Recession Looming?

With a lot of focus on the potential for another recession, I thought I'd post some thoughts, as well as some graphs from various spreadsheets that I have kept going during my current absence.

Yield Curves on Inflation adjusted Bonds.

Since interest rates have been so low for so long, one standard method of recession prediction - an inversion of the yield curve - has become problematic. As a result I decided a while back to keep tabs on inflation-indexed securities (since these incorporate negative interest rates). When you compare the curve between 5-year, 7-year, 10-year and 20-year inflation indexed securities, the current situation is:

(I would've put this in chart form, but only the 2015-12 data would be shown).

The "TIIPS Yield Curve" column in yellow is just the average difference between the 5 & 7, 7 & 10 and 10 &20. Since Inflation adjusted bonds have only recently been added to Fred at St Louis Fed, there isn't much history to go on. The history does, fortunately, encompass pre-2008 data:

This data shows an inverted yield curve occurring in late 2006, which indicated the recession on the way.

In short, the current yield curve data does not show any oncoming recession... yet.

Net Monetary Base vs. NSA Inflation (yearly spread)

A few years ago I created the idea of a "Net Monetary Base", by which the Excess Reserves are taken away from the Monetary Base. The idea being that excess reserves have the same function as money taken out of circulation (and are thus deflationary). This was recognised back during the Depression as part of the 1933 Banking Act, one of the policies being an enforced reduction in commercial bank excess reserves. After the passing of this act, prices began rising after being in decline since 1929. Post-2008, no comparable law was passed, allowing banks to hold excess reserves and probably prolonging the "long recession" (which I think is what it is being called now).

Anyway, one way to determine recessions is to compare the net monetary base to inflation. One of the discoveries I found a few years ago was that every recession was accompanied (both before and during) by a negative result. (A "negative result" is when the rate of increase of the net monetary base is lower than the rate of increase in inflation). ALL recessions for which data is available show a clear association with a negative result.

(Of course I have not done any major statistical analysis of this data. I'll leave that for the statistical experts who can prove me right or wrong later on).

So what of this data? What is it showing? Here is a screenshot of my spreadsheet:

It is the far left column that is important. If it is negative, it indicates an oncoming recession. At the moment it isn't. Compare this to 2005, which showed a recession was coming:

Or maybe the 2001 recession:

Put all my data into a graph, and it looks like this:

In short, the data does not suggest a recession yet.

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