Warren warns of 'coming economic crash'

[highplainsdem]

https://www.politico.com/story/2019/07/22/elizabeth-warren-economic-crash-1424588

Sen. Elizabeth Warren on Monday predicted an imminent economic crisis unless the Trump administration and Congress quickly pass legislation to regulate the financial sector and significantly reduce middle class household debt.

“Warning lights are flashing. Whether it’s this year or next year, the odds of another economic downturn are high — and growing,” Warren (D-Mass.) wrote in a Medium post entitled "The Coming Economic Crash--And How to Stop It."

“I see a manufacturing sector in recession. I see a precarious economy that is built on debt — both household debt and corporate debt — and that is vulnerable to shocks. And I see a number of serious shocks on the horizon that could cause our economy’s shaky foundation to crumble,” she wrote.

Most of Warren’s proposals to head off the crisis are policies she has called for recently on the campaign trail such as forgiving over $600 billion in student loan debt, enacting her “Green Manufacturing Plan”, strengthening unions, providing universal child care and raising the minimum wage to $15 an hour.

-snip-

Link to that Medium post:

https://medium.com/@teamwarren/the-coming-economic-crash-and-how-to-stop-it-355703da148b


Whoops. Looks like DU's software breaks up the link, so you'll have to go to the Politico article and click the link they give in the second paragraph.

[dalton99a]

1. Kick

But Warren has long been arguing that the economy is not as strong as the toplines suggest. “The overall numbers about GDP or the stock market are great but they don’t reflect the lived experiences of most Americans,” she told reporters in May after a town hall in Nashua, N.H. “Go around a room like this. For most people, wages haven’t gone up in a generation and yet the cost of housing, the cost of health care, the cost of childcare, the cost of sending a kid to college have all gone through the roof. The middle class squeeze is real and it has gotten tougher for people over the last few years.”

She writes that she warned of the 2008 financial years beforehand and sees similarly ominous signs now. “And when I saw the seeds of the 2008 crisis growing, I rang the alarm as loud as I could,” she writes, citing interviews and her 2003 book Two Income Trap, which warned about a mortgage “lending industry run amok.”

Instead of housing and mortgages, Warren pointed to leveraged corporate loans — lending to companies with high levels of debt — as a potential area of systemic risk. “These high-risk loans now make up a quarter of all American business loans, and they look a lot like the pre-2008 subprime mortgages: poorly underwritten loans with minimal protections that are then packaged and sold to investors,” she wrote.

Warren also argued that high levels of household and corporate debt could also make any economic turmoil spread quickly and could be mitigated by enacting her agenda on items like raising the minimum wage and canceling student loans — bringing down the level of household debt. “The country’s economic foundation is fragile. A single shock could bring it all down,” she writes. “And the Trump Administration’s reckless behavior is increasing the odds of just such a shock.”

[bucolic_frolic]

2. Not sure

the wisdom of assuming the role of politician-prognosticator. You can be wrong on timing, degree, remedy.

Yes the economy is weak. Spending is flagging. The markets are comatose. The only thing moving is gold due to Trump's inflationary policies, and tech, due to innovation.

Economic conditions reflect the political mood. We are in treacherous waters. Everyone in this environment wants to avoid risk, which causes a further downturn. This sounds to me like President Carter's period of malaise, and Andrew Jackson's bank recession. When politicians try to push economic buttons hard, they rarely respond after a long period of (Obama) prosperity.

[BeyondGeography]

3. Some excerpts from the original post on Medium

Household debt. A generation of stagnant wages and rising costs for basics like housing, child care, and education have forced American families to take on more debt than ever before. The student debt load has “more than doubled since the financial crisis.” American credit card debt matches its 2008 peak. Auto loan debt is the highest it has ever been since we started tracking it nearly 20 years ago, and a record 7 million Americans are behind on their auto loans — many of which have similar abusive characteristics as pre-crash subprime mortgages. 71 million American adults — more than 30% of the adults in the country — already have debts in collection. Families may be able to afford these debt payments now, but an increase in interest rates or a slowdown in income could plunge families over a cliff.

Corporate debt. Corporations are also deeply in debt. Leveraged lending — lending to companies that are already seriously in debt — has jumped by 40% since Trump took office, spreading “systemic risk” throughout our financial system. These high-risk loans now make up a quarter of all American business loans, and they look a lot like the pre-2008 subprime mortgages: poorly-underwritten loans with minimal protections that are then packaged and sold to investors. I’ve warned regulators about my concerns — which experts share — but their tepid response shows they haven’t learned the lessons of the last crisis.

Manufacturing recession. Despite Trump’s promises of a manufacturing “renaissance,” the country is now in a manufacturing recession. The Federal Reserve just reported that the manufacturing sector had a second straight quarter of decline, falling below Wall Street’s expectations. And for the first time ever, the average hourly wage for manufacturing workers has dropped below the national average.

...The financial markets agree that there is a serious risk of downturn in the near future. The U.S. Treasury yield curve — a barometer for market confidence — normally slopes upwards because investors demand higher yields for bonds with longer maturities. But this March, it inverted for the first time since 2007, signaling that investors are so worried that things are going to get worse that they’d rather lock in lower rates for the future today than risk long-term rates going even lower. The curve has inverted before each and every recession in the past half century — with only one false signal.

[Vogon_Glory]

4. I take her warnings seriously

I’m not sure there’ll be a downturn as soon as she projects, but even Warren’s campaign-mode claims are a lot more reliable than the “Everything’s hunky-dory” assumptions of the current Trump-publican economists.

[Blue_true]

13. She said this year or next year.

Personally, if it is going to happen, I would rather see late this year and next year so that it does damage to republicans running for office this year and next year.

[Vogon_Glory]

20. As a decent human being, I can't wish a recession on anyone, but

if there is to be a recession in the next two years, I hope it hits Donnie with the same bad timing that Dubya’s 2008 recession hit Mittens and the Republican presidential campaign.

[Blue_true]

24. 2008 was McCain/Palin aka, the ticket from hell.

But I get your point.

Like you I prefer not to have deep recessions, but if they guy republican officeholders that makes things better.

[thesquanderer]

5. If it's going to happen, let's hope it happens before 11/3/20.

Of course, election aside, it's better if it doesn't happen at all. But yeah, there are signs...

[Drunken Irishman]

10. My fear is it's going to happen in 2021...

Either too late to remove Trump from office or late enough that the next Democratic president is saddled with a recession in their first year in office (and likely to get a brunt of the blame).

We'll get a recession. Economies have to correct and we've seen unprecedented economic growth now for a decade. It's coming - the question is when will it come?

[Blue_true]

14. Actually before November this year and into next year.

That will kill republicans in this year's political cycle and seriously cripple or end the chances of the ones running next year. Our candidates must be merciless in laying the blame at republicans' feet, even if they were not in elected office, blame them for being in that party and imply that if they were in office they would have approved the policies that destroyed the economy.

[Sherman A1]

6. Yes, this is certainly a distinct possibility but we need more than this plan

[Iliyah]

7. The USA's economy is slowly

spiraling downward. I see it when I shop, prices raising.

The corporate media is not giving the facts, only that the economy is "blooming", which is a boldface lie.

[Blue_true]

15. I am seeing bank branches that almost look like graveyards, restaurants that are empty.

Businesses that are closing. This has been going on for the last year.

[spinbaby]

8. I've moved my IRA out of stocks

My financial advisor completely agrees with me.

[Blue_true]

16. I did that in 2007 and was really happy that I did.

I saw out the 2008-2009 bloodbath, all in bonds or high grade money market securities. Then I went back into stocks soon after President Obama was sworn in. I became pretty much wealthy, I ran into financial problems a few years later because of a business investment, but that 2007 decision was brilliant. I am fortunate now because I can shape my business to the economy without causing a lot of peripheral damage, the earlier business failure taught me how to do that.

[The Liberal Lion]

9. I agree with her that a major crash is not that far off.

I also agree with the majority of her proposals save for one aspect, namely the $15.00 minimum wage. I've seen about 5 minimum wage hikes in my life time and none have seemed to solve the problem that it set out to solve, namely lifting folks who work at the minimum wage out of poverty. The best means of lifting one out of poverty is education, lifelong education. That education can be college/university based and tech/skills based. We should, in America, have tax payor financed education. That being said, I don't think the government should be interfering with wages in the private market, but rather should expand Americorps to provide citizens with work that is indeed paid at at least that $15.00 per hour depending on the job being done and the amount of education needed for that job. This would then increase the competition for labor and would allow wages to rise naturally as a result of the government work programs. Artificial interference into the labor market will only cause employers to either do more with less or automate, both resulting in a reduced need for laborers and thereby reducing wages.
I, however, agree with everything else she proposes.

[Blue_true]

17. I have pointed out that unless we work to make housing affordable for low wage people,

raising pay just puts them on a treadmill like lab mice.

Daycare is another area that the government can impact positively. If people can get their kids into quality daycare for less money, parents can either save the money saved on daycare, or spend it on other needs.

[The Liberal Lion]

21. As a real estate broker and a person who advises investors in real estate matters

I will say this, and it's something I have worked on and advocated my whole career, namely there is, in most cites (certainly not all eg San Francisco), plenty of affordable housing. It's just most people don't want to buy where the affordable housing is. The affordable housing in most cities can be found in the inner cities. I'm not saying this to you to be contrarian. I recognize your point and it's well received. There are incentives for people to buy in inner city areas both from the government at all levels, and sometimes from property owners themselves, but people tend to stretch themselves in order to move away from the inner cities instead of living well within their means and buying a home in the inner cities. This creates a deleterious cycle of decay and neglect in the inner cities, while creating an ever rising real estate price bubble outside of the same.

Your other point is also true. Daycare carries a killer cost, but with it being true that every adult in a household needing to bring in some kind of income in order to maintain that household and that making sure our children are well taken care of and educated being a societal good, there needs to be a solution for it's better financing.

In all these words I guess I just wanted to say that I agree with you.

[Blue_true]

23. Do you see young people moving back to the city near you?

I think in San Francisco, Portland Oregon and Seattle that has long been the case, that is why real estate prices are insane in those places, lots of high paid people of all races competing for housing. From observing from a distance, Boston, New York City and Washington DC started down that path around three decades ago, young professionals buying up formerly inexpensive real estate and slowly running up the price of housing.

[Yo_Mama_Been_Loggin]

11. Seems to occur after Republican freespending and deficits.

[Blue_true]

18. Always. Rinse and repeat. Democrats straighten things up, rinse and repeat. nt

[corbettkroehler]

12. She's Right - Multiple Wall Street Experts Have Issued The Same Warning

Just as she, Sanders and others said when the tax scam was approved, the ballooning of the deficit astonishes. The 2019 deficit numbers have been FAR, FAR worse than at any other time in our history, even 2008.

[Celerity]

19. 'The 2019 deficit numbers have been FAR, FAR worse than at any other time in our history'

not true

https://www.thebalance.com/us-deficit-by-year-3306306







Resources for Table

Deficit from 1929 to 2017: Historical Tables, Table 1.1, Office of Management and Budget.

Deficit from 2018 to 2021: FY 2020 Budget, Table S-4, Office of Management and Budget.

Debt from 1929 to 2018: U.S. Treasury Historical Tables and U.S. Treasury, Debt to the Penny.

Debt from 2019 to 2021: FY 2020 budget, Analytical Perspectives, Table 4-2. Federal Government Financing and Debt.

GDP and Personal Income, Table 1.1.5., U.S. Bureau of Economic Analysis

Cost of Wars

[MBS]

22. Sen. Warren is correct

Ever since #45 was elected, I've been operating under the assumption that a crash awaits us.