People in the streets of America are protesting, and the markets are going through a clear phase of disruption. The reason is not mysterious; tariffs, the Chinese response, and economic tension are all pressure factors. Trump is following a tough negotiation style, seeking to create a state of chaos before reaching an agreement, but the more important question is: will we reach the brink before finding a solution?
Fear is a powerful driver of change. When companies fear a recession or layoffs, they stop growing at any cost and begin to focus on productivity and cost reduction. This is what is driving companies today to reduce management layers and eliminate middle positions.
Current pressures are accelerating technology adoption. Technologies that were once considered a luxury, such as artificial intelligence, robotics, and blockchain, are now becoming a necessity. A clear example of this is the COVID-19 pandemic, which pushed everyone to rapidly adopt biotechnology and automation.
We are currently in a state of 'rolling recession', which has not yet turned into a full recession, but many sectors such as automotive, real estate, and small businesses have already begun to decline. If the wealthy consumer starts to retreat — which is happening now — then the crisis will deepen further.
The velocity of money is also an important indicator, and it is clearly low. People and companies are delaying spending out of fear of job loss or due to uncertainty around taxes and trade policies. The decline in the velocity of money from about 11% previously to around 1.5% currently is a strong signal of an impending contraction, not inflation.
Here comes the role of the yield curve, which has indeed inverted. Historically, this means that an economic recession becomes likely within a period ranging from 6 to 18 months after the inversion. In 2023, the yield on 2-year U.S. Treasury bonds is about 4.9%, compared to 4.2% for 10-year bonds; this negative difference is clear evidence of the inversion and increasing likelihood of recession.
In the 1920s, despite the yield curve inversion most of the time, America experienced rapid economic growth due to a significant technological boom (electricity, assembly lines, telephone), which Trump is attempting to replicate today, but current conditions and global economic challenges suggest that he may not succeed in achieving the same results — especially with the rise of China, which is now the closest candidate to surpass the United States economically, imposing its technologies and production transformations on the new world order.
