Many economists, like Peter Schiff, have claimed that a crash is coming. The credibility of the claim in Shiff’s instance is that he had already once predicted a crash: the 2008 sub-prime mortgage crisis.
In 2008, the crash was almost entirely driven by bad quality debt. Banks were giving almost everyone a mortgage, many of which would then struggle to make repayments, and bundle these debts together as CDOs and sell on. The buyers of them would have zero ideas about the rating and quality of the debt, and the apparently endless housing growth bubble finally burst.
The current situation is very, very different. Many countries have entered a recession. The US, UK, Australia, for example. However, this recession hasn’t got us questioning the fabric of capitalism’s viability unlike the last.
Having said that, debt is rising, and so is trading. Many retail investors have taken to trade online due to the increase in disposable income. Thas has been the result of mass lockdowns, in which the middle class have fewer things to spend their money on because lots of leisure activities are closed.
The opportunities are rife, too. Volatility is extremely high because of these new, retail investors, but also because of the strange limbo that society is in. Avatrade partner code and Plus500 bonus code are also some of the reasons behind this driving to equities and Forex markets by casual traders — the brokers are simply making the most of the situation with an abundance of promotions.
Why the crash is different this time around
The current economic crash is a result of demand and supply being artificially held back. Many economies are preventing sports arenas, theatres, gyms and cafes to open. This means that they’re struggling to pay wages, but they’re also not buying goods from their supply chain.
GDP fell a by a record 20.4% in the UK as a result of the full lockdowns in Quarter 2. This is with the many billions that the UK government spent tying businesses over with loans and grants, along with the self-employed.
It’s unlikely that the true extent of the crash has been realised yet. This is because of those grants and loans, and the fact that they can’t last forever. The US’s debt-to-GDP, for example, is almost over 100%. That is well over the recommended amount and a figure that they will try and soon prevent from rising. What doesn’t help, of course, is that GDP is falling, making that ratio look even worse.
The crash that was bound to happen
It’s not necessarily fair to claim this crash was a long time waiting to happen. The fact is that it happened due to a global pandemic and a huge global reaction to it. There were certain sectors that were over-priced, like many housing markets, but the crash we’re seeing today is far greater than one that would’ve happened naturally (if at all).
Of course, all economies go through peaks and troughs. Coronavirus has certainly induced a tough, and one that may have happened anyway, but the way out isn’t darker this way. Not only is Coronavirus still very much prolific and causing a long period of stagnation, but the amount of government spending has been huge compared to some crises.
It’s unlikely that the US, UK and so on will have much money left to drive us out of recession after COVID-19 is under control. In fact, we’re likely to see austerity measures for a long time after. The silver lining though is that we can be sure, sure, that the end of COVID-19 will be the end of the recession. The only way will be up, and if many businesses closed down, there will be a buzzing younger generation who are out of work looking to fill in the entrepreneurial vacuum.
Coronavirus: Is the end near?
It’s unlikely that COVID-19 gets under control without a vaccine. The fact is that this is a seasonal virus, in which winter it’s much more prevalent. Vaccines take years to process, because of all the research, tests and regulation it needs to jump through. We are seeing signs of breakthroughs, such as a global clinical trial at Oxford, which offers hope. The timeline however is not looking promising.
The biggest issue this winter is that it’s a long winter compared to last. Coronavirus only took its hold in February, meaning that winter was on its way out. This time around, the numbers are already worse than last year and we’re only in October. This tells us that lockdown measures are here to stay for several months.
This is the biggest threat to the economy. Unemployment has already risen in most economies, but it’s likely going to get worse. With this long winter, lockdown measures and government loans drying up, it’s likely that there will be a global economic crash before we see that back of COVID-19.