Warning on the economy – Since the 2008 financial crisis, the stock market has more than doubled size. The stocks are overvalued, as cheap money granted by the central banks has fueled speculation and a large debt bubble has built up.
The real economy has little if at all benefited from the expansion of the financial markets.
The banking and insurance industry suffers from the low or negative interests designed by the central banks to support the economy. According to a McKinsey 2019 report, bank valuations have been declining between 15% and 20% since the start of 2018. About 35 percent of banks globally are both sub-scale and suffer from operating in unfavorable markets.
The world economy will only grow 3% this year according to IMF estimates – that is the slowest rate of expansion since the global financial crisis started in 2008. A recession has already begun at the end of 2018 in Germany, Hong Kong, UK, Italy, Turkey, Argentina, Iran, Mexico, and Brazil, among other stressed economies. China’s growth has continued to slow amid the ongoing trade war. Meanwhile, economic activity in the US has taken a downturn. US manufacturing is contracting, defaults on auto loans are escalating, and the transportation recession continues.
A stock market correction and a deepened recession seem inevitable in late 2020 or 2021.
While prosperity on stock markets overwhelmingly benefits the wealthy classes, TSCF recommends a policy for the working and middle classes. Tax cuts on the middle class income, support to consumption and the institution of a universal income may smoothen the unsettling effects of the changes to come. Individuals should take contingency measures such as buying gold, cryptocurrencies and real estate for their families.