The 2016 Economic Collapse – Why it Will be Worse Than 2008
The 2008 Credit Crunch was caused by homeowners defaulting on their sub-prime mortgages. This lead to the Lehman Brothers bankruptcy, the 40 percent Dow Jones stock decline and banking bailouts amounting to billions of dollars. Unfortunately, billionaire George Soros thinks that the 2016 economic environment looks very similar to 2008.
Was Capitalism in Danger of Collapse in 2008?
Perspective is easily missed during economic catastrophes. In 2008, the top world leaders warned that capitalism would end if the top banks were not bailed out. Was the entire capitalist system truly in jeopardy? George Soros, in his book “The New Paradigm for Financial Markets – the Credit Crisis of 2008 and What It Means,” might have expressed the problem most succinctly: “Banks sold off their riskiest mortgages by repackaging them into securities called collateralized debt obligations.” This created a banking “house of cards” that was all tied into whether a sub-prime debtor repaid his mortgage.
When the sub-prime debtors started to default, this “house of cards” started to crumble. Credit card companies worried about repayment. Mortgage banks were afraid to lend. Even business loans were denied because the banks were worried about their own solvency. The Federal Reserve feared deflation and broken capital markets.
George Soros continued, “On August 17, , the U.S. Federal Reserve cut the discount rate, the interest rate at which it lends to banks, by half a percentage point to help banks deal with credit problems.” Eventually, the Federal Reserve stepped in and purchased all of the bad debt. If banking fails, then capitalism fails.
George Soros mentioned three dangers moving forward after 2008: questionable derivatives, weak bank balance sheets and lost faith in the United States dollar. When the Federal Reserve bought the bad debt, it increased its own risk and did not completely cleanse the banking system. It might have only pushed off its “day of reckoning.”
Stock Exchanges and Productivity Are Falling in January 2016
At the January 2016 Davos economic forum, George Soros commented on why 2016 resembles 2008. Eight years ago, stock exchanges around the world were falling. Economic productivity and commodities were falling. Banks were weak, and capital markets were seizing up again as economists feared deflation.
The elite global bankers are again running out of effective monetary or fiscal policy options. The Fed balance sheet is full of non-performing assets. Interest rates are already near zero or negative. Sovereign debt is at record highs. Who has the answer?
Although no one can predict the future, the signs are ominous. Wise investors are shifting their assets and preparing for a possible 2016 Credit Crunch II.
Get All the Ducks in a Row
During good times, individuals can handle higher debt loads. They can transfer credit card balances from card to card. However, during tough times, there are fewer options. The last economic catastrophe caused the capital markets to freeze up. Because the top financial analysts are warning of tough times, it might be time to “get all the ducks in a row,” as the old saying goes. Payday loans can sometimes be compared to pasta loading for a marathon. The short-term capital allows borrowers to pay off credit card balances, clear medical debt or transfer assets quickly.
Develop Good Relationship with Financial Lender Now
In 2008, Dow Jones stocks lost 40 percent, and 2016 could be worse. The first few days of 2016 were the worst start ever for the Dow Jones stock exchange.
Eight years ago, banks were not lending to new, untested individuals or businesses because they could not properly assess the risk. If borrowers develop a good relationship with a payday loan company, then they might still have access to capital while others are being ignored. It’s wise to create an open channel for raising capital before it is too late.
Wise investors prepare for any contingency. When borrowers need real answers explaining the most pressing financial concerns of the day, find more information can be found on the Personal Money Store finance blog.