Monday, May 18, 2015

HSBC Economist: The Economy Faces A 'Titanic Problem'

According to this respected economist, a new recessions is imminent and it's going to make all previous recessions look like a walk in the park...

(Business Insider) HSBC chief economist Stephen King is already thinking about the next recession. In a note to clients Wednesday, he warns: "The world economy is like an ocean liner without lifeboats. If another recession hits, it could be a truly titanic struggle for policymakers."

Here's King: Whereas previous recoveries have enabled monetary and fiscal policymakers to replenish their ammunition, this recovery — both in the US and elsewhere — has been distinguished by a persistent munitions shortage. This is a major problem. In all recessions since the 1970s, the US Fed funds rate has fallen by a minimum of 5 percentage points. That kind of traditional stimulus is now completely ruled out.

King notes that this far into the recovery, there's a lack of "traditional policy ammunition." For instance, Treasury yields have not risen, the budget deficit is not falling, and welfare payments are still on the rise ...

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Posted By: Chris Carmouche