Everything seems to be going wrong in the global economy right now.
Chinese growth is slowing, Hong Kong’s Hang Seng is officially in a bear market, Greece is heading into elections, and emerging markets around the world are feeling the strain of the strong US dollar.
In the advanced world, the United States and United Kingdom are seeing some decent growth, while Japan and the eurozone are expanding modestly at best.
And the next important question for everyone is whether the US Federal Reserve thinks the backdrop it’s looking at is good enough to raise interest rates for the first time in nine years. The Fed funds rate has sat at 0.25% since December 2008.
September has been penciled in as a strong possibility for a long time now, though markets are now starting to reconsider. What’s the worst that could happen?
Well, it could be like 1937 again.
In late 1936, the US economy was looking relatively good for the first time in a while. The unemployment rate had fallen by between 5 and 10 percentage points from its post-crash high (accurate estimates weren’t kept at the time), the economy was growing, and markets had rebounded considerably.
There were a bundle of different things that then contributed to the 1937 recession — including tax hikes; a change in the US Treasury’s policy on gold, explained here; and an increase by the Federal Reserve in bank reserve requirements.
The hike only caused a pretty small spike in Treasury yields, in comparison to the levels that were common before the 1929 crash.
See how in the full article.
Source: Business Insider, UK