Last week I discussed a report from the Levy Center on the high probability of interest rates being at 0% when the next recession occurs. Levy joined Yahoo Finance and Lauren Lyster to provide more detail on this outlook. Here’s his summary:
- There is a 65% chance of recession in 2015.
- Growth will slowly back to muddle through pace in late 2014 before turning negative at some point in 2015.
- Levy says foreign problems are likely to ripple through the world causing the US recession. Specifically, problems in Europe, Asia and Emerging markets will contribute to the decline as imbalances result in weak foreign growth. He says (via Yahoo):
“There has been massive overinvestment in [emerging markets] … they pursued export models long after they had outgrown them…Their economies are out of balance and their investment is starting to collapse.”
He says Europe has its own deep problems — “their banking system is like Japan’s in the 1990s, unable to function well because [they] didn’t clean up the bad loans and recapitalize banks.”
Third, is China, which he contends has had a greater ability to keep its expansion going, but is “struggling with all the imbalances created.”
Mr. Roche is the Founder and Chief Investment Officer of Discipline Funds.Discipline Funds is a low fee financial advisory firm with a focus on helping people be more disciplined with their finances.
He is also the author of Pragmatic Capitalism: What Every Investor Needs to Understand About Money and Finance, Understanding the Modern Monetary System and Understanding Modern Portfolio Construction.