Why Recessions Are Necessary To Purge The Rot

The reality is that recessions are just a necessary part of the economic cycle and the only real debate is on the timing of when the next recession will begin. Currently, most economists expect no recession until 2020 or even later. However, given the economy’s weakened ability to withstand higher interest rates, which has been compounded by a decade of artificially suppressed interest rates which have pulled forward future demand, I suspect it could come sooner.

More importantly, the decade of low rates has allowed fundamentally weak companies to stay in business by taking on cheap debt for unproductive purposes like stock buybacks and dividends. This will only serve to compound the problem of the next recession when it comes.

 

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