Tuomas Malinen+ Your Authors @mtmalinen PhD econ. Chief Economist of GnS Economics. Adj. Professor of Economics @ Uni Helsinki. Economic growth, economic crises, monetary unions and central banks. Jan. 08, 2020 3 min read + Your Authors

It's rather baffling, why so many think that #recession of 2020 could be avoided.

Yes, the #Fed has cut rates aggressively and started to support the #stockmarkets and hedge-fund leverage, but it will not save the real #economy. 👇

#recession thread. 1/
 https://gnseconomics.com/en_US/2019/12/19/q-review-4-2019-into-the-abyss/ 

We first warned of the impending #recession in March 2019. Then, before the aggressive rate cuts and Not-QE, the timeline for its onset was Q1 2020.

In our recent forecast, the onset has been postponed between Q2 and Q3 due to the aggressive stimulus. 2/
 https://gnseconomics.com/en_US/2019/03/27/recession-cometh/ 

Why so little has changed in our forecast?

First, it should be noted that the #repo -panic of the #Fed was justified. It's evident that there are serious problems in the financial plumbing.

Without Fed's swift response, we'd be in recession already. 3/
 https://gnseconomics.com/en_US/2019/12/14/repo-market-turmoil-staring-into-the-financial-abyss/ 

Second, China, who has supported the global #economy since 2009, is running out of road.

All through 2019 #China has been engaged in desperate fight to appear economically strong, but that war is already lost. 👇

China's support will wane this year. 4/
 https://gnseconomics.com/en_US/2019/11/20/china-and-the-world-economy-at-the-end-of-the-road/ 

This is such a massive issue, because China has accounted for over 50% of all capital investments in large industrialized nations and for over 60% of all new money created globally since 2009.

The global #economy simply cannot cope without China's support. 5/

And that support is nearly gone. China has become a giant with debt-clay feet.

It has already surpassed all historical examples of credit-bonanzas and her #economy has become increasingly unproductive.

#China simply cannot keep the debt-machine running at current speed. 6/

To emphasize the point, China's leveraging/deleveraging has led the global business cycle by 3-4 mo.

The latest turn has been achieved with completely unsustainable, record-breaking stimulus leading only to a sub-par growth, which #China simply cannot sustain. 7/

Like explained in our latest Q-Review, China's true budget deficit is currently north of 11%.

This means that China is unable to conduct massive infrastructure projects à la 2015/2016 implying that a world-economy-saving stimulus will be impossible. 8/
 https://gnseconomics.com/en_US/2019/12/19/q-review-4-2019-into-the-abyss/ 

Signals from the US #economy are not encouraging.

The industrial production has fallen for five months in a row. 9/
 https://www.wsj.com/articles/u-s-industrial-production-falls-for-fifth-straight-month-1431695720 

This has led to dangerous decoupling of equity/bond ratio and the ISM manu prod index. 10/
@BittelJulien

This is so dangerous, because consumer confidence and stock market performance are highly correlated.

Now, as the service sector is carrying the US #economy alone and as the #stockmarkets are undeniably in a bubble, risk of a catastrophic asset crash are high. 11/

If (when) that happens, consumer and investor sentiments will experience a sudden and violent crash pushing the US #economy into an instant #recession.

But, when the unwinding of such massive financial excess commences, it will not stop there. 12/

Like explained in Q-Review 4/2019, #recession will morph into a global depression with four likely components:

1.Crash of the asset markets.
2.Failure of the European banking sector.
3.Failing zombie companies.
4.Collapse of China.
13/
 https://gnseconomics.com/en_US/2019/12/19/q-review-4-2019-into-the-abyss/ 

The depression for it's part, is likely to have five stages:

1) Onset
2) Fight-back
3) Flood
4) Calamity
5) Recovery

And we're now closing the Onset, or "ignition".14/
 https://gnseconomics.com/en_US/2019/12/19/q-review-4-2019-into-the-abyss/ 

Currently, there seems to be two possible “ignition points”: the credit markets and/or European banking sector.

Economic slowdown is already building in the over-valued credit markets, which, like the European banking sector, will be unable to withstand a #recession . 15/

Alas, the combination of highly over-valued asset markets, pushed ever higher by the desperate #Fed, slowing growth in the US, China and the Eurozone, and the weak European banking sector form an extremely toxic economic mix. 16/

Averting its implosion in 2020 requires either a miracle or utterly desperate, full-in stimulus measures from #China and #centralbanks .

And, if that would come to be, then there would be nothing left to respond, but the monetary system destroying debt monetization. 17/

We all need to hope that we will not see such a horror unleashed.

Any economic crisis is better than the authoritarian government and central bank command over the #economy . 18/
 https://gnseconomics.com/en_US/2019/12/19/q-review-4-2019-into-the-abyss/ 

So, there's only a miniscule chance that we are able to avoid a #recession in 2020, and that's something none of us should hope for.

Still, preparation, for all scenarios, is the key! 👇

#Brace
/End
 https://gnseconomics.com/en_US/2019/06/11/q-review-2-2019-the-preppers-bunker/ 


You can follow @mtmalinen.



Bookmark

____
Tip: mention @threader_app on a Twitter thread with the keyword “compile” to get a link to it.

Enjoy Threader? Sign up.

Since you’re here...

... we’re asking visitors like you to make a contribution to support this independent project. In these uncertain times, access to information is vital. Threader gets 1,000,000+ visits a month and our iOS Twitter client was featured as an App of the Day by Apple. Your financial support will help two developers to keep working on this app. Everyone’s contribution, big or small, is so valuable. Support Threader by becoming premium or by donating on PayPal. Thank you.


Follow Threader