Global Economic Crisis Imminent, According to Macro Expert
The global economy remains uncertain, with the looming possibility of a recession generating discussions among industry experts.
A macroeconomic specialist, George Gammon recently highlighted concerns about a potential unexpected ‘Black Swan’ event in the global financial system, drawing on historical data.
Gammon emphasized the reliability of the yield curve inversion as an indicator of recessions and hinted at the role of financial insiders in shaping such events during an interview with Kitco News on September 1.
He explained that the yield curve becomes especially concerning when transitioning from being inverted to a more typical state. Gammon outlined three possible yield curve scenarios: sustained inversion (unlikely), a return to normalcy, or a steepening, with the latter being his favored crisis scenario.
In this scenario, Gammon noted that the Federal Reserve might lower short-term interest rates, causing the yield curve to steepen. However, he stressed that this would necessitate a major unforeseen event, such as a global financial crisis or a world war.
Gammon questioned what circumstances would prompt the Federal Reserve, as indicated by Jerome Powell’s recent hawkish stance, to significantly reduce interest rates from, for instance, 5.5% to 3%, 2%, or even back to zero, as seen during the COVID-19 pandemic. He suggested that such a scenario would require a major unexpected ‘Black Swan.’
Gammon highlighted the historical pattern of inverted yield curves preceding recessions since the 1950s, with just one exception in the mid-1960s, making it a standout economic indicator.
He also discussed the yield curve’s predictive power, attributing it to financial insiders who have access to privileged information and can act on it before the general public.