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“The current situation happening around the world especially in the united states. The question has has to be asked are we heading into the next great economic depression should we concerned what indicators can we see now that a great economic depression may be on the horizon. And how can we insulate ourselves. Mister never provides us with the one to one correlation between events few individuals predicted the recession of 2008 brought upon by the subprime mortgage crisis in spike and foreclosures while housing is still a great indicator to note we can t just assume that any coming recession or depression will be directly linked to the solitary cause hopefully.
Governments banks lenders and borrowers all adjusts reduce the threat of that specific problem comparing the factors. That led to the great depression of 1929 with factors from today can t be done exactly side by side economies industries markets demand output governments and people all change over nearly a century the key downturn events of one economic recession or depression may not directly correlate to another economic decline. However when we look at the key trigger events as individual symptoms of a larger looming illness. We can begin to see the likelihood of a significant economic downturn on the horizon in this video.
We will look at the six signs to look for today to assess the likelihood of another great depression. We ll conclude with an assessment of how significant any economic downturn may be given today s indicators number one unemployment coupled with a slowdown in hiring just days after the end of the first fiscal quarter. The united states unemployment rate spiked to a likely 14 point 7. Percent.
That s the highest level of joblessness since franklin roosevelt was president and a miss of the great depression. According to the united states department of labor six point six million americans filed initial unemployment claims in the week ending april 4th. That follows 10 point 2 million in the previous two weeks as businesses rapidly shifted their models towards social distancing consumers sheltered in place in consumer demand shifted dramatically away from traditionally stable goods and services. The us economy took an incredible blow in the first weeks of the second fiscal quarter of 2020 daycares cinemas gas stations.
Restaurants retail establishments travel and tourism and some service sector industries. All came to a garage halt people weren t traveling so they didn t need as much gas. The price for oil plummeted. A nation s cut back production to prop the price up people weren t going out to dinner in the movies.
They canceled their vacations and business travel and they were watching their kids at home instead of sending them to school. This was an almost overnight shift away from the traditional economy and a great number of people found themselves terminated laid off or forced to use up their banked allowance of sick and vacation hours. When severance packages and bank paid. Time off a run out the true unemployment numbers could be dramatically higher.
Still while grocery delivery and medical workers were in very high demand and hiring fast the majority of employment opportunities were indefinitely suspended most companies put a freeze on new hiring. This created a lopsided equation. Where unemployment far exceeded opportunities for hire considering that over one third of americans are living paycheck to paycheck the impact of unemployment on this economy is a clear sign that at the very least. An economic recession is already occurring as a reported numbers catch up to the current day realities student loan.
Deferments increase late and skip payments on credit card debts became a reality and rent mortgage payments are missed the economic ripple effect of systemic unemployment points to an existing recession the possible looming shadow of a massive economic depression number 2 fluctuations in stock bond and precious metal markets historically when the stock market falters and an economic downturn is imminent the safer but lower yielding bond market and the more stable. Precious metals market rise exponentially while there have been some rises in the bond and precious metal markets and the stock market has experienced a huge drop from a dow high of almost 30 k. As low as 18 k. The markets have recovered and narrow that loss to under 6 k.
Points. So why are the markets. Not responding as would be expected if we re on the precipice of a recession or depression. The answer is simply timing when the growth rate of cumulative cases was in excess of 10 percent per day.
The us companies had already released their profit statements for the first quarter and their forecast for the second. While some did factor in nominal downturn. The dramatic effect of widespread illness. Unemployment stayed home orders and consumer demand shifts weren t all factored into the reports at the time of their release these economies slowing factors emerged in such a short time so unpredictably and so swiftly that their cumulative effects couldn t be accurately forecasted.
They were foreshadowed and factored and slightly based upon the dow beginning to drop. Very late in february. And through the first part of march. But in the latter part of march and the beginning of april.
The markets begin to look like they were recovering a little when revising an economic forecast companies are not beholding to a specific sec deadline well some companies are quick to revise economic forecasts and notify their shareholders others may drag their heels and hope shifts in their business model where the parting future gloomy clouds may still be possible so the rosy profit forecast of a booming first quarter in a market of historical highs continued to low investors into a cautionary view of the market rather than a panic withdraw. While the fed has a few monetary policy instruments at its disposal. Unfortunately. It is used most of them to throw the markets to historical highs in the first quarter of this year.
The biggest threat to the markets. Though is the biggest of unknowns. How bad will the cumulative effect of the current pandemic be the market has discounted much of the pain based on its current drop. It will also quickly discount a recovery once the initial shock subsides in comparison to the only historical reference point we have of the 1918 spanish flu pandemic.
We have a different market different economic sectors and we are armed with considerably. More medicines medical and microbiology knowledge at this point in 1918. The stock market was beginning to recover our unknowns are what will tell us if our current market will recover will unemployment and freezes on hiring be sustained for a long period. Well farmers have continued difficulty finding the laborers as a result of the closing of the borders when they begin to harvest their crops well businesses be able to ship their business models and mitigate or defer their losses will we see a mass currency migration away from a volatile stock market and into a low yielding long term bond market or a more stable.
But spiking. Precious metal market. Any combination of these compounding economic elements or signs to look for signal. We re in the midst of an economic recession without adequate recovery measures likely a future depression number 3 housing market lending in foreclosures.
The housing market has been both the trigger for market collapse and an indicator sustained economic stability in some countries during the spanish flu. The return of soldiers following world war 1 and refugees fleeing to safer. Countries. Led to a greater need for housing population.
Growth tracks along with the housing needs. This reason housing and non commercial real estate have been viewed as historically state markets for investors and with the exception of the subprime crisis of 2008 housing construction and mortgage have seen the safe haven. Important vessels leading the stock market and currency volatility housing market lending sells purchases and foreclosures have often been great indicators of a coming economic downturn. According to one realtor assessing the current crisis supply and demand issues aren t the real indicator.
Challenging the market today while demand will definitely shrink for the time being supply has also shrunk. Which is kind of balancing things out the same realtor. Stated. Our market was absolutely on fire before all this happened.
We were having a historically strong first quarter. While there likely won t be a significant increase in foreclosures in the second or third quarter. Because there is more or less a moratorium on them for a while the fourth quarter in 2021 will be very telling in the current crisis and coupled with the massive growth in unemployment people are gonna defer their mortgage payments for six months using the recently enacted kerr s act but nobody is totally sure what happens after the six months covered in that legislation the payments all come due and a lump sum. Do they get spread out over x.
Amounts or y. Years or they get tacked on to the end of the loan term. No one really knows yet. But the actions institutions and governments take along with the types and number of foreclosures will give us an insight into the likelihood of a continued recession or deeper depression.
If banks and governments lean toward forgiveness and enforcement leniency over heavy handedness foreclosures will remain low and panic. Will not likely grip the market. If enforcement and heavy handedness become the norm and foreclosures rise. It s one of the signs that panic and for their economic downturn will occur.
This will lead to a deeper recession number four business failures in financing business is unable to dynamically adjust to the new realities of fewer consumers walking through the doors and consumers keeping a tight grip on their purses and wallets and delaying big ticket item purchases. Our modern indicators of the future of our economy businesses. Our employers so the unemployment rates discussed earlier part of the overall signs of a recession or depression the rate at which businesses can adjust to a remote delivery or complete business model shifts will be a leading indicator of the future economy course management systems are exploding for schools. Moving to an online.
Environment online. Meeting. Software. Companies are skyrocketing and users as businesses struggle to find new ways to keep the doors open in the wheels.
Moving some restaurants have moved to delivery and pickup dining options and many more businesses are finding. New and ways to keep their employees partially engaged or their products and services viable. But will that happen to the travel industry and when will people travel again well will happen to theaters and sporting events. When will people feel confident enough to go back to dinner in a movie in the waiting months of the spanish flu pandemic.
People still did not feel confident. Gathering and going out on the town or traveling. The consumer psyche and consumer confidence will be so low that no amount of discounts and deals can adequately mitigate the losses of a closure. It s natural for consumers to hold off on big ticket items purchases like cars appliances tvs and similar durable goods and it could take months to restore along with consumer confidence.
This can cause a slowdown in production sustained low levels of employed workers and can be a leading sign of a continued national or global recession. Even more alarming. Though is when we look at farming in the general agribusiness sector with borders closed for an extended period of time from a global pandemic workers are not available at the levels needed to harvest. Many crops within their narrow harvesting windows.
If farms fell at a high rate. Our foreclosed upon or if crops are left to rot and unharvested fields an extended recession may be in sight. If the agriculture sector suffers too deeply and food and raw material supply production suffers. It could lead to far less manufacturing output and could indicate a deepening recession or depression as possible in the future number 5 deflation and monetary policy.
How governments respond to a deepening crisis also determines how an economy will rebound from a dramatic downturn in the united states. However interest rates have been lower to leave very little room for future modification. So this throttle of the economy is already nearly wide open as with a great depression deflationary pressures may lower gas prices and even some consumer goods. But consumer confidence may prevent travel and lower demand for gas or prevent other goods from being purchased printing more money in passing banking security legislation like the emergency banking act of 1933 and the new deal where dramatic responses to the depression franklin roosevelt inherited today s government s may choose to continue a pattern of bowing out ceos and investors without adequately supporting the real consumers.
The middle and lower classes the status quo. May not be a bold enough solution to the pressing economic challenges of today while that pattern may work in some eken downtrends or on a per industry basis or in some nations. No one can really say if that same strategy will work for the current economy. Typically an economic downturn is not as systematic as the current crisis even after the unemployment numbers return to around four percent in businesses begin the slow expansion of hiring and production.
How far in debt will individual consumers be and will anyone really recover how our government reacts to support the average citizen will be a strong indicator of how rapidly the economy will have recover when governments look at their monetary tool chest. If they have a wide range of tools available to them and they can mitigate our losses and innovate new models for recovery. The chances of slipping into a deep depression or recession or minimize a nimbleness and responsiveness of a government to the individual consumer citizen is a strong signal of whether a recession or depression is still around the corner to summarize the points in this video. If history teaches us one thing is that when we are well informed and adequately prepared we increase our odds of survival that includes fiscal survival.
Unemployment coupled would have slowed down in hiring dramatic fluctuations in stock bond and precious metal markets. A slowing of the housing market. An increase in foreclosures and businesses filling or entering bankruptcy and deflation and government responses to a deepening economic crisis. My individually have little effect on a robust economy combination of these warning signs.
However can indicate your economy is in a recession. It may be teetering on the edge of a depression as of today. There are enough of these cumulative signals to confidently say that a recession is at the doorstep how deep that recession becomes whether that deepens to a depression and whether that economic downturn is confined to a few countries or results in a global recession are all based upon how well countries respond to these five signs all likelihood governments will be able to respond nimbly and in innovative ways to avert a long sustained downturn. If a second and third wave of the virus is smaller than the first or does it occur at all economic confidence will be somewhat restored in the wills of industry will once again churn forth.
But at the second wave of the coronavirus is more devastating than the first wave things may quickly get difficult in an upcoming video. I ll discuss some strategies to prepare for a potential recession or depression from a preppers perspective. I m not a financial consultant. So my videos will always focus more on what an individual can do now too insulate themselves from a crisis of any kind of the future part of that is having resources available to you if you found this video informative and helpful please feel free to like and share it with your family friends and community.
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