A week ago, the price of U.S. oil dropped below 38 dollars a barrel for the first time in six years. That may sound really good, especially if you fill up your gas tank frequently, but many economic experts are worried that energy industry firms may actually start going under if the price of oil doesn’t start going back up soon.
The truth is that plunging oil prices are exceedingly bad for the U.S. economy as a whole. In recent years, the energy industry has been the primary engine for the creation of good jobs in this country, and now those firms are having to lay off people at a frightening pace. The last time the price of oil was this low, the global financial system was melting down and the U.S. economy was experiencing the worst recession since the Great Depression of the 1930s.
Nations such as Japan, Canada, Brazil and Russia have already plunged into recession, and more than half of all major global stock market indexes are down at least ten percent year to date. The first major global financial crisis since 2009 has begun, and according to the experts, things are only going to get worse as we head into 2016.
A Brief Look Into Recent History
Back in 2008, the first thing financial experts noticed was the crash of junk bonds. They are seeing the exact same pattern happening again with speculation of stocks stumbling significantly and at a rapid rate headed into 2016. Instead of fixing our problems after the last crisis, we just papered them over with lots of money printing and a lot more debt. All of this manipulation just made our long-term problems even worse.
How This Affects You
It is amazing is that so many people out there cannot see what is happening even though the evidence is all around us, Americans are spending more money, but it’s not because their generating more wealth. It’s due largely in fact that they are generating more debt. American consumers (and the government) are using borrowed money to consume and so temporarily it feels like everyone’s wealthier because people are spending money. At some point everyone, including the government must come to terms with paying the bills.
Interest rates are being kept near zero which makes it possible to service the debt but very difficult to repay any of the principal. But once interest rates go up, it will be even more difficult to service the debt, and impossible to repay the principal. A new financial crisis is playing out in textbook fashion right in front of our eyes.
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