Nobel laureate Robert Shiller warns that a self-fulfilling Wall Street might ultimately finally halt the longest bull stock market in history.
The Yale University economics professor cautions that mounting fear about a recession could make it come sooner — even if there isn't a specific event to trigger it.
"A lot of people have that on their mind, and they think it's got to turn soon. I'm kind of with that. You know, if people think that, they're going to make it happen," Shiller told CNBC.
There's about a 50 percent chance the economy will tip into a recession within 18 months, said Shiller, the co-founder of the Case-Shiller Index, which tracks home prices around the nation.
"People who are good storytellers — like Donald J. Trump is a brilliant storyteller — they tend to rise in our economy," said Shiller, who was awarded the Nobel Prize in Economic Sciences with Eugene Fama and Lars Peter Hansen in 2013.
"He models a general public support for business, cuts profits taxes — what more can you ask?"
He also warned about mounting debt.
"That attention to public debt has waxed and waned throughout history," Shiller said. "It seems like the public is OK with it for now. But I think in the back of their minds they're not so sure."
Shiller isn't alone in his economic warnings.
Former Federal Reserve (Fed) Chair Janet Yellen last month warned that America’s corporate debt binge could end up sparking a deeper recession when the next downturn hits.
Rock-bottom rates and easy lending standards have allowed US companies to pile on record levels of debt, sparking concern from regulators about the risk the credit markets may pose to the U.S. economy.
When asked about asset bubbles and potential fallout when the current US economic expansion cools down, Yellen singled out high corporate debt levels as a worry, according to a recording obtained by LPC/IFR, divisions of Refinitiv, Reuters reported.
“I have expressed concerns about leveraged lending,” Yellen said during a keynote discussion that was closed to the press. “I do think non-financial corporations have run up, really, quite a lot of debt.”
The comments were made during a standing-room only panel at the annual Structured Finance Industry Group conference in Las Vegas.
“What I would worry about is if the economy encounters a downturn, we could see a good deal of corporate distress. If corporations are in distress, they fire workers and cut back on investment spending. And I think that’s something that could make the next recession a deeper recession,” said Yellen, who served as Fed Chair from 2014 to 2018.
A record $923.8 billion of U.S. institutional loans was arranged in 2017 followed by $730.4 billion in 2018, according to LPC data.
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