Categories
Economy

Coming Crack Up Boom

In this article we discuss the concept of the coming Crack Up Boom, inflation and hyperinflation. In addition, we talk about how the coming crack up boom applies to our current economy and provide some solutions regarding things you can do to fight back against inflation.

What is a Crack Up Boom?

One of the most famous economists of the 1920s, Ludwig von Mises, came up with the term. Mises witnessed the events that occurred in Weimar Germany in the early 20th century, including hyperinflation and the destruction of the economy. Mises was a member of the Austrian School of Economics.

A crack up boom is when an economy or government begins a financial meltdown because of excessive money printing and rising prices. There are two key features of a crackup boom: excessive money printing by a government and continually rising prices that lead to inflation or hyperinflation. As prices of goods rise, people realize that the cash they hold is losing value quickly. The result is that citizens suffer the consequences of hyperinflation, being unable to buy normal items because of spiraling prices. As a result, hyperinflation in the crack up boom causes people to get rid of cash as quickly as possible. Furthermore, this feeds the hyperinflation cycle as people flee cash and seek out assets, which hold value.

Mises Institute: Coming Crack Up Boom

“If once public opinion is convinced that the increase in the quantity of money will continue and never come to an end, and that consequently the prices of all commodities and services will not cease to rise, everybody becomes eager to buy as much as possible and to restrict his cash holding to a minimum size. For under these circumstances the regular costs incurred by holding cash are increased by the losses caused by the progressive fall in purchasing power. The advantages of holding cash must be paid for by sacrifices which are deemed unreasonably burdensome. This phenomenon was, in the great European inflations of the ‘twenties, called flight into real goods (Flucht in die Sachwerte) or crack-up boom (Katastrophenhausse).” – Hyperinflation, Money Demand and The Crack Up Boom, Mises Institute

What is inflation?

how much is a dollar worth

“Inflation is the decline of purchasing power of a given currency over time. A quantitative estimate of the rate at which the decline in purchasing power occurs can be reflected in the increase of an average price level of a basket of selected goods and services in an economy over some period of time. The rise in the general level of prices, often expressed as a percentage means that a unit of currency effectively buys less than it did in prior periods.” –Investopedia

Could a Coming Crack Up Boom Happen in the US?

Well, hyperinflation has famously happened in other places in the world in the recent past. For example, hyperinflation famously struck Weimar Germany in the 1920s. Hyperinflation has also occurred in Zimbabwe, Argentina and Venezuela. Furthermore, hyperinflation has occurred quite a lot throughout history. As a result, all of the aforementioned places experienced a crack up boom.

You have probably heard famous stories of citizens pushing wheelbarrows full of cash to the bakery to buy a loaf of bread.

Hyperinflation in Argentina

Argentina is frequently studied as a case history for inflation problems. Since Argentina became an independent country in 1816, it has defaulted on its debt nine times over the years. Many of these defaults lead to hyperinflation and economic destruction for Argentinians. Furthermore, the debt defaults have caused currency devaluations (money becomes worth less). In addition, inflation in the country has reached levels as high as 5,000%!

Argentina was known as the Switzerland of South America throughout the 20th century. It is a large, independent country with significant natural resources, a delightful climate and strong historical economic growth. However, beginning in the 1980s, increased debt and import issues caused the country to see excessive inflation of the currency. Later, Argentina staked the Argentine Peso to the US Dollar in hopes of economic recovery. However, a recession led to a default on debt and inflation hit again.

As the currency in a country like Argentina loses buying power, more currency is required to pay for the same things. For example, one day groceries may cost $50; however, during hyperinflation, you might return to the grocery store the following day and spend $100 to buy the same groceries that cost only $50 the day before. This behavior ultimately led to a crack up boom in the Argentine economy.

What is Hyperinflation?

“Hyperinflation is a term to describe rapid, excessive, and out-of-control general price increases in an economy. While inflation is a measure of the pace of rising prices for goods and services, hyperinflation is rapidly rising inflation, typically measuring more than 50% per month.” –Investopedia

Currency Inflation

One thing that significantly affects inflation and purchasing power is money printing. When the US Treasury and the Federal Reserve Bank coordinate to print large amounts of money, it causes inflation. Inflation is simply an increase in the money supply. The bigger the money supply, the less the money in your wallet is worth. Moreover, inflation is a hidden tax. As a result, money you have in your bank account loses purchasing power when money is printed by the government.

On March 23, 2020, it was announced that the US Government would be giving out stimulus checks to Americans. In addition, they planned to give money and loans to businesses hurt by the COVID-19 epidemic. Almost overnight, approximately $2 Trillion in loans and grants were printed out of thin air. As a result, the internet went viral in creating money printing memes. One of those memes was the now infamous “money printer go brrrr” meme. Additionally, this could be the start of hyperinflation and the coming crack up boom in the United States.

Consumer Price Index

According to the US Bureau of Labor Statistics, the consumer price index has increased 1.3% in the past 12 months (before seasonal adjustment).

“The Consumer Price Index (CPI) is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available.” -The US Bureau of Labor Statistics, Definition of Consumer Price Index (CPI)

A consumer price index value of 1.3% seems reasonable for 2019-2020. If inflation or the CPI were only 1% per year, that means that in 100 years one US Dollar would lose about half its purchasing power. For example, $100 in 1920 would only purchase $50 worth of goods in 2020. However, real inflation for items we buy every day is much higher. In addition, we’ll soon see what the real inflation values are, and they are not pretty. As a result, this may be the beginning of hyperinflation in the United States.

The United States Federal Reserve Bank Aims For 2% Inflation

The Federal Reserve Bank believes that we must have inflation to promote stability and predictability in the economy. Their goal is to have 2% inflation each year.

The Federal Open Market Committee (FOMC) judges that inflation of 2 percent over the longer run, as measured by the annual change in the price index for personal consumption expenditures, is most consistent with the Federal Reserve’s mandate for maximum employment and price stability. When households and businesses can reasonably expect inflation to remain low and stable, they are able to make sound decisions regarding saving, borrowing, and investment, which contributes to a well-functioning economy. – Federal Reserve Website

However, despite the inflation values touted by the Federal Reserve Bank, real inflation is likely much higher. Consumers are aware of the difference when buying groceries, paying for items or buying a car. Prices are clearly increasing significantly each year. But is this the start of hyperinflation and a coming crack up boom in the United States?

The Federal Reserve’s Tools of Inflation: Money Printing and Interest Rates

The Federal Reserve Bank’s most powerful tool for creating inflation is a two-pronged approach. First, they have the power to raise and lower interest rates. Increasing or decreasing interest rates has the effect of accelerating or decelerating the American economy. If they raise interest rates, people tend to borrow less and it becomes more expensive to do business. As a result, there is a chilling effect on the economy; however, if the Federal Reserve lowers interest rates, individuals (and businesses) find it easier to get capital to do business, and the economic machine is powered up, so to speak.

The other powerful tool that the Federal Reserve has is to print money. Typically, when they print more money, there is more money in the economy. The velocity of money increases and people tend to have more money. With more money in the system, the economy is stimulated. As a result, policies that involve greater and greater money printing can easily cause hyperinflation in the United States. As you can see, the scene is set for a coming crack up boom here in the United States.

Inflation Calculator

The US Dollar Has Declined in Purchasing Power Since 1913; The Stated CPI Does Not Reflect Real Price Increases

In addition, the US Bureau of Labor Statistics provides a handy Inflation Calculator. Using their calculator, you can estimate what purchasing power (based upon inflation) is today compared with years past. For example, $10 in 1960 is equal to $88.71 today. That means that in the 60 years prior to 2020, the dollar has suffered 887% inflation over time.

Since the Federal Reserve Bank was formed in 1913, the dollar has been in steady decline. The dollar’s purchasing power has decreased dramatically since 1913. Using the US Bureau of Labor Statistics CPI calculator, the US Dollar has lost approximately 96% of its purchasing power since 1913. This is an alarming statistic that may be a harbinger of hyperinflation in the United States.

How Inflation is Measured by You

Sometimes when we think about inflation, we think of what can be purchased directly with our national currency. For example, we might notice that last week fuel cost only $3/gallon, whereas, this week a gallon of fuel increased to $3.50. This is how consumers most often notice inflation. However, don’t get too caught up in measuring inflation by just using currency.

How to Survive the Coming Crack Up Boom in the United States

Seek Shelter in Deflationary Assets Such as Gold, Silver, Bitcoin and Real Estate.

There are some investments and things that you can own that hedge against inflation and the coming crack up boom in the United States. For example, for hundreds of years, owning gold and silver has been a method for surviving the coming crack up boom . Gold and silver both have a long history of maintaining their value when currencies became inflated.

Gold and Silver: Assets That Hedge Against Inflation

Real money assets are resistant to inflationary forces and maintain a value that is based on demand. First, silver and gold have a long history of maintaining their value against the currency of the day. No matter what the value of a dollar is, a one-ounce silver coin is always equal in value to one ounce of silver. In addition, silver and gold maintain a special balance with the value of gold, which fluctuates.

Silver and gold are real money, which is tangible and is backed by something of value. Moreover, you can hold it in your hand. Silver and gold cannot be taken from your bank account, like cash. In addition, hackers cannot steal silver from your computer, like Bitcoin. Finally, silver and gold can be kept safely and privately in a secure location. In many cases, real assets are a true defense against the coming crack up boom.

Bitcoin

Another alternative to gold and silver that many consider a hedge against the coming crack up boom is Bitcoin. In the past few years, many have begun to use bitcoin like gold – a store of value. In fact, Bitcoin has many of the positive properties that gold has. It is a store of value, it can be a medium of exchange, it can be a unit of account, there’s a limited supply, it is uniform, acceptable, divisible and portable, etc. As a result, Bitcoin may be a great way to avoid the coming crack up boom.

Both Bitcoin and gold have a finite, limited supply. As a result, this means that they cannot be subject to inflation. If there is only so much gold, silver and bitcoin, it is by definition, deflationary. Being deflationary means that as the supply of the commodity dwindles, the value and demand for each increase. This is not true of currencies like the US Dollar.

Real Estate

Even something like real estate can have a deflationary affect when compared to US Dollars. Real estate has a long history of maintaining its value over time as compared to the Dollar. However, choose wisely; many believe that there is currently a bubble in the United States real estate market. Prices for real estate in many cities today are considered to be over-priced and inflated. Owning real estate is a great way for surviving the coming crack up boom. Furthermore, it can be a source of passive income for you.

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Equities Market

This may be counterintuitive, but owning equities such as stocks can be a way on surviving the coming crack up boom . With the current trend in the United States of printing money and handing it out to individuals through stimulus checks, obviously inflation is rising. Many people are spending the stimulus money quickly. Furthermore, some people are taking their money and buying stocks or trading equities. As a result, the stock market has been trending higher. However, note that the rising stock market trend cannot last forever. In addition, when the market reverses, it may be ugly. At this point, a smart investor will move their money out of the stock market and into safer assets that can weather the storm and survive the coming crack up boom.

Other Assets

There are many other examples of assets that can be a method for surviving the coming crack up boom . For example, owning art, vintage cars, collectibles, and high demand items that serve a purpose can all be hedges against inflation. When buying assets, stick to what you know. Furthermore, if you know a lot about vintage baseball cards, then buy those with currency. In addition, try to own assets that have liquidity, meaning you can buy and sell them on the market easily. An example of an illiquid asset would be buying a Picasso painting. A Picasso may be a good store of value over time, but you may have to wait for years until you can sell it in a special auction.

Final Thoughts on Inflation and the Coming Crack Up Boom in the United States

As you can see, inflation and hyperinflation are real phenomenon that can affect your personal finances. Additionally, the seeds have been sewn for a potential coming crack up boom. Currently, inflation is quietly stealing money from your savings. In addition, if hyperinflation occurs, significant destruction of the economy can occur. As a result, it is important to have a plan to address inflation and a place to invest to fight back against the types of inflation.

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Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We don’t endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.

Categories
Economy

Stock Market Crash Prediction

We will discuss the next stock market crash prediction as well as the history of stock market crashes. There have been at least 6 great stock market crashes in the past 100 years. We will also discuss the lessons learned from each crash.

Current Economic Crisis in the United States

Debt and Unemployment are High, Interest Rates Low and COVID-19 Strikes; The Stock Market is Soaring – Something is Wrong!

According to Experian data, consumer debt has grown to well over $14 Trillion. Debt for Americans has been increasing steadily since at least 2009. This debt includes things like credit cards, home loans, vehicle loans and student loans.

In addition, Americans are struggling financially right now because of COVID-19 shutdowns. Many people live paycheck-to-paycheck and have no savings. As a result, a sudden loss of employment caused them to face economic ruin or bankruptcy.

According to the Bureau of Labor Statistics, 13% of Americans were unemployed in May 2020. In addition, 30 Million Americans filed for unemployment benefits in June 2020, approximately 10% of the entire US population (Source: CNBC News).

The coronavirus outbreak of 2020 has had big impacts on the US economy. Big layoffs and job losses have occurred continuously in 2020. For example, Disney and MGM have laid off thousands of workers. These layoffs mean that these former employees will be struggling to make ends meet and will not be buying new homes.

In the past, crises hit the United States, but we recovered. However, this time it may be different. Using the aforementioned data will assist us in making the next stock market crash prediction.

History of Market Crashes and The Next Stock Market Crash Prediction

The Wall Street Crash of 1929

On Black Tuesday, October 29, 1929, the New York Stock Exchange collapsed. Ultimately, this led to the Great Depression that occurred beginning in the 1930s. It was one of the most severe financial events ever in the United States. Wall Street stock prices did not recover for years. As a result, many businesses and individuals were financially ruined. In addition, the depression lasted for more than a decade and changed a generation forever.

1973-1974 Stock Market Crash

Between 1973 and 1974, the Dow-Jones Industrial Average fell 46%. In addition, unemployment in the United States was at 8.5%, doubling from just a few years prior. The gross domestic product for the U.S. declined by more than 2%. The crisis was related to the 1973 oil embargo crisis, which caused a spike in prices from lower supply. As a result, consumers suffered greatly from price shocks. This era was known for its recession and stagflation (when unemployment and inflation are high). In addition, this was the climax of a decade where the stock market returns were negative or nominal for most investors.

Black Monday 1987

October 19, 1987 was the day when stock markets worldwide declined to levels that had never been experienced. As a result, this day was known as Black Monday. First, the crash occurred in Asia. Next market numbers began to drop in London. Finally, the crash came home to America where the Dow Jones Industrial Average fell 22% for the day. It was known as the worst day in Dow history. In addition, the situation was apparently made worse by rapid computer trading.

The Dotcom Bubble

In 2000, Investors Lost 50% of Investments When the Dot Com Bubble Burst

In the 1990s there was a surge of new, online companies who went public on wall street. The world was filled with excitement for internet development and adoption. As a result, a kind of mania formed where people were wildly investing in any company with an internet presence. For example, Pets.com went public with a stock offering in an initial public offering (IPO). Ultimately the company failed and people lost money who invested.

Most of the companies that went public with an IPO of stock were severely overvalued. A bubble subsequently formed in the stock market. And on March 10, 2000, the NASDAQ reached its zenith. As a result, the bubble experienced a price correction.

The Dot Com Bubble that began in March 2000 caused the S&P 500 Index to drop almost 50%. This bubble bursting lasted until 2007. That means that if you were planning to retire in 2000, and many of your investments were locked into a Wall Street 401(k) that fell 50%, you couldn’t retire. Many people at this time were forced to return to work because they couldn’t afford to retire.

Currently, Wall Street stock prices are at record-breaking levels. Prices are high, interest rates are low, and everyone is cheering the mania. Many are questioning whether this will end badly like in 2000 and 2008. Clearly purchasing power risk is a big factor when markets are at all-time highs. It seems clear that the next stock market crash prediction will be worse than in 2000.

The Subprime Mortgage Crisis of 2007-2008

“The United States subprime mortgage crisis was a nationwide financial crisis that occurred between 2007 and 2010 and contributed to the U.S. financial crisis. It was triggered by a large decline in home prices after the collapse of a housing bubble, leading to mortgage delinquencies, foreclosures, and the devaluation of housing-related securities.”

-Wikipedia.com

The subprime mortgage crisis led to the Great Recession of 2007-2009. Extensive de-regulation of the financial industry beginning in the 1990s led to risky bets on Wall Street. Standards for lending and investing were lowered so that anyone could borrow money to buy homes. In addition, Wall Street began trading financial instruments such as derivatives that were very risky.

This crisis resulted in a huge purchasing power risk for everyday consumers. Although some people lost jobs, the effects were mostly felt by lower housing prices in the real estate market. The markets quickly recovered within a few years. However, it is evident that the next stock market crash prediction will be worse.

The 2010 Flash Crash

On May 6th, 2010, a rapid decline in the US stock market occurred. For 36 minutes, billions of dollars were lost from prices of some American companies. Although the drop in prices was rapid and severe, the long-term effect on the US economy was minimal.

The explanations for the crisis included fall out from Greek debt crisis and the UK general election. In addition, some pointed to a ‘fat-fingered’ trading and an illegal cyberattack. However, a joint report by the SEC and CFTC (American regulatory agencies) gave the opinion that the price movement could have been caused by the combination of existing market conditions and a huge automated sell order.

2020: Another Economic Crisis

Debt, Mortgages and Home Foreclosures in the United States

  • Total Debt to GDP for the United states is over 150%
  • The Federal Reserve currently owns approximately 30% of all mortgages in the U.S. today (over $2 Trillion)
  • US National Debt is now over $26 Trillion
  • Home foreclosures are beginning to increase

Alarming Trends at the Federal Reserve and Debt-to-GDP Ratio

Two alarming trends are that the debt to GDP ratio is at 150% and that the Federal Reserve Bank owns 30% of US mortgage securities. First, most experts agree that when the debt-to-GDP ratio climbs higher than 100%, you are in the economic danger zone. Historically, high debt-to-GDP ratios have ended badly.

Unfortunately, this is bad news for the United States economy. As a result, people’s investments and retirements could be badly damaged. Moreover, purchasing power risk will be astronomical if the US economy descends into hyperinflation. Prices of goods and services may go much higher as wages stay the same. For example, hyperinflation has occurred recently in places like Venezuela, Zimbabwe and Argentina. Furthermore, it could easily happen in the USA. However, the next stock market crash prediction would clearly overshadow these crises.

Stock Market Peak of 2020

The Current State of Wall Street, Stocks at All-time Highs and Unemployment

On December 29, 2020 the S&P 500 Index, hit 3,739, the highest it has ever been. The S&P 500 is a measure of some of the largest traded stocks on Wall Street. As a result, the U.S. stock market is literally at its peak right now. In addition, real estate prices are at record highs in many places in the United States. Despite official statistics posted by the US Government, many experts are concerned about inflation, which equates to higher asset prices. As a result, the next stock market crash prediction could be the worst in history.

However, juxtaposed to the Wall Street high are the U.S. unemployment numbers. Unemployment is at a record high as well. According to the Bureau of Labor Statistics, 13% of Americans were unemployed in May 2020. In addition, 30 Million Americans filed for unemployment benefits in June 2020. This is approximately 10% of the entire US population (Source: CNBC News).

Next, here are basic statistics that we can use to help with stock market predictions for 2021:

  • US National Debt is now over $26 Trillion
  • Total Debt to GDP for the United states is over 150%
  • The Federal Reserve currently owns approximately 20% of all mortgages in the U.S. today (approximately $2 Trillion)
  • Home foreclosures are beginning to increase
  • Interest rates are at an all-time low and can’t go much lower

The COVID-19 Pandemic and Federal Reserve Money Printing

In 2021, money managers have to make tough decisions about re-balancing portfolios with stocks, bonds, precious metals and even cryptocurrencies. They will have to determine if the stock market is in a bubble and if so, where to safely store investor’s money. In reality, the stock market cannot continue to rise when people are losing jobs, real inflation is increasing and the US National Debt grows out of control.

In reaction to the COVID-19 pandemic, The U.S. Government borrowed more than $3 Trillion to pay for stimulus. This included payments to governments for supplies, individual payments to citizens and loans and grants for businesses affected by the pandemic.

At the same time, the U.S. Treasury and the Federal Reserve Bank have been working overtime to print money. As a result, the next stock market crash prediction will likely arrive quicker.

“It works like magic. With a few strokes on a computer, the Federal Reserve can create dollars out of nothing, virtually “printing” money and injecting it into the commercial banking system, much like an electronic deposit.By the end of the year, the Fed is projected to have purchased $3.5 trillion in government securities with these newly created dollars…”

USA Today Article, May 13, 2020

Why the Stock Market May Be Overvalued

Stock Buybacks and FAANG Stocks Tilt Market Balance

One other economic concern in the stock market is stock buybacks or “share buybacks.” Stock buybacks are when a company uses cash to repurchase their own stocks. Stock buybacks typically occur when a company has extra cash to spend or when the company can borrow money at a low rate of interest. The result of buybacks is usually an artificially high price for their stocks. When many companies on Wall Street conduct stock buybacks, it can appear as if we’re in a “bull market” and prices are climbing higher.

In addition, the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) have had an oversized impact on Wall Street. These tech companies are enormous in size and their movements on the stock market can sway whether the market, as a whole, is up or down. For example, Apple has a valuation now of approximately $2 Trillion, higher than any other publicly traded company.

Investors may get the impression that the market is doing well overall, when in fact, only the FAANG stocks may be up in price. This gives the impression that prices for the market are higher, even though many other much smaller industries may be in decline. Finally, the next stock market crash prediction will be a surprise to those who do not understand this concept.

What It All Means: Asset Bubble

It is impossible to predict what will happen in the stock market. Is it a good time to buy stocks? Information and data shared above seems to indicate that prices are at all-time highs and we may be in a bubble. A bubble occurs when prices go up much faster than other indicators in the economy. As a result, this may be a dangerous time to be buying stocks.

Next Stock Market Crash Prediction

The past is never a good indicator for what may occur in the future. However, in this case there are clues that point to where we may be headed economically. We can expect more inflation in the United States and expect the US Dollar to be weaker in purchasing power over time.

What we know is that real estate and the US stock market has been in a bubble for years because of low interest rates. Money printing by the Federal Reserve Bank has also contributed to the problem. Prices have gone too high, too fast. As a result, what goes up, must come down. Our next stock market crash prediction will materialize as an economic crisis. It is likely that sometime in 2021, there will be a severe stock market correction. The question is how long it will last.

Unfortunately, the United States began a recession in late 2020. Home foreclosures, unemployment and GDP all have growing negative sentiment for 2021. In addition, it appears likely that the recession will degrade into full-blown depression in 2021. It seems that we will have to navigate a depression for a few years before things begin to improve in the next 5 years or so.

Read More:

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Disclaimer:

It is important to note that Piggy Bank Coins does not provide financial advice. We do not endorse or recommend any financial investments. Instead, we provide information for educational purposes to those seeking knowledge regarding personal finance. However, in the spirit of transparency, note that the author is an investor in cryptocurrencies, precious metals and some equities.

In addition, The Federal Trade Commission (FTC) requires that Piggy Bank Coins disclose to readers that we may receive commissions when you click our links and make purchases. However, this does not impact our reviews and comparisons. Moreover, we try our best to keep things fair and balanced, to help you make the best choice for you.

Categories
Economy

Next Stock Market Crash Prediction

We will discuss the next stock market crash prediction as well as the history of stock market crashes. There have been at least 6 great stock market crashes in the past 100 years. We will also discuss the lessons learned from each crash.

Current Economic Crisis in the United States

Debt and Unemployment are High, Interest Rates Low and COVID-19 Strikes; The Stock Market is Soaring – Something is Wrong!

According to Experian data, consumer debt has grown to well over $14 Trillion. Debt for Americans has been increasing steadily since at least 2009. This debt includes things like credit cards, home loans, vehicle loans and student loans.

In addition, Americans are struggling financially right now because of COVID-19 shutdowns. Many people live paycheck-to-paycheck and have no savings. As a result, a sudden loss of employment caused them to face economic ruin or bankruptcy.

According to the Bureau of Labor Statistics, 13% of Americans were unemployed in May 2020. In addition, 30 Million Americans filed for unemployment benefits in June 2020, approximately 10% of the entire US population (Source: CNBC News).

The coronavirus outbreak of 2020 has had big impacts on the US economy. Big layoffs and job losses have occurred continuously in 2020. For example, Disney and MGM have laid off thousands of workers. These layoffs mean that these former employees will be struggling to make ends meet and will not be buying new homes.

In the past, crises hit the United States, but we recovered. However, this time it may be different. Using the aforementioned data will assist us in making the next stock market crash prediction.

History of Market Crashes and The Next Stock Market Crash Prediction

The Wall Street Crash of 1929

On Black Tuesday, October 29, 1929, the New York Stock Exchange collapsed. Ultimately, this led to the Great Depression that occurred beginning in the 1930s. It was one of the most severe financial events ever in the United States. Wall Street stock prices did not recover for years. As a result, many businesses and individuals were financially ruined. In addition, the depression lasted for more than a decade and changed a generation forever.

1973-1974 Stock Market Crash

Between 1973 and 1974, the Dow-Jones Industrial Average fell 46%. In addition, unemployment in the United States was at 8.5%, doubling from just a few years prior. The gross domestic product for the U.S. declined by more than 2%. The crisis was related to the 1973 oil embargo crisis, which caused a spike in prices from lower supply. As a result, consumers suffered greatly from price shocks. This era was known for its recession and stagflation (when unemployment and inflation are high). In addition, this was the climax of a decade where the stock market returns were negative or nominal for most investors.

Black Monday 1987

October 19, 1987 was the day when stock markets worldwide declined to levels that had never been experienced. As a result, this day was known as Black Monday. First, the crash occurred in Asia. Next market numbers began to drop in London. Finally, the crash came home to America where the Dow Jones Industrial Average fell 22% for the day. It was known as the worst day in Dow history. In addition, the situation was apparently made worse by rapid computer trading.

The Dotcom Bubble

In 2000, Investors Lost 50% of Investments When the Dot Com Bubble Burst

In the 1990s there was a surge of new, online companies who went public on wall street. The world was filled with excitement for internet development and adoption. As a result, a kind of mania formed where people were wildly investing in any company with an internet presence. For example, Pets.com went public with a stock offering in an initial public offering (IPO). Ultimately the company failed and people lost money who invested.

Most of the companies that went public with an IPO of stock were severely overvalued. A bubble subsequently formed in the stock market. And on March 10, 2000, the NASDAQ reached its zenith. As a result, the bubble experienced a price correction.

The Dot Com Bubble that began in March 2000 caused the S&P 500 Index to drop almost 50%. This bubble bursting lasted until 2007. That means that if you were planning to retire in 2000, and many of your investments were locked into a Wall Street 401(k) that fell 50%, you couldn’t retire. Many people at this time were forced to return to work because they couldn’t afford to retire.

Currently, Wall Street stock prices are at record-breaking levels. Prices are high, interest rates are low, and everyone is cheering the mania. Many are questioning whether this will end badly like in 2000 and 2008. Clearly purchasing power risk is a big factor when markets are at all-time highs. It seems clear that the next stock market crash prediction will be worse than in 2000.

The Subprime Mortgage Crisis of 2007-2008

“The United States subprime mortgage crisis was a nationwide financial crisis that occurred between 2007 and 2010 and contributed to the U.S. financial crisis. It was triggered by a large decline in home prices after the collapse of a housing bubble, leading to mortgage delinquencies, foreclosures, and the devaluation of housing-related securities.”

-Wikipedia.com

The subprime mortgage crisis led to the Great Recession of 2007-2009. Extensive de-regulation of the financial industry beginning in the 1990s led to risky bets on Wall Street. Standards for lending and investing were lowered so that anyone could borrow money to buy homes. In addition, Wall Street began trading financial instruments such as derivatives that were very risky.

This crisis resulted in a huge purchasing power risk for everyday consumers. Although some people lost jobs, the effects were mostly felt by lower housing prices in the real estate market. The markets quickly recovered within a few years. However, it is evident that the next stock market crash prediction will be worse.

The 2010 Flash Crash

On May 6th, 2010, a rapid decline in the US stock market occurred. For 36 minutes, billions of dollars were lost from prices of some American companies. Although the drop in prices was rapid and severe, the long-term effect on the US economy was minimal.

The explanations for the crisis included fall out from Greek debt crisis and the UK general election. In addition, some pointed to a ‘fat-fingered’ trading and an illegal cyberattack. However, a joint report by the SEC and CFTC (American regulatory agencies) gave the opinion that the price movement could have been caused by the combination of existing market conditions and a huge automated sell order.

2020: Another Economic Crisis

Debt, Mortgages and Home Foreclosures in the United States

  • Total Debt to GDP for the United states is over 150%
  • The Federal Reserve currently owns approximately 30% of all mortgages in the U.S. today (over $2 Trillion)
  • US National Debt is now over $26 Trillion
  • Home foreclosures are beginning to increase

Alarming Trends at the Federal Reserve and Debt-to-GDP Ratio

Two alarming trends are that the debt to GDP ratio is at 150% and that the Federal Reserve Bank owns 30% of US mortgage securities. First, most experts agree that when the debt-to-GDP ratio climbs higher than 100%, you are in the economic danger zone. Historically, high debt-to-GDP ratios have ended badly.

Unfortunately, this is bad news for the United States economy. As a result, people’s investments and retirements could be badly damaged. Moreover, purchasing power risk will be astronomical if the US economy descends into hyperinflation. Prices of goods and services may go much higher as wages stay the same. For example, hyperinflation has occurred recently in places like Venezuela, Zimbabwe and Argentina. Furthermore, it could easily happen in the USA. However, the next stock market crash prediction would clearly overshadow these crises.

Stock Market Peak of 2020

The Current State of Wall Street, Stocks at All-time Highs and Unemployment

On September 2, 2020 the S&P 500 Index, hit 3,580, the highest it has ever been. The S&P 500 is a measure of some of the largest traded stocks on Wall Street. As a result, the U.S. stock market is literally at its peak right now. In addition, real estate prices are at record highs in many places in the United States. Despite official statistics posted by the US Government, many experts are concerned about inflation, which equates to higher asset prices. As a result, the next stock market crash prediction could be the worst in history.

However, juxtaposed to the Wall Street high are the U.S. unemployment numbers. Unemployment is at a record high as well. According to the Bureau of Labor Statistics, 13% of Americans were unemployed in May 2020. In addition, 30 Million Americans filed for unemployment benefits in June 2020. This is approximately 10% of the entire US population (Source: CNBC News).

Next, here are basic statistics that we can use to help with stock market predictions for 2021:

  • US National Debt is now over $26 Trillion
  • Total Debt to GDP for the United states is over 150%
  • The Federal Reserve currently owns approximately 20% of all mortgages in the U.S. today (approximately $2 Trillion)
  • Home foreclosures are beginning to increase
  • Interest rates are at an all-time low and can’t go much lower

The COVID-19 Pandemic and Federal Reserve Money Printing

In 2020, money managers have to make tough decisions about re-balancing portfolios with stocks, bonds, precious metals and even cryptocurrencies. They will have to answer the question, “is it a good time to buy stocks?” The reality is that the stock market cannot continue to rise when people are losing jobs, real inflation is increasing and the US National Debt grows out of control.

In reaction to the COVID-19 pandemic, The U.S. Government borrowed more than $3 Trillion to pay for stimulus. This included payments to governments for supplies, individual payments to citizens and loans and grants for businesses affected by the pandemic.

At the same time, the U.S. Treasury and the Federal Reserve Bank have been working overtime to print money. As a result, the next stock market crash prediction will likely arrive quicker.

“It works like magic. With a few strokes on a computer, the Federal Reserve can create dollars out of nothing, virtually “printing” money and injecting it into the commercial banking system, much like an electronic deposit.By the end of the year, the Fed is projected to have purchased $3.5 trillion in government securities with these newly created dollars…”

USA Today Article, May 13, 2020

Why the Stock Market May Be Overvalued

Stock Buybacks and FAANG Stocks Tilt Market Balance

One other economic concern in the stock market is stock buybacks or “share buybacks.” Stock buybacks are when a company uses cash to repurchase their own stocks. Stock buybacks typically occur when a company has extra cash to spend or when the company can borrow money at a low rate of interest. The result of buybacks is usually an artificially high price for their stocks. When many companies on Wall Street conduct stock buybacks, it can appear as if we’re in a “bull market” and prices are climbing higher.

In addition, the FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) have had an oversized impact on Wall Street. These tech companies are enormous in size and their movements on the stock market can sway whether the market, as a whole, is up or down. For example, Apple has a valuation now of approximately $2 Trillion, higher than any other publicly traded company.

Investors may get the impression that the market is doing well overall, when in fact, only the FAANG stocks may be up in price. This gives the impression that prices for the market are higher, even though many other much smaller industries may be in decline. Finally, the next stock market crash prediction will be a surprise to those who do not understand this concept.

What It All Means: Asset Bubble

It is impossible to predict what will happen in the stock market. Is it a good time to buy stocks? Information and data shared above seems to indicate that prices are at all-time highs and we may be in a bubble. A bubble occurs when prices go up much faster than other indicators in the economy. As a result, this may be a dangerous time to be buying stocks.

Next Stock Market Crash Prediction

The past is never a good indicator for what may occur in the future. However, in this case there are clues that point to where we may be headed economically. We can expect more inflation in the United States and expect the US Dollar to be weaker in purchasing power over time.

What we know is that real estate and the US stock market has been in a bubble for years because of low interest rates. Money printing by the Federal Reserve Bank has also contributed to the problem. Prices have gone too high, too fast. As a result, what goes up, must come down. Our next stock market crash prediction will materialize as an economic crisis. It is likely that sometime in 2021, there will be a severe stock market correction. The question is how long it will last.

Unfortunately, the United States began a recession in late 2020. Home foreclosures, unemployment and GDP all have growing negative sentiment for 2021. In addition, it appears likely that the recession will degrade into full-blown depression in 2021. It seems that we will have to navigate a depression for a few years before things begin to improve in the next 5 years or so.

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