With this month marking the 10-year anniversary of the 2008 financial crisis, many in the field of economics are using the opportunity to take stock of where we have been and where we are going. As the stock market continues to hit record highs, it may be tempting for many to proclaim the economy healthy and on track for continued growth. However, many experts who have taken a closer look are not so optimistic. A recent informational video from U.S. Money Reserve, a leading supplier of precious metals and government-issued gold, presents a notable take on the state of our economy. Read on for a look at the company’s analysis of the economy and what it could mean going forward.
State of Financial Markets
Even as the bull market soon turns 10 years old, you might be surprised about how many stocks are trading much lower than their all-time highs. Taking a closer look can provide food for thought for bargain hunters.#FridayReadshttps://t.co/rdPeLWd5Cc pic.twitter.com/5AGeolRzdu
— U.S. Money Reserve (@USMoneyReserve) October 19, 2018
One important thing to remember when delving into the economy is that there is a pronounced difference between the estimated value attributed to financial markets and the underlying health of economic conditions. At present, the stock market has increased over 300 percent when compared to its market value during the financial crisis. Though this fact has led to buyers around the world making more money, it doesn’t necessarily indicate that the economy is proportionately stronger than it was in 2008.
As the recent video from U.S. Money Reserve points out, a range of factors can influence the price of stocks without affecting the underlying conditions in the economy. One of these factors is liquidity. In market terms, this means that current conditions are encouraging a high level of activity with respect to stocks. Since these assets are liquid, meaning that they are relatively easy to trade back and forth, prices tend not to stagnate and are in this case appreciating to never-before-seen market values. While this may seem like a good thing, that is not necessarily the case. If financial markets become overvalued, an asset bubble can form—as it did in the lead-up to the 2008 financial crisis—which can be extremely detrimental to the economy in the long run.
U.S. Money Reserve points out that the appreciation of stock values is not caused by the underlying economic issues being repaired. In a situation such as a recovery after a recession, many experts assert that the safest and most responsible course of action is to work to fix the problems that caused the recession. In the case of the 2008 recession, many issues contributed to the economic downturn. Some of these included a lack of regulatory oversight, the building of a bubble in the housing market, and irresponsible accounting practices at many large financial institutions.
Since these are issues that could threaten the stability of the economy in the future should they persist, many economists feel they must be addressed to truly safeguard against future downturns. Unfortunately, as the company points out in the video, many of these concerns are still present in the current economy, and the federal government has done less than is necessary to ensure these factors do not contribute to another recession.
Federal Reserve Policies
Instead of addressing the above concerns, the federal government has more actively pursued policies that promote access to cheap, or even free, money. This is most evident in the policies put in place by the Federal Reserve, also known as the Fed. For a long time following the 2008 crisis, the Fed printed money to inject into the economy, a process known as quantitative easing.
Quantitative easing is a policy usually instituted for a short time to increase access to funds in an attempt to jump-start economic growth. The idea behind the practice is that, as access to money becomes easier, businesses and other economic players will use the increased access to undertake developments that will contribute to the overall health of the economy. This is often most true in the financial and banking industries but is applicable to all parts of the economy, as the entire system is interconnected.
Another policy that has been a standby of the Fed following the economic crisis is lowering interest rates. For a long time during and following the recession, the Fed kept interest rates either low or nonexistent. This was an attempt to encourage people to borrow funds, which would hopefully stimulate the economy. As people and businesses could take out low-interest loans, the theory was they would use that money to purchase assets, start businesses, and otherwise contribute to a greater degree of economic activity.
While the above policies are often used to jump-start financial and economic recovery, the recent video from the precious metals and currency company points out that these changes must inevitably come to an end. In the case of quantitative easing and low interest rates, that time has arrived. The Fed is now raising interest rates and going through a process of quantitative tightening to slowly wean the U.S. economy off of the crutches that have been propping it up.
Not only are these steps necessary to create a more fundamentally sound economy, but they are also important to give the Fed the proper controls necessary to combat possible future downturns. The idea behind this is simple: Since the Fed uses quantitative easing and lowering interest rates to combat recessions, it needs to have these tools at its disposal should another recession arise. If rates are already low and a policy of quantitative easing is already in place, then the Fed essentially loses its ability to affect the economy to the degree it would like. Thus, it must raise rates and adjust policies during times of economic prosperity to give itself the ability to make changes down the line.
What It Means for the Economy
Of course, with interest rates rising and access to cheap or free money now at an end, economists are predicting that the remarkable growth in the economy and financial markets will similarly slow down—and possibly even reverse. Many experts are anticipating a bear market in the near future and even thinking that the entire economy may dip. These predictions are based on the observation that financial market appreciation has been largely based on Fed policies, rather than fixes to broken economic practices. As these Fed policies are scaled back, many are concerned that the markets will be left relying on a vacuum of outdated policies and practices.
While many in the industry are celebrating being 10 years removed from the 2008 financial crisis—and a stock market that is breaking financial records—many experts are keeping a watchful eye on economic indicators. As is evident in the above analysis—and from many other warning signs—the economy may seem stable at present but could experience a downturn in the not-too-distant future. With this knowledge in mind, savvy buyers can more effectively navigate the market to come, whatever it may bring.
About U.S. Money Reserve
U.S. Money Reserve, the company responsible for the video behind the above analysis, is a leading purveyor of precious metals and government-issued gold. With an enduring reputation for quality customer service, the company holds the unique distinction of being the only gold company headed by a former director of the U.S. Mint, Philip N. Diehl. With a set of policies informed by Diehl’s experience at the crossroads of public service and private asset holding, the company is especially well-placed to advise customers on the utility of precious metals as an asset in the modern economic climate. In light of the company’s dedicated staff of account executives, the company has received a coveted AAA rating from the Business Consumer Alliance.