US Recession Watch, May 2020 – US Yield Curve Hides the Truth

US Recession Watch, May 2020 – US Yield Curve Hides the Truth

Though US recession watch is most likely to peak in a few months and then plummet to nothing in mid-2020, analysts have been sounding warnings of an impending collapse of the financial system. Meanwhile, the Western world's fiscal policy is bankrupt and would require a war with Russia or China to survive. And still, the weakness and uncertainty continue.

So when US recession watch does peak, will the Fed continue to chase rates to sky-high levels and reignite the credit bubble or will the faith in the government and central bank system be shattered? And when will the United States stand alone as the only nation to suffer a full-scale credit crunch? After all, the next recession will not necessarily start in the United States, but because the state of the world's economy is so bad, it will spill over into the developed world, where economies are not yet established.

It is hard to say for sure what will happen next, but we can always be sure that the overall strength of the world's economic systems will weaken. And that means we should not be surprised when the next major recession begins, even if we don't notice it immediately. This is because the same old cycle of corporate bankruptcy and layoffs have been repeated countless times over the past decade and there will be more to come in the future.

How has this cycle evolved over the past several years, and is it a predictable one, or will it cause massive instability in all economic sectors? The cycle has been dominated by two factors: the Federal Reserve's commitment to the policy of quantitative easing (QE), and the huge decline in the value of our currency (the USD) as a result of excessive money printing.

Slump or No Slump

So, when the USD is devalued to the point that the Federal Reserve has absolutely no option but to stand by its policy of QE, will the fall be gradual or will it collapse completely in less than two years? Of course, we've seen this movie before.

With US recession watch on top, it's hard to predict what will happen next, but the Federal Reserve has ensured that the entire world is suffering from a serious global depression. But since all of us have suffered, and because the Fed has deliberately caused the situation, then the US currency should recover sooner rather than later.

And what will the outcome of the US recession watch be after its peak in late 2020? Will it result in a move away from quantitative easing? Or will it result in a gradual move towards increased inflation?

If the Fed continues with its monetary expansion, then inflation will certainly continue to rise, with a new curve towards greater inflation. That is unless the market is forced to think through and contemplate deflation, and then people will begin to realize that QE is nothing more than a trick.

Of course, the Federal Reserve is acting as if QE is going to be enough to bring the housing market to life, and real estate values back up again. But all of these inflated prices will soon fall down once people discover that they can get a lot more for their money by purchasing one house or another at a good price.

The best thing for investors and home owners is that, once the recession watch ends, the Federal Reserve will not be able to achieve the same levels of quantitative easing that ithas done up to now. And this will force the market to take a new look at the value of one dollar versus the other currencies that the world has.

And in the event that the end of recession watch actually comes, the Fed will probably be too afraid to do anything drastic. that it won't be able to lift interest rates all the way to zero.