Gene Kerrigan: ‘Is the bottom about to fall out, yet again?’


Gene Kerrigan: ‘Is the bottom about to fall out, yet again?’

Don’t even mention the recession the experts fear is coming, just feel grateful for Varadkar’s tax cuts, writes Gene Kerrigan

What do you think about what’s happening with the yield curve?

In some parts of the world – the parts with the big offices, the sharp suits and the ridiculous salaries and bonuses – these days they’re a bit worried about the yield curve.


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Because, it’s inverted.

Which means the lights will soon be burning through the night at the Department of Finance. Because Varadkar, even as he continues posing for every possible photo op, is worried.

The days when investors made decisions on the basis of experience and instinct are long gone. Today, decisions about vast amounts of money are made scientifically.

Investment companies and banks employ regiments of analysts. The government departments that serve the companies and banks have some, too.

These are mostly young people who came out of the womb tapping their calculators. They provide their ultimate masters – investment firms and other professional gamblers – with reams of analysis. This includes mathematical papers loaded with charts, graphs, tables and footnotes.

And of all their statistical tools, none is more significant for investment firms and other professional gamblers than the yield curve.

What is the yield curve?

If I invest a million dollars for three months I’ll get Xpc interest (yield) from the financial markets.

If I invest a million for a whole year I’ll get a higher yield. And if I invest it for 10 years I get an even higher yield.

The yield curve is a line on a chart. It tracks the hour-by-hour relationship between the interest rates offered for investments of various lengths of time – three months, a year, two years, and so on.

This line is usually one that gently ascends.

Rarely, the figures will show that you’ll get a higher yield on a short-term investment than you’ll get on a long-term investment. When this happens, the term used is that the yield curve has ‘inverted’.

This explanation is very basic – there are all sorts of curves within curves. Around October of last year, the yield curve indicated possible problems, but no one was too worried.

The yield curve that matters most is the one that shows the relationship between the rates of yield from money invested for 10 years and money invested for three months.

And a couple of weeks ago, this curve inverted.

This meant you’d get more for your million if you invested short term – indicating falling confidence and rising instability.

Why does this matter? Because, over the past 50 years or so, every economic recession was signalled by such a yield curve inversion.

It’s not an immediate link. It takes time to play out. An inversion in 1973 was followed by a recession six months later. There was a 17-month gap after the inversion that signalled the coming recession in 2008.

The average gap between inversion and recession, over 50 years, was 12 months.

And, to make things more uncertain, there were a couple of false positives over those 50 years – inversions that were not followed by recessions.

So, the stats say there’ll probably be a recession in early 2020. Give or take a few months.

These are American statistics, but the global nature of the economy ensures recession rapidly spreads. The European economy is in worse shape, and the Chinese economy has everyone worried.

The Brits think they’re up Shit Creek now – wait till they notice they’re drifting into Excrement Ocean.

What complicates everything is that states everywhere are chin deep in the debt created to prop up the private financial system after the 2008 crash.

So? First, these matters are commonplace among the rich, and those who serve them. They’re discussed in the more esoteric sections of the business media. But not in front of those who will take most of the pain of a recession – us.

In September 2008, when citizens went on Liveline to say there seemed to be problems with the banks, the Department of Finance got on to RTE, which immediately shut down the discussion. These things are not for us to talk about.

Ours not to wonder why – ours but to suffer the pay cuts, service cuts and job closures.

Since it involves our jobs and living standards, though, it’s worth knowing. And, since most of the economists work – directly or otherwise – for the investment companies and banks, we have to try to work it out for ourselves.

Knowing about these things matters. If you’re negotiating a contract – say it’s a pay rise – you may find the employer offering some now and more later. When a recession hits, inability to pay kicks in. Demand it now.

As in 2008, we can expect the rich – forewarned by their economic analysts – to quietly hide various assets as they anticipate the recession.

Secondly, look around. Just as the pre-2008 boom came and went and major social problems were left unsolved, so it is today. Over ten thousand homeless, and that’s just the most obvious part of the housing crisis.

There are 611,982 people in substandard accommodation.

People live with their parents long after they want to. People couch surf with their friends.

Government priority is to ensure the vultures are happy. As a result, a United Nations report notes that “landlords have become faceless corporations wreaking havoc with tenants”.

Airbnb has converted masses of apartment housing to the tourist trade. Individual investors, and big companies, profit, and tourists get cheaper accommodation. Homelessness grows.

One in five people pay over 40pc of their disposable income on accommodation. One in 20 spend over 75pc.

We have the worst public hospital waiting lists in Europe. There are 542,000 people waiting to see specialists – one in nine of the population. The target for hospital waiting lists is an incredible 18 months, and they’re failing to meet it.

As a result, 216,500 have waited over nine months for a first contact. And 100,000 are waiting 18 months.

The Government response is to use various tricks to “prune” the waiting lists, for housing and for hospitals, just as it artificially pruned the unemployment figures.

Don’t deal with the problems, fiddle with the figures, to pretend the problem is being dealt with.

It’s 13 years since a national emergency was declared in the country’s A&E system, and there are still over 500 regularly waiting overnight on trolleys.

Not to worry. Profits are soaring. The rich are siphoning off vast amounts of our hard-earned wealth – ratcheting up the price of a roof over our heads, charging outrageous professional fees and designing the loopholes the State provides for them to wriggle out of their taxation responsibilities.

Word has long been out – the Irish State will help you plunder the citizens.

And when a recession hits, we’ll be told we demanded too much public spending – just as in 2008, in the face of all the evidence, FF told us “we all partied”, and FG said we “went mad”. And they got away with it.

Leo Varadkar is committed to major tax cuts, to consolidate the FG base for the coming election. To continue with this when the warning bells are ringing about a probable recession would be deliberate economic sabotage for short-term political gain.

But right-wing politicians are as committed to tax cuts as they are to holding the jackets of the profiteers while they shake us down for every spare cent.

Just don’t mention the yield curve inversion.

Sunday Independent


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