If you read the daily finance news on the web, you know it is often just as sensational as the mainstream media. A big part of reading financial news is tracking forecasts and listening to the assumptions people make about their predictions. Some of these “experts” make wild predictions that never materialize. Maybe one of their predictions actually occurred once in the past 10 years, and since then, they have been considered experts every day of the week no matter if their predictions have always been incorrect. To me, this seems like a case of a broken clock being right just twice a day.
But, when I hear an expert make a prediction, and it is an expert I rarely hear from, I tend to listen much more closely. This happens to be the case with a Bloomberg article I recently read, where Tony James, President and COO of the Blackstone Group, said of a possible recession, “It wouldn’t surprise me if we had one in 2017.” James has a very successful track record as an investment banker, and is not frequently in the news making any bold predictions. In fact, he is hardly ever in the news at all! James notes there is already a recession in most of the US industrial sector, and recent terrorist attacks will slow down tourism.
This same article echoed concerns of the co-CEO of the Carlyle Group, David Rubenstein, who was quoted as saying, “At some point in the next year or two or three, you can expect a recession.” However, Rubenstein gave a more superstitious reason, citing that recessions on average occur every seven years in our modern economy.
But, all predictions come with a caveat. “All else equal,” this is what appears to be likely. Our world and the conditions in it are far from static. Going forward from today, events could change, leading to a much brighter economic forecast, or events could deteriorate and become much worse. And the reality is, we don’t know there is a recession until we are actually in one. And we know, we are not in a recession now.
All predictions need to be taken with a grain of salt. Even the brightest and best actors can’t predict technological breakthroughs, geopolitical conflict, or even what the weather will be like more than five days from now. And, all of these things will have enormous impacts on our economy that no one can control.
I think both James and Rubenstein have valid points. There is some resistance to economic growth, and our last recession was about 6 to 7 years ago. But, neither of those things assures a recession by 2017, although they may increase the likelihood of it. What I would worry about more is the continued mismanagement of our nation’s fiscal policy, for which the Congress and the President are both to blame. I would also worry about over-tampering by the Fed in a desperate attempt to make monetary policy do more than it was intended to do.