Causes of recession

What could cause recession in today’s US economy? I have heard some noise about subprime auto loans.

I’m not worried about subprime auto loans. The average age of the US vehicle fleet is 11.6 years, and trending older. This means that overall, cars are more reliable and lasting longer, and implies that people are keeping them longer (or buying used). Nowadays every car company seems to be giving cars away at 0% (or up to 1.9%) financing. At that rate, you pay nothing today, with a nominal cost close to the inflation rate on incremental payments, and can use the lump sum you would have spent up front to invest with.

Student loan burdens and increasing health care insurance costs are making the economy grow slower than it could otherwise, since there is less money to be spent at the consumer level. That is effectively pushing a recession out further, by slowing our growth down to moderate levels (and backstopped with an accommodative Fed). A healthy economy chugging along at 1-2% each year is not one that is begging for a recession. It is just sort of plodding along.

A serious correction in another part of the world could create problems in ours. Almost half the S&P500 earnings are had overseas now. A big drop in earnings that is sustained, could leave investors reaching for safety and drive up treasuries again. I hope this doesn’t happen, as the Fed doesn’t have much left to give us on interest rates. The yield curve could invert quickly, with short term paper offering higher rates than long-term.

War could break out in Syria, and involve Russia to some extent, driving up the price of energy to Europe, leading to inflation there that cannot be overcome by the fragile economies of smaller EU member states, leading to more bailouts and more countries leaving the EU. Losing stability in Europe, and war, is a huge wild card.

Puerto Rico bailouts could force a strangle precedent in the US, and open the door for State bailouts of various indebted areas of the country. Unfunded pensions and the like could sink the deficit, and lead to all kinds of nefarious political unravellings, leaving the citizens with a loss of confidence, which could lead to businesses not hiring new people, not investing in equipment, not shipping items, and layoffs.

A huge earthquake could level silicon valley, with massive casualties at some of the largest companies, with major disruption to the ongoing work there.

Uber could go bankrupt, and lose all of those VC’s 10’s of billions, and lead to a silicon freeze.

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