Economic Crash Symptoms Appear Similar to 2008

The global economy is slowing down, according to the World Bank report. The global economic growth forecast is 2.6% for 2019. There are many reasons why the chances for the next financial crisis will further increase this year. For example, U.S. consumer debt level reached $14 trillion in the first quarter of 2019.

The current debt level suppressed the amount of debt accumulated during the last financial crisis. In 2008, credit cards, auto loans, and mortgages, as well as other debts, combined reached roughly $13 trillion.

One of the most worrisome issues was the student debt level during the 2008 financial crisis, equal to $611 billion. Eleven years after the crisis, this amount increased, and at the end of March of this year was $1.486 trillion. It means that it is more than twice of debt accumulated by 2008.

There are other signs which indicate that economic crash is not as far as many people thought some time ago. In 2007 and early 2008 there was a similar situation as another Republican George W. Bush was the president.

Bush along with his Treasury Secretary Henry Paulson and chairman of the Federal Reserve Alan Greenspan were aware of the incoming threats. Back then, the situation was similar to the one we have today as both 2008 and 2020 is an election year. 

Donald Trump himself admitted that if he loses the reelection market crash would be inevitable. Another similarity is that during their time in office, both Bush and Trump pressed the laws which would provide wealthy people with the tax cuts on their dividend and capital gains incomes. The result of this law passed by the Bush was the $458 billion annual deficit in 2008.

The History of the 2008 Financial Crisis

Another decision made by the Bush administration was to lower the U.S. interest rate from 6.5% to below 2% in 2002. Deregulation of the banking and security sectors had a negative implication. In six years starting from 2000 to 2006, a lot of people who previously did not meet the mortgage requirements bought houses.

The final result was the economic crash and the government bailout, which saved American banks and companies from bankruptcy. All these laws and regulations are quite similar to the ones recently passed by the Trump administration.

According to the data from 1981 purchasing power of 99% of the population is decreasing. 50% of Americans who are at the bottom lost over $900 billion. Number of Americans who are forced to buy the smaller houses or even worse become homeless is on the rise.

Federal Reserve might cut the interest rate, but it won’t help these people deal with their economic problems. Multi-trillion increase in government along with private and individual debts helped the U.S. economy to grow. Otherwise, the economy would shrink rather than increase during the last years.

The current affairs of the U.S. economy play in the hands of the Trump administration. If Trump can postpone the economic crash at least by November of 2020, he might win the reelection. In case of losing the election, he will be able to blame the Democratic Party for economic hardship.