Critical Warning Six
In the current situation, US have less amount of money and it is not in condition to withstand one more recession. The US Federal Reserve is continuously printing money so as to cope up with the present situation nut it is not going to help out as it is just creating an illusion and in reality; it is pushing the country back into a situation of recession. If money printing was not done, the US was called a true bankrupt country. The interest rates have reached zero figures and thus leaving no option for any further decrease. The continuous printing of money has led to a condition of inflation. As the long term interest rate increases, it will bring even more serious effects to the economy. At present, unemployment is hitting hard to the country the percentage of people being unemployed in America is increasing at a high rate. The graph below shows the labor force in America in last three years.
Critical Warning Six
Critical Warning Number Six
If the economy follows the same trend as during 1934-1937, the stock prices are expected to fall below the value of March 2009 lows in the succeeding months as the bear market continues. However, the bear market condition is expected to reach a condition that is even worse than that during the Great Depression. The US national debt has increased by $5 trillion since last four years. The Federal Reserve has increased the size of the US balance sheet by $2 trillion. The value of US dollars is lowering with every passing month and this may further lead to even worsening of the US economy. About 70% of the world central banks use dollars as the official currency even at this stage they feel like continuing with it. Dollars are the preferred choice of the investors as they are still hesitant about using euro for the same. The national debt amount is growing day by day and it would probably reach to a level when it cannot be controlled. This primary reason for this condition is that the Federal Reserve has been printing more than enough amount of currency just to cope up with the unstable condition of the US economy. This has worked in the opposite way for the government now. The day may come when foreigners who invested in business will start looking for some safer option other than dollars so that they can make profit and stay risk free.
The increase in the price of gold has made gold investors step back from investing in gold. The investors who considered gold as their favorite to make an investment now fears to get into it. The characteristics gold since few years is following a rule in which the price of gold rises during the initial years and goes through some ups and downs. At the end of the years it reaches at a price which is always higher than what it was the previous year. This is the trend that is being followed by gold since last eleven years and so it is expected to follow the same trend in future years too. The reasons that catalyze the rate of increase in gold price include the continuous printing of currency by the Fed, continuous government spending and the falling value of US dollars.
The European crisis has led the investors to make a turn from Euro and stay with dollars. Euro has been weakened to a significant level and it is therefore that US dollars are considered as a better option by the investors. No strict measures were taken by Europe and as a result, cities of Greece and Italy went through serious debt. Italy is loaded with even larger debt amount than Greece. Millions of euros have been stuffed into the Spanish bank, but still the sub continent needs a help to get rescued out.
The short term interest rate is falling since three years and it may reach the river bed. The amount that the US treasury is yielding now is the lowest amount since last sixty years and it is just 1.5%. The interest rates may be increased so as to drive away the inflation. The stocks in the bear market rally would now sink to the bottom to reach its March 2009 lows. Dow Jones is expected to fall by about 53% from its current status. In the initial stage that is the stage I, the bear market experiences a downfall and in the second Phase, it traps the investors to make more investment in the stocks just by creating an illusion that the market condition is getting better. In the third stage it again experiences a sharp downfall.
Similar to the depiction made, the Dow Jones fall to 644o from 14164 with a fall of 54%. This was the condition from October 207 to 9 March 2009. The present situation is that of the Phase II discussed above and the bear market has already done its task. The third phase is expected to come soon. During this phase, the stock market will reach its March 2009 lows. The condition will lead to desperation in investors with uncertainties ahead in future.