Barron's Nonsensical Idea: Cut Rates Like Mad to Avoid Recession
One of the most reliable harbingers of U.S. recession—short-term interest rates on U.S. Treasury debt higher than longer-term yields—has been flashing warning signs for months. That doesn’t mean the economy is doomed to a downturn.
So-called yield-curve inversions have preceded every U.S. downturn since the 1950s, with only one false positive in 1966. This past week, the yield on two-year Treasuries briefly surpassed the yield on 10-year notes for this first time since 2007. The most straightforward explanation is that traders...
The rest of the article is behind a paywall, but I can tell you with 100% certainly Klein's notion is absurd.
Inverted yield curves do not cause recessions. They are symptoms of a buildup of excess debt or other fundamental problems.
Those problems will not not go away if the Fed "cuts rates like 1995" or even like 2008.
If a zero percent interest rate stopped recessions, Japan would not have had a half-dozen recessions in the past decades that it did have, many without inversions.
Not even negative rates can stop recessions.
The Eurozone, especially Germany, has negative rates. Yet, it's highly likely the Eurozone is in recession now and even more likely Germany is (with the rest of the Eurozone to follow).
As a prime example of global monetary madness, witness Inverted Negative Yields in Germany and Negative Rate Mortgages.
Even if the Fed made a 100 basis point cut (four quarter point cuts at once), what the heck would that do?
Stop recession for how long? Zero months? Six months? And at what expense?
Yes, what then? Negative mortgages? A 10-year yield of -1.0% like Switzerland.
And if that doesn't work?
Hello @M_C_Klein What then?
Central banks are the source of problems, not the cure. If central banks could stop recessions, there never would be any!
Mike "Mish" Shedlock