The president acknowledged today that the American economy "may be heading for a recession."
This after the leading Wall Street index, the Dow Jones Industrial Average, dropped by nearly 3,000 points today, its largest point drop ever and the greatest daily percentage drop (12.93 percent) since October 1987, the start of the Great Recession.
The evidence of a coming recession is clear, and the strongest indicator is what economists know as an "inverted yield curve," where long-term bond interest rates are lower then short-term rates. This happens when investors pull their money out of stocks and buy long-term bonds instead because it's safer.
This indicator has predicted every recession for the past 85 years. The problem in the past, however, has been timing. There was no sure way of knowing the time lapse between a yield curve inversion and the start of an economic downturn. Now, however, it's clear that a recession is on the way, and part of the blame goes to the corona virus stalling so much activity in America and around the world.
Even so, at his news conference today, the president gave himself a score of 10 out of 10 for his handling of the crisis brought on by the virus outbreak, which he said could well last through the summer.
Economic cycles are like ocean tides -- they come and go. But unlike tides, economic cycles cannot be accurately predicted. There is on concept, however, which historically has a good record of anticipating a downturn, and that is the inverted yield curve.
It's an arcane concept to many, but is basic in Economics 101. While it may be a useful concept for policy makers to have in mind when advising government leaders, the variable time lapse can limit its usefulness.
Now, however, its usefulness is clear. The American economy is on the verge of a downturn. Another strong signal is that the Federal Reserve Board, after an emergency Sunday meeting, cut its major interest rate to near zero -- its way of encouraging businesses to borrow for regular operations and for expansion.
But will it be enough? Already, airlines, resorts, cruise lines and other major industries serving the tourist industry are hurting as entire nations go on lockdown because of corona virus fears. Cities and states throughout America have closed schools and businesses, and now the federal government has stepped in to ban gatherings of more than ten people.
How long will these measure be in force? Hard to predict, but even the president, with health experts at his side, said it may well last until July or August.
All things considered, however, it may well be that America is sliding toward its worst economic crisis since the 1930s.
And here's a curiosity for history buffs to consider: Every major downturn since then has happened when a Republican occupied the Oval Office.
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