The economic crash could be part of something much worse: economics columnist - Raw Story

When President Donald Trump entered the White House, the Dow Jones was just about to cross the 21,000-mark, and after three years, he sent the market soaring and then crashing to an embarrassing “Bear Market” territory.

A “Bear Market” is generally what it’s called when investment prices drop more than 20 percent from the most recent high. Nerd Wallet explains that they can often coincide with a recession. Wednesday the Dow closed at 23,553 and the bear market number was 23,641, according to BloombergTV business editor Joe Weisenthal.

ADVERTISEMENT

Economics columnist Robert J. Samuelson at the Washington Post explained in a piece Wednesday that the drop may be something far greater.

“For months, there has been a tug of war between economic optimists who marveled at stocks’ resilience and skeptics who warned of a speculative ‘bubble,'” he wrote. “If the bubble ‘popped’ — meaning that prices drop sharply — the adverse side effects on production, profits and employment could trigger a recession. (That’s commonly defined as two-quarters of a shrinking economy — gross domestic product, or GDP.)”

Making things worse, of course, is the oil price war between the Saudis and Russia, shaking consumer confidence. Meanwhile, the world is pulling back on anything related to travel, hospitality and things that involve public spaces. Trips are being canceled and schools are closing with workers being told to stay home. Without workers being paid, money doesn’t get spent in the economy.

“The combination of the virus and the huge drop in stock prices is likely to trigger a wealth effect. People spend less because they feel poorer,” explained Samuelson.

Trump demanded the Federal Reserve drop the interest rate, but it was merely a band-aid fix over arterial spray.

ADVERTISEMENT

Fed Chair Jerome Powell has claimed that the low-interest rates have nothing to do with “unsustainable financial speculation. ”

“The U.S. financial system is substantially more resilient than it was before the financial crisis,” the Fed said in its latest semi-annual report to Congress.

“These issues are almost certain to come under renewed scrutiny, especially if — as seems likely — the economy weakens or drops into a recession,” he closed.

ADVERTISEMENT

Read the full piece at the Washington Post.

Report typos and corrections to: [email protected].

Let's block ads! (Why?)

Business - Latest - Google News
March 12, 2020 at 04:04AM
https://ift.tt/3cRYRoU

The economic crash could be part of something much worse: economics columnist - Raw Story
Business - Latest - Google News
https://ift.tt/2Rx7A4Y

Bagikan Berita Ini