Discussion in 'Business & Economics' started by Saint, Oct 16, 2017.
The Lehman Brother's crisis in 2008 caused recession,
will this similar recession happens next year?
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Similar? No! 2018's problems will be quite different. Continuing economic growth in Indonesia, Philippines, Vietnam and a host of other not insignificant countries will put upward pressure on demand for commodities ... causing commodity prices to rise ... leading to across-the-board price rises. This will make workers poorer, especially in countries with mature slow-growing economies where there is insufficent increase in real wealth to restore real incomes. However, clamour will produce wage increases ... leading either to impoverishment of producers and/or to these increases being passed on in further rounds of price rises. Governments will be unable to respond to rising prices by increasing interest rates because this would multiply the cost of financing their vast indebtedness ... which would cause national bankruptcy.
This is where things start to get exciting! Who wants to explain what happens next?
Well, you were okay until you went off the deep end with national bankruptcy. With the exception of the EU; nations who denominate their debt in their national currency, e.g. the United States, can never go bankrupt because they can always print currency to pay their debts. Furthermore, higher interest rates will not effect existing government debt. It would only affect new debts.
It's very difficult to forecast into 2o18 because there are so many variables; Donald Trump being one of them. If Trump starts a nuclear war with North Korea or Iran, all bets are off. I think Donald Trump is the chief risk for 2018. But it will not be a repeat of 2007-2009. We may have a recession, but it will be for other reasons. Barring Trump doing something stupid as he is want to do, I expect the global economy will continue to grow. I agree with you that economic growth will pressure commodities higher. Europe may begin monetary tightening, but I would expect that more toward the later half of 2018 if at all. Some EU countries still have negative interest rates. I expect the US will continue monetary tightening. How much depends on the fiscal policies adopted by the US Congress. Congressional Republicans want a massive tax cut which if passed would provide modest economic growth. The US central bank will respond by raising interest rates which would slow economic growth. So at best I see more of the same. At worst, I see Armageddon. The risk now is the Trump risk. I think impeachment is likely in 2018 or 2019 when Mueller completes his investigation and things could get very ugly at that point. Trump will not go easily into the night. He may well start a nuclear war in an attempt to avoid impeachment. Trump is a mentally unstable actor and that's never a good thing.
I am curious how you see any sort of worthwhile economic growth from the proposed tax cuts, especially combined with the changes to insurance. I foresee a lot of already squeezed people ending up being asked to shoulder more of the tax burden while Trump's buddies get to laugh all the way to the bank (or Switzerland, or whatever the case may be)
Of course there will be recessions etc in the near future, at least in the US - since the revocation of the protections put in place under the New Deal the US economy has been restored to its former cycles of boom and bust, the ordinary operations of its economy prior to 1935 or so;
cycles typical of unregulated capitalism with bank financing, everywhere and throughout history.
I think most investors don't think Republicans will be able to pass a tax cut. As popular as tax cuts are with Republicans and their donors, i.e. the Kochs, it doesn't appear that Trump and his merry band of Republicans will be able to pass a tax cut at this point. The stocks which will benefit the most from tax cuts, the restaurants and retailers, have been and continue to be laggards in the stock market. That wouldn't be the case if investors thought a tax cut was on the horizon.
The Republican tax plan is so nebulous at this point it's difficult to know what impact it will have on the economy. If it is yet another tax cut for the rich, i.e. the Republican donor class, the Kochs of the world, it will be great for the stock market as it will drive asset prices higher, and it will result in higher interest rates. That will help investors and banks, but it will further squeeze the poor and middle class as they will have to pay those higher interest rates. Contrary to Trump and Republican assertions, it will not be a driver of economic growth. It will not bring forth new jobs, but it will add trillions of dollars to the deficit and national debt. Now that Republicans are in power they are back to the "deficits don't matter" policies of the Bush Junior years. It's kind of funny. When Republicans are in power deficits and debt don't matter. When they are out of power nothing matters but deficits and debt. It's funny how that works.
What Republicans are trying to do with "tax reform" is replicate Brownback's experiment in Kansas which was a boon for the Kochs but drove the state deeply into debt and resulted in economic stagnation. It didn't create jobs. It didn't grow the economy. It resulted in massive debt and a very regressive tax system. The Kochs are pushing hard for these tax cuts for obvious reasons. But most investors don't think they have ability to get them through congress even though the Kochs have stooges in the White House and own most of Congress.
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