What Are Chances of A Financial CRASH in 2025?
last year us share prices soared by 25% since the last crash in 2009 share prices have risen 300% most Americans may be living paycheck to paycheck but Wall Street is booming by any metric us share prices are now overvalued share price to earning ratios have reached record levels higher than just before the dotom bubble of 2001 the US stocket Market is now over 200% of GDP four times that of the early 1990s in early 2000 shares in Tech firms soared to Crazy income multips they said this time is different because of the new technology was the internet but when the bubble burst the NASDAQ fell 77% this time it is artificial intelligence which is a new source of enthusiasm but never underestimate the Limited intell Ence of humans to get caught up in speculative bubbles it’s not just investors Central Bankers in the early 2000s felt they had tamed the economic cycle inflation was low growth was high everything was good with the world but behind this seeming stability Financial whiskid had developed new ways of hiding bad debts and selling it on it didn’t end well in 2008 financial markets and house prices crashed and the Crash would have been even worse if it hadn’t been for massive government bailout and the central banks creating money out of nothing 16 years on from the last crash it now seems like a distant memory and the Trump Administration and even the new labor government are wanting to loosen those post crash regulations in a desperate effort to boost economic growth further by the way when we talk about a stock market boom is not really affecting the UK compared to the US the UK stock market has stagnated in 2008 the UK stock market had 8% of a global total today it’s only 3.7% price to earning ratios in the UK are amongst the lowest in the advanced World investor pessimism seeming to match business and consumer pessimism in the UK for Global Finance the US has become everything the US Stock Market now accounts for 60% of the global total but if a stock market is booming why do many Americans not really share this optimism workers have seen a decline in the share of income as proportion of GDP the top 0.1% have seen record levels of wealth there’s been a disconnect between GDP and median wages it’s an economy that is increasingly une equal whilst for Rich get richer us consumers have been stretched by high inflation Rising rents and high interest rates the amount of consumer credit has soared and more consumers are now struggling to repay there been the biggest rise in credit card defaults since the devastating recession of postc Crash America 2010 on top of this house price to income ratios are still near record levels they are more expensive than just before the bubble burst in 2006 and with new 30-year mortgage rates at 6.8% most home buyers have frozen out of the market due to high prices and high interest rates it’s a sharp contrast to the recent years of interest rates as low as 3% potential buyers are instead been forced into an expensive private rented sector it’s a similar story to the UK where house pric to income r ratios are very near record levels despite High interest rates and relatively weak wage growth the big difference in the US is that uh since 2008 much more mortgages are now 30 years so that means that they’ve been insulated from recent Rises but it does mean the market has become stagnant with prices remaining elevated and people not wanting to move one theory is that the property cycle is 18 years long so that means that last year should in theory have been the year that they started to mat price Falls we saw 18 years ago in 2006 perhaps it’s coming soon talking of bubbles there’s been another surge in the value of Bitcoin and cryptocurrencies 400% rise in the past year and Bitcoin is a successful cryptocurrency others have been introduced only to leave investors losing most of their Investments where this will end is an interesting subplot to what’s going on in the economy now these are all signs of an unbalanced economy but by no means evidence of an imminent crash however the new Trump Administration could be putting fuel onto the fire firstly was likely to be the repeal of financial regulation introduced post 2008 there’s been talk of repealing part of the dod Frank act which created new government agencies to oversee Financial Risk Trump TR is a known supporter of financial deregulation and Trump supporters like Steven Moore want to see looser rules for Lending so a loosening of these rules could see a new buildup of risk in the financial system don’t forget the bankers have a problem of moral hazard they take the risk if they win they benefit if they lose they get a government bailout other areas of uncertainty include the impact of higher tariffs and trade Wars Trump’s been talking of tariffs of up to 25% on Mexico and Canada and hitting China with tariffs from day one it could be the trigger that disrupts global trade and leads to lower global economic growth which is already quite weak widespread higher tariffs will trickle through into higher consumer prices and higher inflation a large scale repatriation of illegal workers could also increase costs for immigration specific jobs like meat packing and crop harvesting all of which will feed into higher consumer prices now whilst there is uncertainty about Trump’s future trade policy there will almost certainly be a large tax cut mostly favoring High income earners just like we saw in 2017 this will further increase the US budget deficit and provide a sugar rush of more spending in the economy so 2025 is the potential for further inflation in share prices crypto values and higher inflation it may create a wave of euphoria amongst those who benefit from tax cuts but with share prices already significantly overvalued there’s a very real risk of new sources of inflation and enough bad news to prick that stock market bubble now should the us see Rising inflation from tax cuts tariffs or unexpected sources like the oil price rise of 2022 it would put put upward pressure on interest rates and any rise in interest rates in the US would severely impact a housing market already struggling with overvaluation higher interest rates would also affect all those consumers with record levels of Consumer Credit Now the UK is far from a bubble economy if anything the opposite growth is sluggish and consumers have responded by Saving more record amounts of saving business are reluctant to invest causing a cycle of sluggish growth as mentioned UK share prices have mirrored the pessimism around the economy becoming one of the uh Best Value in the developed world you could even argue this is a time to buy British shares if you’re feeling optimistic the stock market at least is not overvalued Silver Linings and all that yet the UK’s Reliance on the finance sector do make it vulnerable to any kind of crash or downturn in the us financial sector higher tariffs could spell a new source of problems for a struggling economy still reliant on exports to some extent now some of the fundamentals of the US economy are still quite good strong business investment in manufacturing higher economic growth High productivity growth often better than the rest of the world inflation has also Fallen close to the Target without some of the predicted rise in unemployment but the economy is increasingly a two-speed economy with a boom in stocks wealth of the top 1% and assets like housing but are there any policies to provide good news for those who are struggling to make end meet there seems to be little on the horizon to change the fortunes of those struggling with high living costs and relatively weak weight growth many American workers their fortunes seem far removed from a boom in Wall Street and share values almost parallel worlds also whilst the US government does have a very high capacity to borrow there’s usually no shortage of demand for us treasuries borrowing is forecast to sore because of an aging population and rise in spending on healthc care and pensions this is for forecast US debt in the coming years and that’s even before any new uh tax cuts introduced by the new Administration as a result the US is spending more than ever interest payments $1 trillion last year more even than defense or education now US debt shouldn’t be an economic problem but given the political divisions the US government is never that far away from a devastating shutdown which could cause real economic problems I don’t see an imminent crash but there is a lot of exuberance in Wall Street circles which may soon find the realities of the future much less Rosy than they hoped and when people say they believe that this time is different be very wary this video goes into more detail on the failure of Economics or more accurately the failure of certain economic policies to ensure the benefits of growth are spread throughout the economy do check it out thanks a lot bye.
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