The stock market fell off a cliff this week
Falling off a cliff is the apt imagery that evokes a simple but accurate representation of what happened to the FTSE 100 and Dow Jones this week. It could well be the precursor to a financial armageddon that’s currently jostling for front runner against climate change and nuclear war for most likely cause of the end of the world, but for the desire to be slightly less dramatic let’s just say that it remains an unlikely outcome.
Trump’s trade war with China and, well, everybody else, Brexit, Europe’s sovereign debt hangover, Argentina and Turkey’s currency crises - these are the players vying for first place in a crowded field in a subcategory nobody wants to be in when it comes to most likely cause of the latest drop.
According to The Guardian, all of these issues in tandem have combined to make investors across the world very jittery indeed, selling off shares and investments at an alarming rate.
Underneath it all, these are the inevitable consequences of the US economy doing fairly well in terms of jobs and labour, as well as the tax cuts enacted by President Trump earlier in the year. Such a quickly growing economy translates into quickly rising prices as demand for products and services rises with newly found wealth. In order to stop this from running out of control the US Federal Reserve, the American equivalent to the Bank of England, have been slowly raising interest rates which have been sat at historic lows for almost a decade now.
At the height of the financial crisis back in 2008 and 2009 the central banks across the western world quickly realised they needed to drop interest rates as quickly as possible in order to stimulate growth and stop a slide towards a modern day great depression. That appears, in hindsight, to have done the job but the problem was that they never raised them again. This, in turn, has meant that global debt levels have quickly spun out of control. According to The Guardian, overall global debt, in both the public and private sectors, has rocketed by 60% in the decade since the financial crisis to reach an all-time high of $182tn (£139tn).
What happens across both stock exchanges in the coming 10 weeks may well give us a pretty good indication of where the economy will be heading. Within that time we can also expect the results of the US mid-term elections and the announcement of the Brexit withdrawal deal that the government has agreed, both of which offer the potential to make things much worse.