The year of living dangerously

I don’t know what will happen in 2023, but I do know that the outcome with be interesting.

Here’s the FT:

Economists tend to think in small incremental steps, missing big turns in the story, which helps explain why their consensus view had not forecast a single US recession since records began in 1970 — until now.

For the first time, economists as a group not only expect a recession in America in the next year, but give it a very high probability, more than 60 per cent. Given their record, it’s worth asking whether the consensus is, in fact, unlikely.

Bloomberg says the actual probability is 100%:

Bloomberg economists forecast 100% chance of US recession in the next year

Hmmm . . . That’s a pretty high level of confidence, given that the consensus view of economists has always been wrong since records began. Are we talking metaphysical certitude? Objective reality? A God-like view?

In 2023, we will either have a recession (which is interesting because economists will be correct for the first time ever), or we will not have a recession, despite a “zero probability” of not having a recession. That would also be interesting.

The FT also has a paragraph that left me scratching my head:

This is hardly the most likely scenario and compared with economists, who typically call recessions months after they have begun, markets have a good forecasting record. Though markets can send false signals, showing jitters before downturns that never arrive, they also anticipate real recessions consistently. Going back to the second world war, the US stock market has typically fallen at least 20 per cent and bond traders have always pushed short-term yields above long-term yields in the months before a recession. Both of those market signals are warning of a recession now, so to picture alternate outcomes may be magical thinking.

Doesn’t the 2nd sentence in that paragraph sort of contradict the 4th sentence?

I don’t have strong views on the question. I recognize that recession risks are elevated during periods where the Fed is trying to reduce inflation. (High interest rates mean nothing.) But I don’t have strong views on whether a recession will occur in 2023. A mini-recession might be a nice change of pace, given that the US has never had one. Say no more than 5% unemployment at the peak?

In the past, I argued that recessions should normally be unforecastable, because if they were expected then they would be prevented by the Fed. The one exception was when a recession was optimal policy, the only way to control inflation. Today, I don’t believe we need a full blown recession, but I suspect we need a mini-recession to control inflation. In other words, if we reduce NGDP growth to 5% for one year, and 3.5% thereafter, we’d probably get a mini-recession, and that NGDP path would also bring inflation under control. If we miss that target path by being too dovish, we won’t control inflation. If we miss in the hawkish direction, we’ll have a full blown recession.

BTW, many commenters told me that a recession began last winter. If you are in that group, don’t bother giving me your forecast. I don’t care. And if you are in the group of us that understood that two negative quarters don’t mean recession, I’m still not interested in your forecast. Sorry.



19 Responses to “The year of living dangerously”

  1. Gravatar of George George
    11. November 2022 at 14:38

    “many commenters told me that a recession began last winter. If you are in that group, don’t bother giving me your forecast. I don’t care. And if you are in the group of us that understood that two negative quarters don’t mean recession, I’m still not interested in your forecast.”

    You don’t even have a measurable or coherent definition of recession anyway, and you’re an ‘economist’, LOL.

    I am seeing multiple wafflings in the blog’s history.

    In one location, there is this definition:
    “A period of time when growth is well below trend”

    In another:
    “My suggestion is that we start defining the term ‘recession’ as a substantial rise in the unemployment rate”

    These aren’t even measurable definitions, neither ‘substantial’ nor ‘well below’ are defined.

    They are definitions made intentionally obtuse so as to never be wrong no matter what happens, i.e. Non-falsifiability.

    Karl Marx did the same thing:

    “It’s possible that I shall make an ass of myself. But in that case one can always get out of it with a little dialectic. I have, of course, so worded my proposition as to be right either way.” – Karl Marx

    Those words, ‘I have, of course, so worded my proposition as to be right either way is exactly how the two ‘recession’ definitions are worded.

    Site owner can always quibble about what ‘he really meant’ by ‘well below trend’ and ‘period of time’ and ‘substantial rise’. There is no there, there.

    Fact: There were indeed two successive quarters of negative GDP last winter. Whatever WORD you want to use to DEFINE that series of events is 100% irrelevant to whether or not there was or was not two successive quarters of negative GDP.

    The definition commonly used AND TAUGHT IN UNIVERSITIES for decades was two successive quarters of negative GDP.

    If you want to change the wording, fine, change the wording, but you can’t erase the objective fact that under Biden there was, and if the referenced ‘predictions’ are right, there will again be, another recession.

    For me, I don’t make predictions on recessions because the bubble bust cycle is CAUSED by the Rothschild cult controlled ‘central banks’ worldwide, and that is determined by essentially the whims of their choices to silently STEAL from the people, taxation without representation.

    To predict recessions is to ultimately predict the choices of the human mind, which ONLY a superhuman ‘god view’ can achieve for humanity.

    None of us can even predict what we ourselves as individuals will learn and when we will learn it, new knowledge is by nature a ‘surprise, and thus what we will do, which is influenced by what we learn, what we think, also cannot be formally predicted, using the methods of the hard sciences. It is foolhardy to believe that any human being can predict the future thoughts and actions of others using hard sciences style constants and formulas.

    “But what good are economists then if they can’t predict the economy?” it is demanded. Answer is, the question is itself predicated on an epistemological error in understanding acting entities like us human beings. We’re more than our parts, we’re an emergent self-reflecting species, we have consciousness. We can’t logically predict, i.e. know NOW, what we will learn in the future, before we actually learn it. The whole enterprise of the scientific method is to spend time and resources to conduct research, to test hypotheses, to learn new things over time. We can’t collapse all future time to an instant in the present.

    Whether or not there will be a recession, or worse, next year depends on whether those who ‘control the money’ decide to cause one or not.

    Everyone wasting their time measuring indicators and trying to mimic physics should just forward all their queries to the Rothschild cult, and ask them.

    Or, since Evelyn De Rothschild recently deceased, maybe, just maybe, the Era of lies and silent theft is coming to an end and we won’t have ‘recessions’ anymore.

    Gold will destroy the Fed.

    If I were an economist, I would envy the Austrian school right about now. If I were to make another prediction, I predict that they’re going to BECOME the mainstream. Screencap this.

  2. Gravatar of Michael Rulle Michael Rulle
    12. November 2022 at 05:05

    Predictions are difficult——if not impossible. Worse, are trying to define terms. I think it is clear when large recessions exist ——such as 2008. Then it went away. But small recessions —-are they even meaningful? Does the term even matter?

    S&P almost at 4000. Why? I guess the inflation numbers beat expectations by a good amount. Did that include a view that a large recession is not likely? I assume so. Or, was it merely investors getting out of short positions due to fear? I don’t know.

    I wonder if GS and B of A will reverse there forecast of zero earnings growth for next year. I think forecasts are basically random. But I do find it funny that within a day of their lowered forecast the S&P hit next years forecast of 4000.

    Random walks down Wall Street. I have devolved to “intuition”. For some reason—-as I mentioned before——I feel slightly optimistic. Even when Dems win both Senate and House.

  3. Gravatar of Spencer Spencer
    12. November 2022 at 05:20

    re: “I would envy the Austrian school right about now.”

    Neither the Austrian school nor the MMT groupies know a debit from a credit.

    All monetary savings originate within the payment’s System. And banks do not loan out deposits, they create deposits. Bank-held savings have a zero payment’s velocity. It’s Stock vs. Flow. The expansion of interest-bearing saved deposits makes no contribution to gDp.

    re: “NGDP path would also bring inflation under control”

    Sumner gets this right, but it has an unnecessary cost – secular stagnation, a deceleration in the velocity of circulation of personal savings.

    Rather than bottling up existing savings, the authorities should pursue every possible means for promoting the orderly and continuous flow of monetary savings into real investment (which increases the real rate of interest). I.e., the FED should drive the banks out of the savings business (which contrary to the FED, doesn’t reduce the size of the payment’s system).

    “When deposits are removed from the banks, the banks have less money to lend and liquidity dries up.” From the St. Louis FED – “Liquidity Dries Up”

    Interest rate suppression? Alfred Marshall got it right: “Low interest rates may induce people to hold onto their funds and not part with liquidity for such a small price. This will also tend to reduce the supply of funds and their velocity.”

    “Money” is the measure of liquidity; the yardstick by which the liquidity of all other assets is measured.

    It is much more desirable to promote prosperity by inducing a smooth and continuous flow of monetary savings, income not spent, into real investment, than to rely, as we have done c. 1965, on a vast expansion of bank credit with accompanying inflation to stimulate production.

    The correct response to stagflation is the 1966 Interest Rate Adjustment Act. “while the aggregate of time and demand deposits continued to increase after July, the proportion of time to demand deposits diminished. Whereas time deposits were 105 percent of demand deposits in July, by the end of the year, the proportion had fallen to 98 percent. These were all desirable developments.”

    M1 peaked @137.2 on 1/1/1966 and didn’t exceed that # until 9/1/1967. Deposit rates of banks decreased from a high range of 5 1/2 to a low range of 4 % (albeit not enough). A .75% interest rate differential was given to the nonbanks.

    And during this period, the unemployment rate and inflation rates fell. And real interest rates rose.

  4. Gravatar of Spencer Spencer
    12. November 2022 at 05:46

    Contrary to the deregulation of Reg. Q ceilings, the deregulation of all interest rates for banks (the nonbanks were already deregulated prior to 1966 when inflation began to assert its reinforcing self);

    savers never transfer their savings outside the banks unless they hoard currency or convert to other national currencies, e.g., FDI. There is just an exchange in the ownership of pre-existing deposit liabilities in the banking system, a velocity relationship.

    Unlike the nonbanks, the commercial banks suffer no disintermediation when savers decide to shift their savings to another type of investment. Shifting from time deposits in the commercial banks to nonbank types of investments has no effect on the total assets or the volume of earning assets of the commercial banks. It merely involves a transfer in the ownership of existing deposit liabilities, from time to demand deposits within the payment’s System.

    Commercial banks do not loan out time deposits, demand deposits or the equity of bank owners. Commercial banks acquire earning assets through the creation of new money. When commercial banks make loans to or buy securities from the nonbank public new money- demand deposits are created in the banking system.

    The aggregate lending capacity of the payment’s System is determined by the monetary policy of Federal Reserve Authorities. It is in no way dependent on the savings practices of the public. People could cease to hold any savings in the commercial banks and the lending capacity of the payment’ System would be unimpaired.

    BOE: “Money creation in practice differs from some popular misconceptions — banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they ‘multiply up’ central bank money to create new loans and deposits. The amount of money created in the economy ultimately depends on the monetary policy of the central bank”

    The principal ways to reduce the volume of bank deposits is for the saver-holder to use his funds for the payment of a bank loan, interest on a bank loan for the payment of a banks service, or for the purchase from their banks of any type of commercial bank security obligation, e.g., bank stocks, debentures, etc.

  5. Gravatar of George George
    12. November 2022 at 06:45

    Spencer, I already helped you realize that what you thought was a minor or trite point, the way you said it was something like “it’s a given that banks have deposits”, in fact blew up your entire ‘cart before the horse’ banking worldview.

    Deposits are logically and temporally PRIOR to loans. Loans are loans OF SOMETHING, and that something MUST ALREADY EXIST in the banking ‘system’ before it can even be said that it is loaned. You keep using the same words, but your dictionary has issues.

    Fractional reserve banking EXTENDS from this primary logic of deposit before loan whereby loans are made beyond deposit amounts, but at all times those ‘promises to pay’ are promises to pay WHAT IS ON DEPOSIT. Just because there are accounts credited with higher numbers due to the granting of unbacked loans, it doesn’t mean that this suddenly becomes the primary logic of banking where deposits are created by loans. Banks STILL REQUIRE deposits in order to do any fractional reserve lending. Deposits are still primary to loans.

    In other words, in a loan, when one person’s cash or savings account is credited while the bank debits it own account, even if it is beyond what the bank has on deposit, that isn’t evidence that ‘loans create deposits’. Ask again what exactly is being loaned.

    Money existed as a DEPOSIT in the banking system before any loans or debt arose, this is basic logic.

    Contrary to your reasoning being superior relative to the Austrian logic, in truth it’s clear your reasoning is flawed due to a superficial observance that betrays a logical and historical understanding of what it is you’re observing at that superficial level. You see accounting entries and make false inferences from them.

    By your logic, you and I can create $100 trillion of new money ourselves if I say to you I loaned you $100 trillion, credited your account you have with me, and let’s agree I will maintain possession of it on your behalf. Like you alluded to, it’s just a credit and debit entry.

    Now ask what exactly I loaned to you. Ask whether the loan ‘created’ the deposit, or whether there MUST BE AN ASSUMPTION OF AVAILABLE MONEY ALREADY ON DEPOSIT in order for this entire operation to even take place. Like you said, ‘it’s a given banks have deposits’

  6. Gravatar of Spencer Spencer
    12. November 2022 at 07:34

    Indeed, as evidenced by the existence of “float” reserve credits tend to proceed reserve debits.

  7. Gravatar of Ricardo Ricardo
    12. November 2022 at 08:17

    George said:

    “They are definitions made intentionally obtuse so as to never be wrong no matter what happens, i.e. Non-falsifiability.”

    I think this summarizes his blog nicely. It’s the same thing I’m seeing.

    He also seems to repeat whatever hears on CNN or MSNBC. There is no logical consistency to the substructure. His value system seems to blow in the wind.

    For example, corruption is bad, but corrupt politicians like Cheney are good.

    Hitler is a hard right Nazi, despite being a hard left socialist.

    In 2016, the election was stolen, but in 2020 election fraud was something facists made up to steal the election.

    Russia is secretly trying to destroy our elections, despite no evidence.

    The radical left is bad, but he supports radical left organizations like BLM (check his other blog).

    They are definitions made intentionally obtuse so as to never be wrong no matter what happens, i.e. Non-falsifiability.

    Wants safe and secure elections, but thinks asking for ID is voter suppression.

    CCP is bad, but he contantly praises the CCP despite the Uighyers, the attack on religious groups like Falun gong, and their total and complete suppression of speech.

    I was thinking about Freud yesterday, and it occured to me that he once spoke of people trying to justify the horrors of their own actions, by blaming others for the actions they commit. They engage in what Freud called “shifting of the blame.”

    In other words, White people deserve to be discriminated against because they’re all white racists who deserve whatever comes to them.

    We can subjugate states and individuals because it’s for the “common good.” It’s their fault they are being hurt, because they didn’t listen to our demands.

    In the past, Washington was very critical of countries that used mail-in ballots (take a look at carter center publications), because they are easily manipulated; but if suddenly the elites begin to lose elections, if the establishment loses, especially at the national level as they did in 2016 (and it’s not just trump, look at what the establishment did to Sanders), then we can implement mail in ballots because using people as a means to end is necessary to achieve elitist goals. And elitists always know what is best.

    etc, etc, etc….

  8. Gravatar of Sara Sara
    12. November 2022 at 08:50

    Here’s Sumner favorite guy: the high and mighty John Bolton.

    Mr. Gangbanger Bolton is now mocking the first amendement.

    Folks, we are in so much trouble, because Marx’s religious reverence for the elite is once again on the rise, and especially in the social sciences (economics).

    Soon, Sumner’s students will be forced to address him as

    “Your holiness, the great, the one true god of all gods, the omnipotent and infallible, the best there ever was and ever will be, the man with the blue check mark, the expert as defined by the state, I have a question.”

    “What? Make it quick.”

    “Why does the definition of economic recession continue to change whenver it suits the interest of a political party?”

    And he will respond with:


    at which point bolton will emerge to drag you out.

  9. Gravatar of Michael Sandifer Michael Sandifer
    12. November 2022 at 09:43


    You link to RT, which is a Russian government proganda site.

  10. Gravatar of Tacticus Tacticus
    12. November 2022 at 10:51

    Re: forecasts, I’m delighted to see that I’m currently in 5th place for the Hypermind 2022 NGDP contest, after finishing at 23 in the 2021 contest. Very curious to see how I end this time. The lack of a 2023 contest, however, leads me to believe that GMU is not finding value in the whole thing. Any thoughts on the experiment, professor?

  11. Gravatar of Scott H Scott H
    13. November 2022 at 07:43

    That headline should have read: Bloomberg economic model sh*ts bed, embarrasses firm and multiple professions.

  12. Gravatar of ssumner ssumner
    13. November 2022 at 08:30

    Michael, Sara’s been a Russia troll from day one.

    Tacticus, Last year’s market did not perform well, probably because the stakes were too low to bring in traders to correct the error.

  13. Gravatar of David S David S
    13. November 2022 at 10:21

    Tacitus, I think I matched my bet to yours a few months ago—8.5% for 2022—and I think the average “misunderstanding” error on Hypermind is around 2% as compared to 4% for 20211. If I win any Euros I’ll try not spend them all in one place. In general, I think Scott’s experiment is working a little better than he thinks it is, but it still needs more participants who understand what NGDP actually is.

    I could turn out to be hilariously wrong but I think some recent events are causing a tightening feedback loop that will drive U.S. NGDP rates considerably lower over the next 2 years. Maybe not fast enough for some people, but potentially sparing some pain on the unemployment front.

  14. Gravatar of Justin Justin
    13. November 2022 at 13:08

    –“There were indeed two successive quarters of negative GDP last winter. Whatever WORD you want to use to DEFINE that series of events is 100% irrelevant to whether or not there was or was not two successive quarters of negative GDP.

    The definition commonly used AND TAUGHT IN UNIVERSITIES for decades was two successive quarters of negative GDP.

    If you want to change the wording, fine, change the wording, but you can’t erase the objective fact that under Biden there was, and if the referenced ‘predictions’ are right, there will again be, another recession.”–

    A recession has always been a broad-based and sustained period of economic weakness. While this seems imprecise, as Scott noted the US doesn’t have much of a history of mild recessions, so it is very easy to tell a recession apart from a non-recession.

    Two consecutive quarters of negative GDP was a good rule of thumb for a long time, because this would nearly always occur during recessions. However, there are exceptions.

    In 2001, there were two quarters of negative GDP, but they were not consecutive. Nevertheless, there was a sustained period of job losses and a sharp increase in unemployment from late 2000 until early 2003, and we all recognize 2001 as a recession year. 2001’s GDP growth, averaging all 4 quarters, was just 0.2 percent vs. trend growth closer to 3.5 percent at that time.

    Most recently, we had two quarters of negative GDP in the first half of 2022, but job growth has remained strong and unemployment has remained low. GDP growth over the past 4 quarters has averaged 1.9 percent, a bit above trend growth which is in the 1.5 percent context, hence the labor market remaining strong until now.

    Part of the reason why 2 consecutive quarters is no longer a good definition of recession is because trend growth is now closer to zero. A quarterly growth number of -0.6 percent today is similar to a +1.4 quarterly growth number during the late 1990s, as trend growth has declined about 2 percent. Relative to trend GDP growth, the first half of 2022 is a lot like 1995.

  15. Gravatar of Justin Justin
    13. November 2022 at 13:09

    The first half of 1995, to be precise.

  16. Gravatar of Bob Bob
    14. November 2022 at 11:21

    The obsession with forecasting is the worst thing to happen to economics since the divorce from political economy. Historical research, knowledge building, and policymaking should be the primary goals of economics.

    Instead, every economist I know is ordered to produce low-quality forecast after low-quality forecast. Correct forecasts vs incorrect forecasts, makes no difference to an economist’s success or failure. Senior managers just want the illusion of certainty.

    Throughout my career, SVPs and Directors love asking for a forecast less than 24 hours before the actual data release, which is the least useful time for a forecast. It never drives any decision-making between the forecast and the data release, it’s just a game that they like to play.

  17. Gravatar of msgkings msgkings
    14. November 2022 at 22:48


    Good comment

  18. Gravatar of veritas veritas
    15. November 2022 at 09:16

    The fraud is astonishing.

    And, Democrats cheated AGAIN to steal the Arizona governor election. Everyone paying attention knows what happened. We knew the day after day delay was to manufacture enough fake votes to of course just barely eke out more votes for the non campaigning Hobbs than Kari Lake. That’s why Hobbs never debated Lake or campaigned. She knew the election was predetermined.

    Why would they do this? If they lost AZ, then the full truth about 2020 election theft would become public, and also because they weren’t held accountable or prosecuted the first time, so they’ll keep doing it.

    And Katie Hobbs, who is challenging Lake for governor, is as Secretary of State in full control of the election in AZ. Gee, no conflict of interest there! Look away sheep! Keep going with the muh Russia and muh Putin distractions while your country is stolen by criminals.

    The true purpose of modern wars is to create money laundering opportunities. Billions taken from US taxpayers as ‘aid’ to Ukraine, no audit of where the money goes, and ‘magically’ that money finds its way back into Democrat mid term election funding?

    Professor Sumner wrote about banana republics. The elections systems in D controlled states is indeed a banana republic.

    And that nasty horrible warmongering woman Liz Cheney actually thumbed her nose at democracy and mocked Lake for Arizonians being victimized by election fraud. The hubris of these warmongering criminals is unbelievable.

  19. Gravatar of veritas veritas
    15. November 2022 at 09:23

    Aha, now it makes sense why there was such bipartisan support for sending billions in ‘aid’ to Ukraine.

    The corrupt uniparty did this so that they could convert YOUR tax dollars into funding THEMSELVES.

    Trump was right. DC is one gigantic cesspool of corruption.

    No wonder the military asked him to run for President. An ‘outsider’ was needed to finally stand up to the corruption that had infiltrated the country at the highest levels.

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