil prices could impact major actors in the global market and in turn affect the U.S. economy.

The rise of subprime car loans and loan delinquencies is at an 8-year peak. For those who do not know, subprime loans are loans given out to borrowers that have bad or limited credit history. In other words, lenders will offer loans to people with bad credit at high interest rates. Delinquency is failure to pay an outstanding debt.

Thus, we have situation reminiscent to the years leading up to the Great Recession in which banks were overzealous in handing out subprime loans and the delinquency rate rose as borrowers failed to pay back their mortgage loans. While subprime loans have always been a part of auto sales, the rise in delinquencies could be a harbinger for a downward economic spiral.

Another bellwether of economic downfall is a flattening yield curve. This essentially points to a shortening gap between short-term and long-term U.S. Treasury yields. Current trends show a curve nearing its flattest since the end of 2007. The details and implications of this are sticky, and boil down to the yield curve being one of the determining factors of bank's profitability.

However, one of the things to look out for is for the curve to invert, meaning short-term notes yielding a higher return than long-term notes. Historically, the inverted yield curve has preceded seven of the last economic recessions.

One nifty tool that the government can use when the economy is spiraling out of control: lowering federal interest rates. In the panic of the Great Recession, the Fed Chair was able to lower the interbank lending rate from 5% to 0% overnight, print trillions of dollars of money, then buy long-term debt in order to keep mortgage and virtually all other debts low. At this point, the Feds do not have any wiggle room to liquidate debt. The best they can do is lower the interest rate by less than a percent. Not to mention that the federal government's debt has increased to 600% of total revenue.

In short, tread lightly. While the economy may appear strong now, it only takes a few holes to sink a ship.

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This article has not been reviewed by Odyssey HQ and solely reflects the ideas and opinions of the creator.
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