This Economic Slowdown Is Setting Off Alarm Bells

It took them months to admit what was already obvious to most of the population.

That is, that the economic ‘slowdown’ was in fact a full-blown crisis.

By ‘them’ I’m referring to the Spanish government.

And by the economic ‘slowdown’ I mean the 2008 crisis.

Even then, the message was positive.

Yes, growth is slowing, but we will be out of the tunnel soon. We expect the Spanish economy to see a recovery by 2009. This won’t last long, they said.

They couldn’t have been more wrong.

The crisis deepened.

Unemployment increased until 2014, when it peaked at over 25% of the population. In other words, one in four workers were unemployed.

With so many people looking for jobs, average salaries dropped.

There was a loss of liquidity, and banks cut off credit causing a credit crunch.

It wouldn’t be until 2015 that we would see any type of recovery. And even then, the Spanish economy would never look anything like it was during the boom leading to 2007.

In our experience authorities will put off telling you that things aren’t going well until it’s too late, to keep confidence up.  We saw it in Spain back in 2008.

Why are we telling you all this?

Well stocks have had quite a ride since October.

2018 was no picnic, and 2019 doesn’t seem like it will be much different.

Some are clearly worried, others are saying buy the dip…

The main concerns are the trade war and the US Fed rate increases affecting the economy.

But stocks have been climbing all of this week, mainly on two pieces of news.

First, the US Federal Reserve, minutes from their December meeting, showed that the Fed may take a slower approach to rate hikes to calm the markets.

From Bloomberg:

Minutes of the Federal Reserve’s December meeting revealed policy makers took a more cautious approach to further rate increases than their statement indicated.

“Many participants expressed the view that, especially in an environment of muted inflation pressures, the committee could afford to be patient about further policy firming,’’ the central bank said in minutes of its Dec. 18-19 policy meeting released Wednesday in Washington.

The vote to hike rates was unanimous but the minutes showed “a few participants” favored no change. The minutes showed the committee was attentive to recent financial-market volatility and risks to the outlook.

“Participants expressed that recent developments, including the volatility in financial markets and the increased concerns about global growth, made the appropriate extent and timing of future policy firming less clear than earlier,” the minutes said.

The other was that US President Donald Trump said he wants to get a deal with China.

As Bloomberg reported:

President Donald Trump is increasingly eager to strike a deal with China soon in an effort to perk up financial markets that have slumped on concerns over the trade war, according to people familiar with internal White House deliberations. […]

Inside the White House, some key economic advisers are campaigning for a quick resolution to the trade conflict to help soothe battered markets. The S&P 500 Index has fallen about 8 percent since Trump and Chinese President Xi Jinping agreed on a 90-day truce at a Dec. 1 meeting in Argentina.

“Talks with China are going very well!,” Trump tweeted on Tuesday, the latest in a series of upbeat messages from him on the negotiations since both his meeting with Xi and the December market turmoil.

This comes after Trump said the December market drops were just a ‘glitch’. As he told reporters during a cabinet meeting, courtesy of CNBC:

It’s going to go up once we settle trade issues and a couple of other things happen. It’s got a long way to go.

And back on Christmas Eve, US Treasury Secretary Steven Mnuchin tried to calm the markets by saying he had spoken with the six CEO’s of US’s largest banks and they ‘all confirmed ample liquidity is available for lending to consumer and business markets.

His plan backfired…mainly because no one had been worried about bank liquidity until then.

But it shows you how consumer and investor sentiment can change very quickly.

What’s clear is that uncertainty is starting to creep in…

But all these statements are ringing alarm bells.

Why is this? Well, our whole economic system is based on confidence. Fiat currencies, governments, banks, they are all backed by confidence in our institutions.

That’s it.

Authorities know this, that’s why they try to keep confidence up. If confidence was to collapse, you could see a panic.

That’s why you should take notice when authorities are trying to build confidence. In our current system, keeping confidence up is everything.

Best,

Selva Freigedo

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