WHEN OUR FINANCIAL INSTITUTIONS started to crash and burn back in 2008 that was amplified when Lehman Brothers went down and out of business. Further fueling this financial crises was the sub-prime mortgage mess. Mortgages defaulted in unprecedented numbers while foreclosures sky rocketed. Each day brought a new triple digit tumble in the stock market. It was estimated that the US job market lost an astounding 8.4 million jobs. Those who remembered or whose parents remembered the “D” word (depression) feared this was where the country was headed.
While we have roared back (not everybody remains convinced) to a stronger more robust economy with tighter controls on the financial front some disturbing signs have become to emerge. Triple digit dives in the stock market are becoming all too common. The Greek Debt Crises that is an outgrowth of the global recession that took place in 2009 is of great concern to investors and economists alike. Other nations such as China have started to experience debt crises of their own leading to further worry.
Housing sales have been robust while unemployment and inflation appear to be at acceptable levels while the price of gas at the pump are the lowest they have been in 11 years. Despite these signs of stability the decibel level of doubting voices are raising as global concerns threaten us.
Prominent economists along with several distinguished investors are now issuing dire warnings of a 50% market crash that they feel is right upon us ready to cause massive stock market chaos. The warning bells that are being sounded are reminiscent of those we chose to ignore when our economy began to unravel before our eyes.
If this catastrophic event were to occur it is expected real estate values will plummet by an alarming 40% while savings accounts will lose 30% of their value as unemployment triples! As the Labor Day weekend winds down wary investors will closely monitor the rate of inflation, China as well as key labor statistics along with the earning reports from some giant Tech Firms.
With all that we have been presented with so far the big question on many people’s minds is are we beginning a steep climb into another recession. In order to crash you must first climb. Are these gloom and doom prognostications based on concrete findings or speculation that is designed to wake us up from our Summer slumber as we head into fall followed closely thereafter by the holiday season where consumer spending will be subject to intense scrutiny to see if there are any tell- tale signs of what is to come.
Former President George W. Bush bore the brunt of the blame for failing to foresee the last crises coming or acting decisively enough to stop it. He would also be castigated for not acting aggressively enough to prevent the terrorist attacks of 09/11/2001 a day that will live on in infamy. This horrific tragedy did nothing but slow our recovery.
We once again focus our nervous attention to the question of is a repeat of that recession that was a close to a depression as any of us would want to see rapidly advancing. This week the actions of the Fed will go a long way to reassuring us or opening the gates for fear and pandemonium. It will take the best and brightest minds to analyze all pertinent data to come up with their conclusions. Dare we not listen this time?
This writer does not profess to have deep understanding of what drives our economy. Seeing what happened to many a friend and colleague along the health altering stress it caused me I learned enough. You don’t have to be a Chief Economist to take notice of the similarities between now and then.
Should our walls begin to show signs of cracking America will look to its leaders to help quickly reinforce the structure while putting floatation devices in place to keep us above water. Have we begun our climb to the top rung of the ladder as it ultimately breaks apart sending the economy spiraling out of control? Stay tuned!
China was never seen as a key player in the economy in terms of market strength until recently. Previously the US & Europe prior to Spain, Portugal, Italy and finally Greece’s downturn held the majority market strength. Recently when China actually gauged their GDP it was measured at 12%. This is extraordinary and far exceeds the nearest competitor. After this China decided to slow down their economy (this was unheard of in the past) yet their GDP was again an extraordinary 9%.
To add to this, the decreased economic activity meant less trade with the rest of the globe and affected the majority of the global markets. If we look at that famous Monday 2 weeks back – the Dow Jones dipped to an all-time low in a matter of 55 seconds.
From an investor perspective – potential long term and short term return return in China seems highly beneficial at face value. With China’s newfound impact, can they, will they change the economy or start calling the shots from a communist perspective?
While analysts can estimate what may happen, only time will tell. What’s certain is ignoring a factor that impacts your security by underestimating it’s position is never wise, as you mentioned this is not something new.
Jared,
What is happening with the economy in China is most definitely weighing on the Stock Exchange as are the problems with Greece. The multitude of triple digit losses in conjunction with other factors are weighing on people’s mind especially here in the US as these signs are similar to those that proceeded the recession back in 2008. Nobody paid attention back then and look what happened. Our recession nearly became a depression. We can only hope that the same mistake is not made and if signs of trouble persist immediate action is taken. How badly were you impacted by the recession? At anytime was your country in danger of falling into a depression era economy? Thanks for your comments.
I was still a full-time student during the recession. While I had little understanding of what was actually going on, I had the knowledge to trace the domino effect from my studies. It was tough seeing the adults struggle to meet their obligations, their businesses reflecting losses, retrenchments etc… Though the biggest impact for me was the stress, tension, and anxiety as a result of this not to mention my frustration due to the fact that there was nothing I could do to help during this time.
Looking back with 4 years experience in finance and accounting I do not think the downward trend from then to now changed in South Africa’s economy despite figures suggesting otherwise. While many people blame the government for practically everything relating to the economy (which is not meant to be governed) I actually blame them for being shortsighted, greedy, and overall criminals.
In 2009 our president at the time was pressured into stepping down, and an interim president nobody heard of, let alone voted for, was appointed by some committee I guess. Shortly after the Minister of Finance Trevor Manuel (someone I greatly admire) along with 90% of the administration changed. Finally in 2010 we voted a man connected to a fraud case as president. What erks me the most is his blatant disregard for the constitution and judiciory. I think as soon as he cannot hide behind a title, he will have to face a court, and probably bars soon after. His most recent impetuous and shallow act was not only allowing Al Bashir (a man wanted by the IEC for war crimes, crimes against humanity, murder, extortion and torture to name a few) secretly, but then arranging his safe passage once word got out and the judiciory passed a judgement forbidding him from being allowed to leave.
What I mentioned barley tips the iceberg – if you YouTube South Africa Parliament you may mistake it for a comedy show.
Jared, Thank you for the insights into the workings of the economy in South Africa. The problem here was that the crises or mortgage meltdown was talked about for years prior to the recession as being right around the corner. Nobody seemed to care or believe this could actually happen Government can’t be the only line of defense against dangerous financial practices but buy the same token leaving the Financial Markets do as they please will bring this country to its needs as these people are driven by greed not by the best interests of their clients. Our problems and impending problems do not give rise to humor. What controls could you see put in place so that we don’t have these crises and who do you feel would be best equipped to “police” the industry. Thank you.
You have a lot of wisdom Joel, I agree problems are anything but humorous. Unfortunately this view is not often shared from the perspective of people who do not understand the impacts of a political environment in the economy. While I am not, and do not aspire to be directly involved in party politics, I think herein lies the key to your question. Being an auditor, an independent external assurance audit on the treasury of a party, or in the public sector is not foreign to me. The idea of the buck stopping with Government provides the opportunity opportunity to officials for misapproriating government funds.
The biggest area where individual greed materialises is in the public sector. Specifically during the tender and procurement processes. If government starts performing it’s function then it should forget about the concept of state owned enterprise – because as soon as you have this, undue influence and personal interest become big factors. Government should focus on public service (health, education police, tax etc etc and country infrastructure) and forget about making money from the economy at large. Their income should be generated by tax – which will in turn provide the incentive for government to create a fair system which encourages companies to be good corporate citizens. In the ideal world this should attract investors due to the political stability and support, expand the reach of companies, increasing company profits, providing employment, resulting in more tax funds to the government from a larger employment force, and larger profits shown by companies – in a nutshell of course.
As you mentioned, there is no such thing as a free economy. If this were the case, or maybe it is, the rich will get richer and the… Government intervention should be triggered by price ceilings on basic consumer goods – like milk, bread, shelter and all alike necessary for life, or to encourage fair practice to make sure markets are not fixed by collusion which will consequently bring a decline to the employment force, production capacity, company profits and as the cycle flows tax funds.
When it comes to high-level offenders, whether you are Bin Laden or the Pope no influential position should override the judicial system which is an organ of the state – but an independent one in terms of Parliment, or for you in the US – Congress.
From a mortgage perspective, I think you may have a better understanding here. Again in the ideal world considering the above scenario the Federal Bank will not be driven to increase Repo rates, ultimately inflation and cost of capital will be far lower to what they are now.
Government has enough problems trying to police themselves without trying oversee the private sector especially the financial arena. There are many moving parts that need to be addressed in order to come up with some type of equitable solution before things to begin to spiral out of control again.