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RE: What Does the Beginning of a Recession Look Like?
yes, mostly... but they start diverging since the beginning of this year ... why ?
yes, mostly... but they start diverging since the beginning of this year ... why ?
My thoughts are that it corresponds with the small bump in interest rates (green line). Perception and Hysteria will keep the stock market charade running a bit longer but when interest rates increase, it causes borrowers to not borrow as much. Since the fractional reserve system and asset prices are supported by people borrowing more money it leads to a contraction of the fiat money supply. If you take it one step further and people stop borrowing all together and start pulling their cash out of the system it can cause a system wide meltdown. People bought assets at one price (supported by low interest rates) and when the interest rates increase can no longer afford to pay the amount the asset was purchased at, therefore the price they can pay goes down causing a decline in asset price (also known as deflation). Governments tend to try to combat deflation with inflation. Countless examples throughout history point to them inflating to the point of hyperinflation to try to maintain legitimacy. (Weimar Republic, Greenbacks, Ancient Rome, Zimbabwe, Venezuela etc....). In other words the government can guarantee people will always receive their social security checks. They just can't guarantee how many groceries their checks will purchase. When the price of common goods skyrockets, they will simply pass the blame on to the "greedy" farmers and merchants who are forced to jack up their prices to keep pace with inflation.