Economist Mark Spitznagel, whose US market crash 2000 and 2008 warning was right, describes many number of ways the US economy might be trending toward a severe downturn. Spitznagel notes that if the current economic challenges are not fixed soon, the U.S might be looking at a big recession especially with the coming of the election year.
What led to the conclusion?
Spitznagel analyzes various fundamental factors that lead him to postulate that the given market rally is deceptive and is temporary on the surface, but is orchestrated by more profound problems in the background. Yet, he argues that it is possible to be in a recession even when the market looks quite strong. While pointing to recent market growth, he may not be right and the trend might turn out to bring adverse consequences to the USA economy.
First, Spitznagel argues that the recent reduction of the key interest rates by US Federal Reserve may not be enough to handle the upcoming crisis. Although the Fed cut interest rates not long ago, the economist doubts that this will suffice if the country moves into a recession mode. Furthermore, further reductions in interest rates could put treasurers into more difficulty, the US Treasury said.
All is not as rosy as it looks
The core issue is hence based on the uncertainty that defines today’s economy. While the US markets may look exceptional at the moment, Spitznagel debunks the myth arguing that the situation is actually more worrisome than stable. If now a recession comes, then short of adjustment mechanisms, the United States may face serious difficulties with the necessary response that is particularly worrisome given the limited number of options the monetary policy available at the moment.
From this warning one can conclude that policymaker should take an action immediately, in order to avoid a situation which can lead to an economic meltdown that would have detrimental effects on the economy not just in the country, but internationally as well.
