Signs of a Global Recession Are Increasing
Correspondent Wilson R. Logan has shared a list of 17 indicators of a globally synchronized recession. Each of these indicators can be seen as a loud alarm bell. As Logan puts it, "recessions have very clear indicators. We've all known it was coming and we've all had a long time to think about it."
The Global Economy's Interconnectedness
It's important to remember that the global economy is a tightly bound, highly integrated system. This means that disruptions in one subsystem can quickly ripple through the entire system. These disruptions often amplify each other, creating a cascading effect much like an avalanche: everything appears perfectly stable until the entire mountainside gives way.
Logan's 17 Indicators of a Global Recession
Logan's list of indicators is not exhaustive; there are many others. However, it is a comprehensive starting point. Here are his 17 indicators of a global recession:
1) Tighter credit conditions
2) Increasing REPO fails
3) Volatility in the Japanese Bills market
4) Near Term Forward Spread inversion
5) Swap Spread Compression
6) Term SOFR & EURIBOR calendar spread inversion
7) 2-10 yield curve inversion
8) Hours worked, total compensation falling
9) Falling oil prices
10) Factory gate prices falling
11) ISM survey negative sentiment
12) UofM consumer sentiment survey negative
13) Increasing credit card debt
14) Contango in the WTI Futures curve
15) Falling value of loans to non-financial corporations (NFCs)
16) Diverging GDP & GNI
17) Labor hoarding
Debt and Disposable Earnings
To provide additional context, let's examine the relationship between the cost of servicing debt and the money left after paying essential expenses. This relationship is scale-invariant, meaning it works the same for individuals, households, small businesses, global corporations, and nation-states.
If the earnings left after paying essential expenses declines while the debt and cost of servicing the debt rise, the entity goes bust. For households, as inflation erodes the purchasing power of their earnings, they increasingly turn to debt to bridge the gap between the cash available to spend and what they want to spend.
The Role of Interest Rates
When interest rates are falling or near-zero, adding debt appears sustainable. But if interest rates rise, the debt quickly becomes untenable. So-called Zombie Corporations have one trick to stay alive despite their decaying financials: they roll over their higher-interest debt into a larger, lower-interest debt. This works until banks refuse to loan them more money, and interest rates rise.
Bubble Bursting
Next, let's consider the "impossible," i.e., bubbles popping with extreme prejudice. How do we know a bubble is a bubble? If the deflation of the bubble is declared "impossible." For example, today's global Everything Bubble. History has shown that all bubbles pop. Bubbles pop with an eerie symmetry, falling at roughly the same time scale and rate as their ascent.
Ignoring the Warning Signs
We can ignore the 17 indicators clanging loudly and base our confidence on eternal expansion of everything on the Fed Put, AI, or Martian Central Bank quatloos. All that matters is that a permanently high plateau of overvaluation and financial fantasy is presented as inevitable.
Bottom Line
The smart money is selling, of course, as the clanging indicators are the dinner bell announcing the banquet of consequences has been served. It's clear that ignoring the warning signs of a global recession could lead to significant financial consequences. What is your perspective on these indicators? Do you think a global recession is imminent? Share your thoughts and this article with your friends. Remember, you can sign up for the Daily Briefing, which is every day at 6pm.
