Commentary
While the market is anticipating some Goldilocks outlook for the U.S. economy (probably for some other advanced economies as well), some hedge fund veterans warn of the hard landing risks ahead, which could be realized as soon as in the upcoming quarter.
As argued here previously, recession can happen all of a sudden; in fact, it did in all previous times throughout history. The mechanism for such sudden collapse is due to the complicated network inter-relationships among various sectors. If one starts to fall, it will drive a chain reaction, pulling all others.
If one looks at a typical kind of economic model like the Fed model (used by the Federal Reserve in projection), one will see a complicated set of linkages among all variables. In fact, in the then general setup, such as the Dynamic Stochastic General Equilibrium (DSGE), the household, firm, agent (bank), fiscal, and monetary sectors are all bundled together by way of tens of equations linking probably over a hundred economic variables (quantities and prices) of different markets. One can imagine if any moves, such a butterfly effect transmits to all others….
Job Market Is Still the Strongest Indicator to Boom-Bust Cycle
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