The economy could be on much shakier ground than you think, and the stock market may be only the latest indication.
With the Dow Jones falling 392 points Thursday and 252 points Wednesday, there are a number of indications that 2016 could see an economic meltdown much like the one in 2008. In fact, this year is off to the worst four-day start — down 910 points — on the stock market ever.
Here are five very good reasons why the present state of the economy should frighten you:
1. The Chinese stock market is collapsing — and it could bring down our stock market with it. Trading on the Shanghai stock exchange was halted on January 7 after the Shanghai Composite Index (China’s Dow Jones) lost 7 percent of its value in just 29 minutes of trading, The Wall Street Journal reported. Officials stop trading to prevent panic and a stock market crash.
“This is insane,” Chen Gang, the chief investment officer at an asset management company in Shanghai, told Bloomberg. “We were forced to liquidate all our holdings this morning.”
The plunge in Shanghai caused US markets to fall as well. Other markets, including Japan’s Nikkei, also fell.
Manufacturing in China is down, and the country’s government has been trying to stimulate economic growth with massive amounts of stimulus money.
2. One of the world’s most successful investors, billionaire George Soros, thinks such a crisis has already begun. Soros told conference goers in Sri Lanka that he believes China’s currency, the Yuan, is about to collapse and bring the markets down with it.
“China has a major adjustment problem,” Soros said. “I would say it amounts to a crisis. When I look at the financial markets, there is a serious challenge which reminds me of the crisis we had in 2008.”
Soros previously has successfully predicted such collapses. In 1992, he correctly predicted that Britain was about to devalue the pound, and he made $1 billion betting against it.
3. The price of oil is collapsing and causing serious damage to the economy around the world. The cost of a barrel has fallen by half since June 2014. On January 7, oil prices had dropped to around $32 a barrel, the lowest in 12 years. Around 200,000 oil industry workers in the US have already lost their jobs, according to The New York Times.
Cheap oil is wreaking havoc elsewhere, including in Alaska, where the state government has seen its revenues fall by 81 percent since 2012, the Empresa-Journal reported. The state’s governor is so desperate for money he’s even proposed bringing back the income tax, which Alaska abolished 35 years ago.
Saudi Arabia has had to cut government spending and raise the price of utilities and gasoline to cover an $87 billion budget deficit.
4. Several top economists interviewed by Politico think that the economy will tank in 2016. Tyler Cowen, a professor of economics at George Mason University, believes we are facing “what could be the beginnings of a major global recession.”
“The next president will inherit an economy teetering on the edge of recession,” former Labor Secretary Robert Reich told Politico. Reich thinks the economy is in trouble because people simply don’t have enough money to pay for all the goods and services being produced.
“American consumers account for almost 70 percent of economic activity, but they won’t have enough purchasing power in 2016 to keep the economy going on more than two cylinders,” Reich said. He noted that the average wage in the United States is now four percent lower than it was in 2000.
5. The retail apocalypse is heating up. Major retailers are closing hundreds of stores and laying off thousands of workers. After lousy sales over Christmas, Macy’s announced plans to eliminate 4,800 jobs and shut down 36 to 40 stores.
It is not just Macy’s. JC Penney is planning to close 39 stores and lay off 2,250 workers, CBS Money Watch reported. Sears has closed around 235 stores in the past year, and some observers predict that chain could go out of business completely in 2016.
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