Elizabeth Warren is kicking off the week with an unsettling prediction: The economy is going to crash. And she has a number of plans to help: her own.
On Monday, the Massachusetts Democrat laid out her concerns about the United States’ “precarious economy” and signals of an impending downturn in a Medium post.
“When I look at the economy today, I see a lot to worry about again. I see a manufacturing sector in recession,” she wrote. “I see a precarious economy that is built on debt — both household debt and corporate debt — and that is vulnerable to shocks. And I see a number of serious shocks on the horizon that could cause our economy’s shaky foundation to crumble.”
Warren is hardly the first person to warn of potential economic calamity — the US is currently in the midst of its longest economic expansion ever, and multiple experts and analysts in recent months have signaled that sooner or later, something’s got to give. President Donald Trump has upped pressure on the Federal Reserve to cut interest rates in order to forestall a downturn and boost growth. What makes Warren’s prediction perhaps a little more disturbing is that she caught the warning signals of the 2008 financial crisis well before it happened, as she notes in her post:
In 2003, I called out subprime lenders for tricking unsuspecting families — especially families of color — into refinancing into overpriced subprime mortgages. In 2004 and 2005, I warned that families were getting deeper into debt and hanging on only by borrowing against their homes, which put them in a vulnerable position if costs rose or a family member lost a job. In 2006, I flagged that foreclosure rates were starting to go up, but that the mortgage lenders were still churning out loans because they had passed on the risk of defaults to investors in the form of mortgage-backed securities. Those trends — shady subprime lending, rising household debt, a mortgage market where lenders didn’t bear the risk of their loans — set the stage for the 2008 crisis.
Warren lays out a number of ideas to prevent a crash — namely, the suite of ideas she and other 2020 progressives, including Bernie Sanders, have proposed.
Why Warren and others are worried about the economy
In her Medium post, Warren points to a number of factors that she believes could lead to another economic crash.
She notes that household debt is at record levels, with American families now having more debt than in the aftermath of the financial crisis. Corporations, she points out, have a lot of debt as well. For both individuals and companies, high amounts of debt signal risk — the worry is that at some point, they might not be able to pay it back en masse and therefore harm the economy. And the US manufacturing sector is now in a recession after declining for the second consecutive quarter in 2019, according to data from the Federal Reserve.
All of that, Warren says, means the economy is fragile, and a “shock” could push things over the tipping point — for example, the US potentially breaching the debt ceiling, President Trump’s ongoing trade war with China, or Brexit. What’s more, the “yield curve” — a wonky economic indicator that refers to the relationship between short-term and long-term interest rates on Treasury notes — inverted earlier this year. Every US recession over the past 60 years was preceded by an inverted yield curve. (Vox’s Matt Yglesias has a full explainer on why the yield curve inversion gets people so nervous.)
All of this doesn’t mean there’s a recession coming tomorrow, but the current economic environment seems more conducive to one. Earlier this year, I wrote about the growing chatter about a potential downturn — including many of the concerns Warren expressed — and what it all means:
Just because it’s been a while since we’ve seen a recession doesn’t mean the US economy is about to take an enormous dive. An old adage among economists is that expansions don’t die of old age; something has to happen to cause them. There are some signs another one is becoming likelier, but fewer signs that we are on the brink of another enormous crash.
It’s also important to remember that the recession in the late 2000s was bad in ways most other recessions aren’t. It was the coupling of an economic slowdown with problems in the financial system that made the Great Recession particularly harmful.
“For most people, the effect of a recession is fear, not an actual loss. It’s fear of loss,” said Betsey Stevenson, who served as an economic adviser to President Barack Obama and is now at the University of Michigan, told me at the time.
Of course Warren has some plans for this
Warren, who has laid out multiple detailed plans and proposals for the economy as a 2020 presidential candidate, calls for “bold action” to head off an economic crash.
She cites a number of ways to reduce household debt, including raising the minimum wage to $15 an hour, allowing workers to elect 40 percent of corporate board members, and canceling up to $50,000 in student debt. The senator also calls for monitoring and reducing leveraged corporate lending and strengthening manufacturing, citing her “green manufacturing plan,” which is meant to boost the manufacturing sector in an environmentally friendly way.
Ultimately, Warren calls on Congress to take action and the Trump administration to act more responsibly in order to prevent a crash. But it’s impossible not to notice that the ideas she lays out for staving off an economic crash are ones she has proposed or backed. In other words, the Massachusetts Democrat is, in a way, saying that the answer to preventing a downturn is to elect her.