Yield curve inversion ‘less ominous’ than it might seem, says Paul Krugman

President Trump’s tariff-happy trade war with some of the United States’ major commerce partners, including China, is often considered a boogeyman as fears of a global recession dance in the heads of economists and investors. But Nobel Prize-winning economist Paul Krugman doesn’t lay the entire onus at the foot of the Oval Office.

Instead, Krugman said that the trade war is just “one ingredient” amid a smorgasbord board of reasons for what could be a looming international economic downturn. He wrote something similar in 2018 when he argued that there was nothing as “obvious” as the housing bubble to predict a forthcoming crash, but that there were several mid-sized bubbles that could lead to a tumble.

…the petering out of the tax cut; tensions in Asia, etc. etc. The inverted yield curve is NOT an independent cause, but rather a reflection of worries about all this. Still hard to see another 2008. But another 1990-91 looking q possible 3/

— Paul Krugman (@paulkrugman) August 14, 2019

Krugman isn’t really defending the White House’s policies — in fact, back in 2016, before Trump was elected, he predicted that his presidency would lead to an “endless recession.” He’s just taking a larger view of all the economic mechanisms at play here.

The well-known economist also isn’t pressing the panic button just yet, even after news broke about the U.S.’s 10-year yield dipping below the two-year rate for the first time in a decade on Wednesday.

That now looks like a clear mistake — partly bc the Fed misjudged the labor market, partly bc it gave too much credence to stimulus from tax cut. But I think this story makes the yield curve inversion less ominous than it might otherwise seem 2/

— Paul Krugman (@paulkrugman) …read more

Source:: The Week – Business


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