Boxed In

The U.S. economy is ill prepared for another recession. In particular, on the monetary front, the U.S. Federal Reserve Bank has no leeway to reduce interest rates since it has not yet increased them after the last recession. And on the fiscal front, the federal government has little room for additional deficit stimulus since the government's debt is approaching critical levels ... see: Business Insider Story.

In this article, HSBC's chief economist, Stephen King (funny name for a doom-and-gloom sayer), lists four possible triggers for the next recession:

• 1) Wage growth will hurt corporate earnings and reduce the share of corporate profit contributing to US gross domestic product (it also doesn't help that worker productivity is low). In turn, households and businesses will lose confidence in the economy, and the "equity bubble" will burst with collapsing stock prices.
• 2) Nonbank financial systems such as insurance companies and pension funds will increasingly not be able to meet future obligations. This will cause a huge demand for liquid assets, forcing people to rush to sell despite no matching demand, triggering a recession.
• 3) Forces beyond the Federal Reserve's control, including the possibility that China's economy and its currency could collapse. Weak commodity prices could also cause collapses in several emerging markets, as could continued strength in the US dollar.
• 4) The Fed could cause the next recession by raising interest rates too soon, repeating the mistakes of the European Central Bank in 2011 and the Bank of Japan in 2000.

Or to simplify and summarize these reasons  -- domestic inflation, a liquidity crisis, an international monetary crisis, and a premature interest rate hike. This last reason is the rub ... in that, if interest rates don't go up soon, as initially stated by King, the Fed will have very little leverage to deal with the next recession. In other words, Fed Chairman Janet Yellen is pretty much boxed in.