The Global Economy Might Crash this Decade. Let me Explain:

The Global Economy Might Crash this Decade.  Let me Explain:

Andy Behrman '24

What if I were to tell you that we are about to see another global economic recession, the likes of the 2008 recession? And while I am not suggesting that you immediately go to your parents and make them pull out all their money from the stock market, it is interesting to get to know our current global economic situation and how we are balancing on a tightrope as strong as Donald Trump’s hair. Let’s get started.

However, before I start, I may completely butcher this because I have never taken a class or even been to a class on economics, so sorry upfront, Dr. G. 

For those who do not know, a recession occurs when there is too much faith in the economy. For instance, the 2008 financial crisis occurred because there was too much faith in real estate; the banks were giving out insanely large loans that were nearly impossible for people to pay off. The more commonly known American recession, The Great Depression, was caused by weak banking systems and partially because there was too much faith in the stock market. When it crashed, thousands of people lost their money, which led to people not being able to buy stuff, which led to lower revenues, which meant companies had to cut costs by laying off workers, which led to fewer people being able to buy their product and the cycle began again. (I’m vastly oversimplifying the Great Depression by the way.)

However, how do we know when there is too much faith in the stock market? 

We know this when the stock prices do not accurately reflect the profits of a company. Take, for example, GameStop. The profits of GameStop did not change dramatically but their stock prices rapidly increased due to a bunch of people buying GameStop stocks. Essentially, it’s possible that we are seeing the same thing, but on a larger scale, and with less stupid people. Let me explain.

Right now, we know something is wrong with the American stock market. The prices of stocks are steadily rising, but I don’t think that accurately reflects their current profits. Why? Because we have one of the biggest labor shortages in recent American history. At one point people would have been making more money off COVID relief than if they were working at their jobs. Just the other day, I was waiting in line in Panera, and no joke, true story, a man-Karen with the thickest New Yorker accent ever asked to speak to the manager because he had been waiting forever for his bagel. The manager said sorry but they have half the employees they’re supposed to. So, the question is, how are profits going up during a gigantic labor shortage?

My point is, stock prices are inconsistent with our current economic state. I’m not talking about China tampering with their stock prices to make everything look fine to their people. No, I am talking about inflation. The United States is printing an unprecedented amount of money. That money goes into stimulus bills which go into the hands of the average citizen. Those people have money that they aren’t using right now. There is no use stuffing that money under their mattresses, so they put it into the stock market so that their money can grow. When everyone does this, the stock prices go up, and the economy stays the same. What this means is that eventually this bubble will burst, massive amounts of people will sell their stocks, and the value of stocks will lower.  This will lead to more people wanting to sell in the chaos and then the stock market will ultimately crash.

Still with me? Great. Because that’s just the first reason why we are about to have a major global recession. 

According to the 2021 United States Treasury Report, our nation currently owes China 1.1 trillion dollars. Now, we’ve owed money to China for a long time so this is nothing new, but there was something called the one-child policy in which China only allowed couples to have one child. (The name is pretty self-explanatory). What this means is that China has an insanely large elderly population in comparison to its younger population. You may be thinking this isn’t that too serious. All the younger people have to do now is change more adult diapers and listen to more boring stories in exchange for delicious cookies. But this will have massive effects on the global economy. You see, with all due respect, the elderly are massive economic burdens. They can’t work, they sometimes must be supported financially by their family, or by their government through social security. In China, they’ll live with their children for no rent, and China’s living standards are bad as it is. As much as it pains Trump supporters, they will have to admit that the collapse of China’s economy will result in the crash of ours. 

The same thing is also in the United States. The first thing Americans did when they got off the boat back home from WWII was have babies. Lots and lots of babies. Baby boomers currently are 57-75 years old. Meaning that we are about to experience the same thing as China but to a lesser degree. To put this in perspective, my dad has 7 siblings and my mom has 6. I have only 3 siblings and I have a relatively large family in comparison to many kids of my age. This is primarily due to the fact that the cost of raising a child has become extremely expensive, both financially and emotionally, among other reasons.

I can tell this is getting a little long so I’ll be brief and give you a crash course of the other reasons.

The U.S. dollar is being printed at an increasing rate which goes into the economy through stimulus packages. It is because of the increase of money that people can purchase more goods, which means demand goes up, and so do prices. This is why coffee at Starbucks is $7. A little inflation is fine and stimulus packages encourage people to be active in the economy (purchase goods). However, if the pandemic does not end sometime soon and people don’t get back to work, but continue to rely on COVID relief, the American dollar might inflate, and prices will increase faster than wages can. 

Speaking of the American dollar, it is possible, however, (don’t quote me on this) that there will be overconfidence in cryptocurrency and people could start to buy the equivalent of Blockbuster Video gift cards. 

And finally, the world is just simply getting crazier. We all know what’s happening in Afghanistan. Israel experienced problems earlier this year. Ethiopia is damming up the Nile which will negatively impact Egyptian agriculture, putting the two countries at a standoff.  Haiti’s president was assassinated, California is on fire, the ozone layer seems to be non-existent, and the capital of the economic, military and cultural superpower of the world was taken over by hillbillies, all in this year alone. I hate to sound cynical, but anything can turn the world on its head.

How will this global recession start? I really have no clue. Perhaps it will be in the real estate industry as in 2008. I’ve heard theories that there could be overconfidence in the tech industry and people will start investing in large amounts of projects that don’t ever return profits. Perhaps it could be something relatively new like young people not being able to pay off their student loans and being overwhelmed with debt due to the insanely high and ever-increasing price of tuition (Unless Bernie comes in and saves the day). Maybe global warming will take a nasty turn and African and/or Middle Eastern Nations will fight over their scarce water supply after a series of terrible droughts and famines. 

So, all of that was cheerful. Despite all of my previous reasons, there are many reasons why an economic crisis should remain the insane predictions of a sophomore. First and foremost, we need to end this pandemic as soon as possible. I know that for most of you this pandemic has been nothing more than an inconvenience and a reason for Mr. Nickolai to scold you but it has actually been a lot more serious. As of 9/2/2021, the day I am writing this, over 642,000 Americans have died from COVID. To put that in perspective, fewer Americans died in WWI and WWII combined than from COVID-19. Over a thousand Americans are dying every day and according to the CDC, over 95% of those people could have lived if they had been vaccinated. This all might seem off-topic from an economic standpoint, but first of all, this is important, and second of all, the more people who die of COVID, and the smaller our workforce is, the less output we have as a nation, which means our days of being the only major economic superpower are soon coming to an end. Not to mention, the longer the pandemic lasts, the more stimulus packages will be sent out, more money will be printed, and fewer people will want to work and/or will be forced to be virtual out of fear of COVID. Moral of the story, please, just get the vaccine. 

Anyway, where was I? 

So what does this all mean? Let’s say for hypothetical purposes, that there is too much faith in the stock market, real estate, tech industry, whatever. What happens? Essentially companies would either go out of business or increase the wages of their employees to try to help with the labor shortage. If not, everything might get a whole lot more expensive and a $6 coffee from Starbucks will seem cheap. If it gets really bad, expensive necessities like medical insurance or tuition might become a lot harder to pay which may lead to mass protests. On a geopolitical scale, tensions between China and India, Taiwan, and the United States will increase. At the end of the day I give the odds of us seeing a global economic crisis and most of the stuff above happening within the next decade about a 35% chance, but I’m just eyeballing that. 

The current global economy right now is really interesting because ever since the fall of the U.S.S.R, the United States has been, and still is, the only global economic superpower. However, if we aren’t careful, if we don’t get vaccinated, if we don’t get back to work, if we recklessly print and spend money, we won’t be for long. However, I’ll end on a happy note: People around the world are being lifted out of poverty faster than at any point in history. Major superpowers have not gone toe to toe since WWII. Humankind is constantly coming up with new technology. Do I think that all of you should immediately stop investing in everything and stuff your cash under your bed? No. But I simply want you all to appreciate, although not perfect, how peaceful, stable, and beautiful the world is right now, because it might not last forever.