The global economy continues to face uncertainty threatened by elements such as possible recession, with key industry players projecting possible outcomes. In this line, macroeconomic expert George Gammon has issued a sobering warning about the global financial economy, drawing on historical indicators.
Gammon asserted that a looming global financial ‘Black Swan’ event can be anticipated, citing the historical reliability of the yield curve inversion in predicting recessions and the influence of financial insiders in orchestrating such events, he said during an interview with Kitco News on September 1.
Gammon clarified that the yield curve only becomes a crisis signal when it is no longer inverted. He outlined three potential scenarios for the yield curve: a perpetual inversion (an improbable outcome), a normalization, or a steepening. The latter, a yield curve steepening, is the scenario Gammon views as most plausible in a crisis.
In this scenario, Gammon pointed out that the Federal Reserve would lower short-term interest rates, causing the yield curve to steepen. However, he emphasized that for this scenario to materialize, a significant unforeseen event, such as a global financial crisis or a world war, would need to occur.
“You have to ask yourself what type of economic environment would we have in order for Jerome Powell that just came out last week at Jackson Hole and was talking extremely hawkish. What would prompt him to drop rates from, let’s say, 5.5% straight back down to 3%, 2%, maybe even back down to zero like we saw during Covid? Well, that would require some sort of Black Swan,” he said.
The history of yield curve
He noted that since the 1950s, an inverted yield curve has consistently preceded recessions, with just one exception in the mid-1960s when the curve inverted, but a recession did not follow. According to Gammon, this track record is unparalleled in the world of economic indicators.
The macroeconomic expert also delved into the reasons behind the yield curve’s predictive power, attributing it to the insights of financial insiders who have access to privileged information. Gammon suggested that these insiders, who control vast sums of money, may receive information not available to the general public.
It reflects the actions taken by financial insiders based on their information, and it often precedes major market disruptions. He compared these insiders to “Old Biff” from the movie “Back to the Future,” who had access to information from the future and used it to his advantage.
Overall, Gammon’s warning underscores the importance of monitoring the yield curve as a critical indicator of economic health. While the specifics of a potential Black Swan event remain uncertain, his analysis serves as a reminder of the significance of financial insiders’ actions and the potential consequences for the broader economy.
Watch full interview below: