In fact, there are signs than an economic meltdown similar to the one in 2008 is imminent. Additionally, some of the factors destabilizing the economy are being pointed to as economic good news.
1. Price of oil is dropping. The falling price of oil is having a negative impact on the economies of a number of countries, including Canada. Experts are already predicting that oil prices of under a $50 a barrel will devastate the world economy and the Canadian economy – and thus, the US.
“The longer oil prices remain low, the greater the chance that investment activity will be curtailed and wider growth imperiled,” David Tulk, a strategist at Toronto’s TD Securities, told Bloomberg.
Russia, another major oil producer, has already seen its currency, the Ruble, lose half of its value in less than a month and prompted comparisons to a similar situation that led to financial crisis in 1998. One effect of this is that banks which made loans to Russia could be vulnerable.
The price of oil threatens the American shale oil revolution, which had seen significant growth with high oil prices. Now, some companies are cancelling drilling contracts.
Stock prices in countries around the world have already been dragged down by oil prices. The Nikkei Index in Japan fell by 3 percent when news that oil was under $50 a barrel broke. Similar sell-offs occurred on Wall Street and in Europe.
2. Stores are closing. Large numbers of retail stores are closing and large numbers of retail jobs are vanishing as the retail apocalypse continues. Recent headlines include:
- The clothing chain Wet Seal is planning to close 338 or 66 percent of its stores and lay off 3,695 full-time employees, Chain Store Age
- Another clothing retailer, C. Wonder, which was hailed as one of the hottest retailers when it started in 2011, is closing all 32 of its stores.
- Macy’s is planning to close 14 department stores and lay off 2,200 people.
- Alco, a 113-year-old chain that operated 198 discount stores, is closing completely and putting 3,000 employees out of work, The Wall Street Journal The company blamed a “lingering economic slowdown” for the closures.
- Sears, which also owns Kmart, is planning to close up to 116 stores in the next few months, Market Madhouse
4. Subprime lending is making a comeback. That’s the practice of making loans to people who are high risk – and perhaps cannot pay them back. Many experts believe subprime mortgage lending was a major cause of the 2008 economic crisis. The New York Times’ Deal Book estimated that 27 percent of the auto loans issued in 2013 were subprime. And it’s also making its way back into the mortgage business. Wells Fargo is now once again making subprime home loans.
5. The bond market is booming. The Times Deal Book called a recent rally in bond prices a “warning sign” and noted that the bond market has a proven track record for predicting economic problems. It pointed out that prices for US Treasury bonds are surging despite the fact those instruments are paying an interest rate of less than 2 percent. Investors buy bonds for security when they think stocks are about to collapse.
“The slide in oil prices has elevated concerns about growth in the global economy, and investors, as they do in times of stress and uncertainty, are seeking out the safety of government bonds,” Deal Book writer Peter Eavis wrote.