by G.Errico with Team
WASHINGTON. Why do we have economic recessions? Well, that’s a pretty complicated question, because each one is pretty different. But in the simplest terms, recessions happen because money gets invested poorly and is therefore vulnerable to some kind of economic shock. Of course, investors do not always know they are investing poorly…Houses looked pretty well in 2005 and 2006. Oil looked pretty good between 2010 and 2014. The Internet looked pretty promising back in 2000…But even when money is badly invested, there usually has to be some kind of unique event that puts the lie to the status quo – like a terrorist attack or a big spike higher or lower for oil prices.
Global markets welcomed this 2016 in an almost comically dismal fashion. It was the worst five-day start to a year for U.S. markets since 1928 and the most awful ever on record for the Dow. American shares wiped out almost $2 trillion in value, as fears of a slowdown in China and plummeting oil prices spooked investors. It was even gorier in China, the source of the bleeding. Chinese stocks fell off a cliff, dropping 12 per cent, a sell-off so steep that it tripped the system’s circuit breakers and halted trading twice in one week. China’s moves to dress the wounds—abandoning the circuit-break system, directing state-controlled funds to buy stocks, setting a higher Yuan reference rate—did little to stop the gushing in markets over. Billionaire financier George Soros, speaking at the WORLD ECONOMIC FORUM in January, told the audience that what is going on in China amounts to a crisis. “When I look at the financial markets there is a serious challenge which reminds me of the crisis we had in 2008,” he said.