One of the central themes of this blog is bankruptcy: Its causes, its consequences, the laws that regulate this subject, and the recommended measures that must be taken while going through such circumstances. It is time to talk about a situation that is likely to produce a large number of bankruptcies, mainly in the United States, but also in other parts of the world: The Big Crash, the great economic crisis that lies ahead.
For many, to talk about a great world economic collapse, even worse than the one that occurred in the second half of the last decade, is an exaggerated hypothesis, almost a conspiracy theory. In this post, we will talk about the evidence of this crisis, hand-in-hand with experts who have announced this economic disaster several years ago. The purpose of this post is not to unleash fear in our readers, but to trigger relevant questions and to recommend some sensible measures for the times to come.
Last Sunday, The Economist posted a video on its official YouTube channel called ‘The Crash Is Coming! Prepare For The Imminent Economic Collapse 2017 Stock Market CRASH!‘ In this video, a series of experts were interviewed about a major crisis that, as they demonstrate, could take place in the second half of this year:
In the video, the monetary historian Mike Maloney points out that if the 2000 crisis was brought about by the bursting of the stock bubble, and if, on the other hand, the 2008 crisis was due to the bursting of the real estate bubble, the next crisis will include both the previous causes – because both bubbles re-inflated – as well as the bursting of the bond bubble. This means that the crisis will be practically present in all economic sectors, not even in the US, which will be a historical event itself, and, consequently, the recovery of this collapse will take much longer than the previous two.
Read also: Factors Affecting The Prices Of Oil In The World Today, by Suzzanne Uhland
The eventual outbreak of this impending Crash began with a Federal Reserve decision to raise interest rates. Actually, it accelerated the worldwide fixed-income jab; and what is behind such a decision? Essentially, the election of President Trump and his subsequent decisions on economic policy (especially, when it comes to increasing public spending and lowering taxes.) Although the main objective of the Central Bank has been to curb the growth of state and corporate bonds, its expansionary monetary policies have produced the opposite effects. The main consequence of all this is that banks will significantly restrict their loans, both to individuals and organizations, as they will have an exclusive preference for the most reliable borrowers, which, it goes without saying, are a declining minority.
On the other hand, just like it has happened during other recessions, the banks will put unified limits on the total volume of credits granted in proportion to the accumulated balance, and the immediate effect of this is a large number of people and companies that cannot pay their debts.
What about the consequences that could be faced by individuals? Well, the picture is not encouraging either. This Big Crash will cause the investor confidence in the dollar to decline, and, therefore, our currency will lose value. This means that the buying value of one hundred dollars will decrease considerably, to the point that many will prefer to exchange food, water, medicine, and other supplies (which will obviously get expensive) instead of using the money to make economic transactions. This has happened in times of hyperinflation, like the crisis of 1929 and the following years.
In the same video, the former politician and businessman David Stockman said that no traditional asset is safe today. Safer assets such as the German Bund and the American Treasury have become less secure because of their overvaluation. That is why, says Stockman, it is preferable to invest in gold or in cryptocurrencies, like Bitcoin, as a possible measure to lose less capital during the second semester this year. Investing in government bonds, currencies or real estate is by no means a smart move, but investing in stocks is just a financial suicide. The values of stocks, especially of financial institutions, skyrocketed after Trump’s election. Naturally, it seems as an opportunity to invest, but it has been really pumping a bubble that will burst soon and will leave several people broke.
The recommendations during this type of circumstances are mainly four. The first one is to lower personal costs and to suspend long-term economic projects (especially if they are related to real estate.) This includes, of course, doing everything as possible to cancel your debts, otherwise, the Banks will not lend you any money whatsoever. The second recommendation is to build an emergency fund that will allow you to cover basic needs while the storm lasts. The third one is to anticipate the empty shelves in supermarkets and create a supply of food, medicine, and other goods (light bulbs, tools, spare parts, etc.) Finally, be wary of riots and looting in big cities since that is a constant situation in such circumstances.
Prevention is better than cure.
* Featured Image courtesy of Daniel Lobo at Flickr.com