Known for his accurate forecasts over decades, economist Gary Shilling predicts a recession around the corner. He says the same stuff I’ve been talking about for months. Snippets follow.
NOTE: Everything below is quoted from Shilling.
” Construction and mortgage brokerage and all of what is related to it has accounted for about a third of the job creation so far in this expansion. If you wipe that out, you’re taking a big check out of your economy. And housing prices don’t even have to decline. If they simply level off, you have got a lot of people in trouble. And because we are essentially buying the world’s excess goods and services, if U.S. consumers get into trouble, then you not only have a recession in this country, but also a global economic turndown.”
” A lot of people have looked on this [business investment] as the “great white knight” that’s going to ride to the rescue and pick up the slack in consumer spending. But two things are important here…… So this idea of capital spending rescuing the consumer is not realistic.”
“The Federal Reserve almost always overshoots. Since 1954, the Fed has undertaken 11 credit-tightening campaigns, and in only one of those–in the mid-1990s–did they succeed in effecting a “soft landing” for the economy. So the odds are that they will keep going until something happens, and that something is almost always a recession.
They do this because they cannot risk ending rate hikes too soon. If they were to back off and it turned out that inflation and the economy took off like scalded dogs, then they have to come in and really crush the economy to re-establish their credibility. And they don’t want to do that. That is what happened in the late ’70s. Inflation was out of control, and they had to precipitate not one but two recessions to let people know they had some teeth. And they don’t want to repeat that. So I think the odds are this time that the Fed will persist.”
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