The Inevitable Crash is Coming

The failure to make systemic changes after the financial crisis is bringing us right back to where we started.

The U.S. stock market plummeted Wednesday afternoon after the yield curve on 2-year and 10-year treasury bonds inverted for the first time since 2006. An inverted yield curve is when long-term interest rates fall below short term rates. Normally, investors would demand a higher interest rate for a long-term investment. However, they may now expect lower economic growth in the future, meaning they do not need the same kind of return on a bond they would normally require.

The inversion of the yield curve has predicted the last six recessions, so it was no surprise that the Dow and S&P both tanked. This does not mean we will be heading into a recession next month. It could take up to two years to get there.

A summation of the Yield Curve. Every time short-term rates surpassed long-term rates, we see a recession soon after (in gray).

There are many other reasons we should be worried. Corporate debt has ballooned over the last decade because of cheap money from the Fed and larger banks. Corporations were happily taking on more debt as rates have been kept low. In addition, instead of re-investing profits and other debt…