This Crisis Is Creating Something Shady In the Stock Market

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The Unemployment Rate is at the highest level since the great depression, Businesses are closing at rates that we have never seen in history, And the world economy has seemingly hit its biggest road block since the great depression.

But there are some strange things that have been going on during all of this turmoil. For example, Real Estate Prices have actually stayed the same or even gone up for most areas in the united states.

Another thing is that the number of bankruptcies in most countries have actually decreased over the last few months.
And ofcourse, the stock market has actually risen by over 30% since March 23.

So how can all of this be possible. In a time when most indicators are showing we are in the worst economy in nearly a century…we are also seeing a relatively healthy stock market and real estate market.

Well…some of the reasons why this is happening, might be a lot more scary than you think.

The first thing that may have partially mitigated a worldwide collapse, is the debt that governments around the world have been taking out and giving to its citizens.

In fact, governments have taken out nearly $16 trillion dollars of debt in the last few months. And just some perspective is that an average year will see $7 trillion dollars of debt taken out worldwide. Meaning that the world is compiling debt at a rate that is nearly 10 times higher than normal.

And this means two things. The first of which is that this debt will provide a temporary stimulus for the economy for several months to upwards of a year.

But the second thing that will come from this debt is much more negative. You see, at some point, governments will have to pay back this debt. And this will come in the form of tax revenue. Meaning that a large portion of tax revenues for the next several decades will likely go towards paying back this 3 month period where debt was compiled at extremely high levels.

But debt is not just being taken out by Governments, its being taken out by businesses and individuals.

Household debt in the United States is now at record high of 14.6 trillion dollars. A recent report showed that in early march, nearly 43% of United States Adults had some sort of credit card debt, but now that number has jumped to 47% which is one of the largest spikes in history. 23% of credit card debtors surveyed by said that their credit card debt is a direct result of the pandemic. Millennials have been hit the hardest, where 34% of millennials had to go into further credit card debt because of the pandemic.

So what this means is that debt seems to be arguably the biggest factor as to why many markets around the world have not collapsed.

So for now, this debt has provided some relief, and helped prevent a much worse downturn in some areas like the stock market and real estate. But this debt burden will likely hurt the global economy for years, or even decades to come.

Another thing that has been happening is that central banks have been printing money at rates that we have never seen before. Pretty much what central banks like the federal reserve have been doing is that they have increased the money supply in the economy. The way that they do this is a little bit complicated, but to summarize, essentially 3.5 trillion dollars has been added to the economy to help deal with debt, to help give out loans to businesses in need, and to give cash reserves to the big banks. The economist Tim Duy said that if these measures were not taken by the central banks in the last few months, ‘the system already would have blown up. And the markets would have crash 10 times over’.

Now what does this have to do with the stock market? Well, first of all, sometimes crashes take time. In September of 2008, it felt like the entire global economy crashed within the span of 2 weeks, but in reality, it took 517 days to reach the bottom of financial crisis. And during that time, their were many weeks or even months where the markets performed fairly well.

So it is possible that the recession that we are going through today, might reach its worst point in well over a year, especially if the debt market collapses, or if the economic recovery is slower than people think.

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