The US economy is going through tough economic times and right now we have an economic crisis and a depression might be coming very soon. We have the biggest economic meltdown in history despite the Federal Reserve’s efforts to try and boost the slowing economy. The financial markets are already plummeting and the stock market has lost trillions of dollars in just a few weeks and experts are warning that this market crash will continue for a foreseeable future.
The measures being taken by the Federal Reserve to help the failing economy are an exact replica of the measures that were taken after the collapse of Lehman back in 2008. The administration is now taking measures like the MMIFF, AMFL and the Primary Credit Facility (PCF) which will provide overnight funding to various primary dealers. This is similar to how the discount window acts as a backup source of funding various depository institutions. The Primary Credit Dealer Facility will support all the credit needs on businesses and households. This means that the FED is launching a way for the dealers to fully monetize the stocks they own because the whole facility will be collateralized by equity securities. Just like the Federal Reserve announced, the PCDF will be offering term and overnight funding beginning from March 20. They have announced that this will continue for six months this period can be extended if the economic conditions don’t change. This credit that will be extended to primary dealers within this facility will be collateralized by a wide range of investment securities like equity securities, bonds and commercial paper. Using stocks as collateral to is a big mistake. The stock market is already crashing and will soon go bankrupt. This is a big financial mistake by the Federal Reserve and this will end up creating historic debt levels and instead of helping, the whole economy will be plugged to more debt.
Yesterday, the US futures traded higher but late plugged back to the low of the day that had been created earlier while the Dow is slumping as a result of various monetary and political headlines that are talking about increased chances of bailouts. When this is put into perspective, it means that the market is already panicking because we are now at the middle of a financial crisis and more companies are about to be bailed out. Sometimes back, Jim Rodgers who is a legendry investor had warned that the next financial crisis will be worst compared to what we had back in 2008. Right now we are at the middle of this financial crisis. This is an economic meltdown like no other and right now the whole financial system is at the verge of collapsing. Many banks will collapse and the government will have to bail them out all at the expense of the tax payers. The reason why we have this financial meltdown is not just because of this meltdown; our economy has many other problems like overreliance on debt and this is what is further worsening our economic woes.
Early this week, the treasury secretary Steve Mnuchin presented his trillion dollar aid and bailout plan to financing struggling companies in this crisis. He warned the Senate GOP that if these actions are not taken, the US unemployment rate will sharply spike to more than 20 percent. The United States has about 160 million people in labor force and this means that if this economic meltdown continues, about 30 million American will lose their jobs. These levels of unemployment were only seen during the great depression. This has already begun and millions of Americans are already losing their jobs every week to a point where the New York’s unemployment website has crashed because of number of people who are looking for unemployment benefits. Economists re warning that the government should prepare for more than 10 million jobs loses within the next two months. Within weeks, in places like Ohio, the unemployment rate has skyrocketed by 600 percent because of the current disruption that has caused a massive closure of restaurants and bars.
It looks as if a global economic meltdown has just begun and a large portion of the workforce in the united states and other countries have already been laid off while others have their working hours significantly reduced. Right now the odds of a global economic depression are close to 100 percent if this economic disruption continues in the next two months. Many retail businesses are being shut down and it looks s if the whole economy is coming to an abrupt halt. Most vibrant cities in the United States right now have turned out to be ‘ghost cities’ and the situation will be worse when the storm will hit the US in full force.
Even if the Federal Reserve is making all efforts to try and fix the economy but it looks as if their strategy will not work in the long run. The economy is already bad and soon we will find ourselves the worst financial crisis. The number of banks and financial institutions that were bailed out in 2008 is nothing when compared to the number of companies that will be bailed out this time round. Our economy is now a complete mess because in the last one month, the stock market has already lost more than $16 trillion and more losses are still come. Analysts are predicting that the market will fall by about 40 percent and this translates to Americans losing trillions of dollars. This is will be the worst collapse since 1929 when we had the great depression. Right now everyone is panicking fearing that the worst will happen because right now we are in an economic meltdown that can easily end up being an economic depression.
The market is already in the bear territory and economists are warning that this is just the beginning. The Federal Reserve announced that they will keep the markets liquid and everyone is wondering for how long this will do this considering the fact that almost the whole economy has been shut down. They are trying to fix the current economic challenges using debt and there is a very high probability that this will not help. More debt will inflate the weak economy because right now we do not have very little economic output. The FED has been pumping billions of dollars into the stock market for some time and this has been creating even a bigger bubble that will result to a bigger market crash.
As a result of this economic slowdown and stock market collapse, the banking industry is going through the toughest time since the 2008 financial market crisis. Right now many banks are at the verge of a collapse. For example the Deutsche bank is going through many financial problems and right now this bank has a very bad valuation. At the same time, we have many banks that are closely linked to the Deutsche bank and the failure of Deutsche bank will trigger a cascade of bank failures and we might see many banks runs and bankruptcies. Right now the repo market is in a big problem and if it collapses just like the stock market, the whole banking system will be brought down within a short time. Some banks are already down more than 20 percent and right now some of them are ready for a blow up. Unlike other sectors, the banking industry is intertwined and if a few banks collapse, the whole banking system will be in trouble and this will definitely cause the biggest banking crisis in history.
At the centre of this global economic meltdown, our banks are loaded with debt and it is a surprise that some banks are already overleveraged up to 100:1. Because of greed, the banks were overleveraged and this was one of the factors that caused the 2008 financial crisis. It looks as if they learned nothing from the 2008 economic crisis and right now they have taken the same course once again. This time, the bank runs and failures will be 10 times what we had in 2008. Right now many banks are struggling to a point where the Federal Reserve has to loan 500 billion dollars to struggling American banks. This is amount of money was lastly loaned to the banks back in the 200 financial crisis and this shows us how the financial industry is struggling.
At the moment, the well being of our banking and the financial systems remains uncertain. Because of greed, the banks have taken huge debts and this has orchestrated the collapse of the banking system and the economy at large. This financial crisis will be bigger than what we had in the 2008 financial meltdown and it will not be a surprise if several banks collapse. What we need now is a complete change in our system and this is the high time when the government has to intervene by coming up with regulations to control how much backs can borrow. The economy also needs to be permanently fixed because for decades, we have had a buoyant economy that has been fueled by debt. The current collapse of our economy is largely because of the deep economic challenges and inefficiency of the government policies. It is now very clear that the American economic system is broken and this is the time for change.