What could cause a recession in 2019

Dennis Gartman Blog and News Dennis Gartman on whether we could see a recession in 2019

If we put into effect greater tariffs(on China), there is no question we will have a recession. If we do away with the tariff fears, the economy will probably expand.

It also depends upon what the Federal Reserve does. I focus on the Fed’s assets. The Fed began adding to its balance sheet, called quantitative easing, in 2007. It bought treasury securities from the treasury, writing checks to itself, which is what central banks can do. From 2008 to 2015, the Fed expanded the adjusted monetary base from $800 billion to $4.3 trillion.

Sooner or later, those assets have to be run down. You can’t continue to expand the supply of reserves that fast. The Fed is now in the process of allowing those old treasury securities to run off. If you take your foot off the gas pedal that doesn’t stop the car from moving forward, but it slows the car. It’s frightening to the stock market, and a frightened stock market is detrimental to the economy. If the Fed begins to sell treasury securities and reduce its assets that way rather than allowing them to mature off, no question we would run into a recession.

All that said, I don’t think we are going to have a recession this year unless the president pushes through more trade tariffs (on China). If he does, no question we shall. He will blame it on the Chinese.

via Successful Farming