Are we on the brink of another recession? There is no easy answer to this question, but this article suggests it is a possibility. With the interdependence of America's economy with other nations, the effects of economic turmoil abroad have new implications in the Unites States. Coupled with short-sighted economic decisions within our own government, it could be a recipe for disaster.
To begin the United States has made large investments in emerging countries, many of which, such as Brazil and China have begun to stagnate. Soon their credit bubble is about to pop and there is still no way of predicting what the effects will be. "You only find out who us swimming naked when the tide goes out." This Warren Buffet quote means that since the credit bubble is about to pop, soon it will become apparent how much of these economies are sustainable.
Next the Fed has less flexibility with interest rates than it used to. In 1998, it was operating at 4.75% but now it is at 0.25-0.5%. If there are any cuts it will require depositors to pay the bank. When this is occurring simultaneously with the significant changes in the global economy it's a bad sign that the Fed has less control of the market than they did before the great recession.
http://www.nytimes.com/2016/02/05/upshot/if-there-is-a-recession-in-2016-this-is-how-it-will-happen.html?ref=economy
I find the article interesting because the article I read for this blog session was based upon the wage rates in America and while it addressed some of the problems mentioned in this article, the author ultimately felt that a recession was not likely. After only completing a few blogs, it is very intriguing to me not only how many articles are based on the idea of upcoming recession but also how many of these articles offer such contradictory opinions. I can definitely see the problems mentioned in this article to be of concern though as we move into the future.
ReplyDeleteIn an increasingly globalized world, the US must switch perspectives. It must look beyond domestic indicators to determine that status of the economy, it must look at the world.
ReplyDeleteIn doing related research to reasons for a potential recession, CNN recently published an article about the rise in USD and fall in oil prices. This in addition with the US's recent investments in Brazil and China only increases the potential for recession.
ReplyDeleteRecently re-watching some Top Gear episodes on Netflix, they did an episode on Chinese cars and the emerging market there for cars. From the blatant rip offs, to imports, and original cars invented there, the most amazing fact they presented was that since 2000, car use has increased at an average of 24% per year. These types of emerging markets that are experiencing growth unheard of till now will prove to be the ultimate test if the new global world can effectivley manage the growth of these new economic super powers like China that have exploded in the past two decades.
ReplyDeleteVery interesting point Luke. I wonder how the Zika virus will effect the Brazilian economy. I wonder how this bubble combined with their Zika problem will effect their economy throughout 2016.
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