Until now, the last time the U.S. Treasury 10-year bond yield dipped below 2-year bonds was in 2007. That event foretold the 2007-08 global economic and financial crisis. This inverted curve has been uncanny in its predictive ability to foretell a near-time arrival of a major recession. Now, in August 2019, we again have an inverted yield curve.
Investors worldwide know the significance of this development. Stock markets, including the Dow Jones, are plummeting by big figures. Is this an overreaction, or a rational response to impending fiscal and economic danger.
The inverted yield curve should not be viewed in isolation. Rather, it should be seen in the context of the escalating trade war between the world’s two largest economies, the growing risk of a hard Brexit, and economic stagnation in Europe.
The warning chimes are growing louder.
Jan Hatzius, chief economist at leading global investment banker Goldman Sachs, has issued an updated projection for U.S. Q4 GDP growth; a lackluster 1.8 percent. This reflects a reduction of 20 basis points from the previous forecast, with Hatzius conceding that the U.S. trade dispute with China has had a negative impact far beyond what was originally assessed by Goldman Sachs.
The latest projection from Goldman Sachs on trends in the American economy are indicative of a growing belief that the ongoing and escalating trade war between China and the United Sates has greatly increased fears that it will trigger a global recession.
It appears that the leadership circles in Beijing are willing to face a major recession that severely afflicts the Chinese economy as a price worth paying to bring down President Trump in the upcoming 2020 U.S. presidential election. What President Xi Jinping of China may be ignoring is that a global recession may have unpredictable and disastrous repercussions for the Chinese economy and the country’s social stability, and jeopardize the future of Beijing’s “One Belt-One Road” initiative.