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For a good while now, experts, including many of those appearing on this channel, have been warning about the “lag effect” of the aggressive interest rate hikes and quantitative tightening program conducted by the Federal Reserve and other major world central banks over the past year.
These experts have cautioned the speed & severity of these cooling measures would cause a sharp economic slowdown that could easily result in recession, deflation & a material correction in the financial markets.
But here mid-year in 2023, the economy is chugging along at 2%+ GDP growth, inflation remains at 3% and the S&P is up 18% YTD and the NASDAQ up a whopping 35%.
So where is the slowdown? Were those predicting one wrong?
They weren’t wrong, says Dr. Lacy Hunt. Perhaps just a little early. But a credit crunch is now at hand that will indeed start freezing up the gears of the US economy.
To learn why, we have the great fortune to sit down with Dr. Hunt himself. Dr. Lacy Hunt is a former Senior Economist to the Federal Reserve Bank of Dallas, as well as several of the world’s largest global banks. He now serves as Executive Vice President and Chief Economist of Hoisington Investment Management Company.
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There’s no doubt that it’s a very challenging time right now for the average investor. Above and beyond the recent economic impacts of COVID, the new era of record low interest rates, runaway US debt and US deficits, and trillions of dollars in monetary and fiscal stimulus stimulus has changed the rules of investing by dangerously distorting the Dow index, the S&P 500, and nearly all other asset prices. Can prices keep rising, or is there a painful reckoning ahead?
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#recession2023 #creditcrunch #marketcrash
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IMPORTANT NOTE: The information and opinions offered in this video by Wealthion or its interview guests are for educational purposes ONLY and should NOT be construed as personal financial advice. We strongly recommend that any potential decisions and actions you may take in your investment portfolio be conducted under the guidance and supervision of a quality professional financial advisor in good standing with the securities industry. When it comes to investing, past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All investments involve risk and may result in partial or total loss….(read more)
BREAKING: Recession News
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Lacy Hunt: Brace For A Credit Crunch + A “Serious” Recession
Lacy Hunt, an economist widely respected for his accurate predictions and deep understanding of the economy, is suggesting that we should brace ourselves for a credit crunch and the arrival of a potentially “serious” recession. Hunt, who is the executive vice president of Hoisington Investment Management, has been closely monitoring the economic indicators and warns that the current situation demands our attention.
So, what exactly does a credit crunch entail? A credit crunch refers to a severe reduction in the availability of credit or loans from financial institutions. This liquidity shortage creates a ripple effect, making it harder for both businesses and consumers to access funds. This, in turn, leads to decreased spending, stalled business growth, and a slowdown in the overall economy.
Hunt argues that the United States is currently heading towards a credit crunch, partially due to the alarming levels of debt accumulated by various sectors of the economy. According to him, years of low-interest-rate policies have facilitated excessive borrowing, causing the debt-to-GDP ratio to skyrocket. The mounting debt now poses a significant threat to the stability of the financial system.
To make matters worse, Hunt believes that the traditional tools the Federal Reserve uses to stimulate economic growth, such as lowering interest rates, will have little effect in combating this impending credit crunch. With interest rates already near zero, there is very little room for the Fed to maneuver. This limited capacity to act further compounds the vulnerability of the economy.
Hunt also emphasizes the importance of understanding the relationship between debt and economic growth. Excessive debt burdens hinder long-term growth potential as an increasing portion of income is directed towards servicing debts rather than productive investments. This pattern, known as a “debt overhang,” makes it incredibly challenging to generate sustainable economic expansion.
Furthermore, Hunt warns that the credit crunch could be accompanied by a “serious” recession. The severity of this recession could surpass that of previous economic downturns experienced in recent memory. Policymakers must be prepared to implement appropriate measures to shield the economy from the adverse consequences of a shrinking credit market.
While these predictions may seem grim, it is essential to acknowledge that economists do not always get it right. However, Hunt’s reputation as a knowledgeable and insightful economist demands attention. His longstanding experience and track record have earned him the respect of many in the financial world.
In conclusion, Lacy Hunt’s warning of a credit crunch and the risk of a “serious” recession should not be taken lightly. With mounting debt levels and limited tools at the disposal of the Federal Reserve, the economy appears to be heading towards a turbulent period. Policymakers and individuals alike must be aware of the potential risks and take necessary precautions to mitigate the impact of any economic downturn heading our way.
ACCESS LACY'S Q2 INVESTOR LETTER for free at https://wealthion.com/lacy. Some people are reporting issues with that link. If you're one of them, try this one instead https://wealthion.com/wp-content/uploads/2023/07/HIM2023Q2NP.pdf
Building wealth involves developing good habits like regularly putting money away in intervals for solid investments. Financial management is a crucial topic that most tend to shy away from, and ends up haunting them in the near future… I pray that anyone who is reading this will be successful in his or her life!!!
A thief, always a thief.
Dr Lacy Hunt is awesome.
When he mentions that QE won’t be effective and not inflationary, does he mean monetary or CPI inflation?
what about real estate? I know CRE is killed, it's over for CRE. But the residential sector I have been following all of the statistics of days of supply and PPI in that sector. It appears the supply has increased approx by a factor 3 but it looks as thought that number will need to double again before prices are in a meaningful correction
The 1929 stock market crash has not been 100 years but we are approaching it. The 1930's Depression has not been 100 years but we are approaching it… China's debt is 52 Trillion Dollars+, America's debt is 32 Trillion Dollars+, UK not any better… We are headed for a Global Depression sometime in the next 10+/- years. The Recession will be global and a stepping stone to the Global Depression.
Always appreciate Lacy Hunt's concern for the impacts of economic policy on the poorer households. So rarely heard from economic experts.
"They" are going to take us to war.
Thanks for having Lacy on, he's one of the very few economist's whose honesty, experience, and insight I trust.
As a soon-to-be retiree, keeping my 401k on track after a bumpy 2022 is a high goal. I've read about investors generating up to $250k ROI in this present sinking market; any suggestions for increasing my ROI before retirement would be greatly appreciated.
I love his correct terminology when he says it’s their scheme. How can it not be obvious to anyone, that the Fed is the one controlling all this They control it all.
Smells like a Ponsi scheme, as the first in gets a bigger portion of ad income, but as everyone joins, the payment will diminish in amount as its spread over a larger population
The Fed had to know that when they engaged in being the spender of last resort that inflation would come. Don't believe for a second that they were surprised. They were working with the fiscal authority, Congress and the Treasury to cause inflation. Your governments answer to help is to destroy paychecks and savings. All the while it helps those that own assets that rise in value with inflation. Wealth disparity is their goal for America. The ultimate special interest payoff. Poverty in America is the new norm. What a shame since we all sit on probably the wealthiest country in the world as regards riches in land, minerals, energy, educated and willing to work populace, with incredible potential. I say we should impoverish those that have inflicted poverty on so many.
1.6 to 1.9 trillion dollar federal deficit for fiscal year!!! No wonder there has been such a rally in stocks and no recession. However, this crazy deficit spending is totally not sustainable. In fact, this war time spending is only supposed to happen when the country and economy is in dire straits. So, are we in dire straits and require massive government spending to keep going? Maybe! How can that be good? Inflation is a consequence and the fix will be severe. What will happen if we have a real recession and we really do require government assistance?I think the government has already done what they can do to help. They can't do any more. Hard times are coming.
President Biden canceled the Keynote Pipeline day one of his presidency, then went on to attack USA oil production. Saudi Arabia raised prices 42% per barrel. Forty year high inflation followed. Having lived through the 1970’s Middle East oil embargo’s, and that inflation, I never thought I would live to see a President attack USA oil production, and supply. Now we get to see where this shit show ends up.
No matter how high the interest rate or the inflation is, people will always be borrowing and spending. In fact, inflation fuels spending.
Brilliant discussion from an outstanding scholar. I wish I knew what Dr Hunt thinks the future role of the Fed should be from eliminating the Fed to continuing the status quo.
Government doesn't want brilliant people like Lacy Hunt to be teaching us citizens how the economy works! Thanks Mr. Hunt for sharing your knowledge!
Signed
Dumbed down citizen.
shark!
this is why I don't use advisors. they say one thing and the next day they say another. I do better myself!
it's here now!
A theme or correlations and insufficient information to connect detached causation, in other words chaos, for whatever reason, is obfuscating choice of management styles. Ie putting people off work seems irresponsible after the last 3 years, but such government involvement as has been directly, looks off target, as mentioned.
(I know nothing)
I will like why lacy hunt don't publishing 2 edition book about upgrade what going on now.lacy hunt real thinker sad lot don't talk about him.good video.
If the capital flowing into the government sector has a negative multiplier then isn't that majorly disinflationary?
Great content, thank you!
Science (noun)- the systematic study of the structure and behavior of the physical and natural world through observation, experimentation, and the testing of theories against the evidence obtained.
Mr. Hunt, is a smart man. I believe he understands , whats going on better than most of the talking heads.
Never forget wealthion been calling for $SPY since 365. Perma bear show.