If a prediction of a recession causes the market to crash, can it be said that the prediction itself is part of the cause of the recession? Like a self-fulfilling prophecy?
In: Economics
Op that is what makes a crash happen. Prices aren’t determined by some ultra power. It’s determined by how we feel about something at the core of it and then the fundamentals of the asset. A lot of times the fundamentals of the asset will change before our feelings catch up to it and that is how you get bubbles and crashes.
People realize that they are holding onto a lot of assets that have no where to go but down then price will crash as everyone rushes to the door. Just because someone realizes before the panic doesn’t make it a self fulfilling prophecy imo. In terms of this current economy. There is something wrong with it. Low inflation despite low interests rates and low unemployment. The US dollar is rising ( horrible for other countries). Globally yields are inverted. Europe has negative yields in some countries. You have the trade war. Not to mention it’s been 11 years without a major recession or pull back and like the saying goes economies don’t die from old age. They do die from “random events” . These random events have a better and better chance of happening the longer it doesn’t happen. Some finance guys argue the longer you wait the worst the outcome from the events get. You don’t allow for the weak to die then they only grow bigger and they’ll affect more people as time goes on.
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