Is the Global Economy Headed for a Recession?

We’ve all been there—driving along somewhere and a reality slowly dawns: This is not the right direction.  

Welcome, then, to the global economy, as steered by Western central banks. 

Warning: We are heading in a very wrong direction. The bridge is out just ahead, but the driver doesn’t realize this, despite all the signs announcing, “Bridge Out Ahead.” 

More likely, the driver just doesn’t care. And by driver, I mean the Federal Reserve and the European Central Bank (ECB), the world’s two most important central banks. 

They’re myopic in their views, and they are always—and I mean always—late to the game. They’re like that stereotypical male driver who refuses to stop and ask for directions, even though everyone in the family knows they’re lost.  

To be more direct: The world’s central banks are lost and a global recession is coming.  

Here’s why I say this: 

• The global economy is slowing. 

The U.S. has now recorded two consecutive quarters of negative GDP growth. Some insist that’s doesn’t mean a recession this time. That this time is different.  

Maybe…but probably not.  

Interest rate hikes are tearing through the economy like the Tasmanian Devil tearing through Bugs Bunny cartoons. Retail is feeling it. The housing market is feeling it. Wall Street earnings are coming down. Layoffs are heating up in various industries. 

Europe is slowing down, too. 

China continues to regularly cast millions of its citizens into COVID-induced lockdowns that are decimating its production capacity, which is hitting industries all over the world. 

And yet… 

• Central banks keep raising rates. 

The Fed has jacked up interest rates at a torrid pace since this past spring, and it’s threatening to keep on raising rates because it did such a hideous job of managing inflation to begin with. 

The ECB has started raising rates, too. So has the Bank of Canada, the Bank of England, and central banks in Australia, New Zealand, and elsewhere. 

It’s a like a synchronized swimming team—who have all lashed themselves to an anchor. 

Raising interest rates into what is an economic slowdown across the majority of the world’s biggest economies is a strategy that seems destined to be Exhibit #1 in The History of Reasons Why the Global Economy Collapsed in the 2020s. 

It’s boneheaded. Raising interest rates is meant to slow an economy. So why do we want to slow economies that are already in, or progressing rapidly toward recession? What are the chances the Fed and other central banks miss the mark once again?  

It shows that most central bankers would likely fare miserably in that once-popular TV show, Are You Smarter Than a 5th Grader? 

• Inflation is sticky and persistent. 

The Catch-22 in all of this is inflation.  

But a slowing global economy does not necessarily mean inflation peters out. As the 1970s showed, we can have stagflation—a world of stagnant economic growth paired with inflation. 

One of the big challenges the world faces, but which too few acknowledge, is the impact that the mindless rush toward green energy is having on the fossil fuel industry. I am not saying climate change is a hoax or anything like that; I agree that it’s very real. 

But governments, environmentalists, celebrity influencers, and universities are pushing a cold-turkey approach to fossil-fuel reduction that is willfully blind or economically ignorant. That’s forcing the shutdown of pipelines, it’s preventing the construction of much-need refineries, and it has oil and gas exploration companies refusing to spend as much as they’ve typically spent on finding new reserve to replace old reserves. 

The upshot is that oil and gas prices are going to continually creep higher, to prices that are beyond most people’s imagination, which in turn is going to drive up the costs on everything from industrial metals mining to food costs to shipping. 

All those hit consumer pocketbooks, meaning core inflation is likely to persistently run hot because policies are pushing a dream that does not comport with the reality of how the modern economy functions. 

Like I said: Moving in the wrong direction.  

Soon enough, the Fed will figure out it’s lost. 

Alas, it will be much too late to reverse course. 

Now’s the time to prepare. A bit of gold. Some energy-stock exposure. Probably some bitcoin. And a dose of Swiss francs. 

That should do the trick.