To answer a few people who have asked my opinion on whether or not the U.S. will enter into a recession soon, this excerpt from the book that I’m currently writing provides a brief overview as to why a recession in 2016 is likely if the US Government doesn’t expand its deficit towards employment immediately.
“(3.8) Applying the Sectoral Balances to the Current State of the U.S. Economy, 2016
Since the mid 1980’s, the external sector (X – M) of United States has been in a condition of (X – M < 0) and is likely to remain (X – M < 0) for many years. The widening gap visible in the sectoral balances between the government balance and the domestic private sector balance during the mid 1980’s is a direct result of the external sector deficit increasing, biased towards much greater imports. While imports are real benefits for the nation, as they raise the standard of living of the populace considerably, the currency outflows are far greater than currency inflows, thus necessitating much larger federal budget deficits to close the non-government sector spending gap.
In 2016, the external sector is not capable of financing domestic private sector economic growth. Therefore, a federal budget surplus must remain an undesirable fiscal position for the foreseeable future.
Further, the current federal budget deficit is far too low to support any meaningful economic growth. As a result, the seven year long sluggish recovery is now stalling. Unemployment also remains too high, which becomes clear when we factor in the more accurate U-6 rate. The economy has never recovered from the Global Financial Crisis of 2008, mainly because of an over reliance on monetary policy which cannot, in any way, reverse a catastrophic non-government spending collapse, a bias toward low-wage jobs and underemployment, continued use of private debt to sell production and persistent federal deficit reduction since the crisis was attenuated. When we consider the level of private debt, currently above $12 trillion, widespread underemployment and an external sector in deficit, the size of the federal deficit is meager and thus, entirely insufficient to raise the level of aggregate demand necessary to support growth.
While the federal deficit is currently rising, that rise is not due to any increase in discretionary spending by the federal government. Rather, as the economy is now stalling, unemployment and welfare claims are now rising. The increase in the federal deficit is non-discretionary and a direct result of the economy’s automatic stabilizers operating, rather than any intentional change in the federal government’s fiscal position.
The fiscal position of the federal government remains one of austerity. If not immediately reversed by a large expansion of the federal deficit towards the public purpose and employment, recession is the most likely outcome.”
So, my answer is, yes.