Inverted, Recessed, and Hung Out to Dry

 The great reckoning seems to be following the course that I have been charting by guesswork. In other words, the great trainwreck seems to be happening. Let’s see what we are experiencing so far.

Interest rates appear to be headed out of their long inversion.

Inversion of interest rates occurs when long term rates are lower than short term rates.

You may have noticed that banks have been offering higher rates of interest return on short-term CDs than they have been offering on longer term CDs. That is unusual and reflects the inversion of interest rates.

With many business cycles, there is only a dip towards inversion or a small temporary inversion and this is followed by a normal recession.

If you examine the yield on 10-year Treasury Bond vs. the 2-year Treasury Bond over the last half century, then you will see perhaps only two or three periods of substantial inversion, a few substantive inversions, and a few minor inversions.

The intermediate inversions includes the late 1980s which involved the Saving and Loan Crisis and the Recession of 1990-1991; the millennial inversion which involved the Tech Stock Bust and Recession of 2001; and the dual dip inversion at the height of the Housing Bubble that was followed by the Great Financial Crisis.

There have been many minor inversions in the past, but in the last half century only in 2019 was there a modest or marginal inversion.

https://mises.org/mises-wire/inverted-recessed-and-hung-out-dry