The United Kingdom and Germany, two of the world’s largest economies, have started on the path towards contraction even with the former moving ahead with plans to leave the EU.
That, coupled with stunted growth in China, Argentina’s stock market fall of nearly 50%, and the recent US Treasury yield curve inversion have officially thrown the world into a spiral of economic disappointments.
A yield curve inverts when the interest rates on short-term bonds are higher than the interest rates paid by long-term bonds, indicating that people are so worried about the near-term future that they want to insure themselves by making safer long-term investments.
“The stars are aligned across the curve that the economy is headed for a big fall,” said Chris Rupkey, Chief Financial Economist at MUFG Union Bank. “The yield curves are all crying timber that a recession is almost a reality, and investors are tripping over themselves to get out of the way.”
The yield curve has inverted before every U.S. recession since 1955, which suggests faltering investor faith and an economic downturn in the near future.
Do you think it’s just a passing fad or will this be a turning point in economic history?