Will Another Financial Crisis Following the Increase in Debt Due to COVID-19?

With the substantial rise in government debt due to the ongoing health and economic crisis brought about by the COVID-19 pandemic, the question naturally arises: Is there a looming financial crisis? Some argue that under the current administration, things will only get worse, not because of the economic policies themselves, but due to a lack of understanding and a focus on a "woke" agenda.

Understanding Economic Crises

Economic historian Charles Kindleberger observed that during economic crises, collective panic often leads to hoarding, reducing normal consumption and investment. Consequently, production decreases, leading to fluctuations in exchange rates and a decline in employment, especially in export industries. In countries that are heavily dependent on exports, default on public debt is a common outcome.

Unemployment and Corporate Bankruptcies

The unprecedented closure of businesses and loss of revenue due to the pandemic have led to growing unemployment. Companies that cannot generate profits due to reduced spending will eventually go bankrupt. This, in turn, affects the broader economy as factories lay off workers or shut down due to underutilization. Crime rates also tend to rise during such periods as the unemployed resort to criminal activities to support themselves.

It's important to note that economic crises are not always inevitable, depending on the adaptability of the population to monetary policies and government actions. While there is a general expectation of another financial crisis, the extent and timing depend on how well people adjust to these changes.

US-Specific Analysis

The current spending bills in the US are primarily benefiting the wealthy, with minimal aid for those in the lower income brackets. Additionally, future generations may be burdened with the “once in a lifetime investment” being proposed, which is unlikely to be well-received by the general population and their elected representatives.

These spending measures will likely lead to higher taxes and a surge in government debt, which could have long-lasting negative effects on the economy. The reaction to the COVID-19 outbreak over the past 19 months has already caused significant damage, and only time will tell if the 2022 and 2024 elections will bring about positive change.

Nonetheless, it's evident that many countries, including the US, are in a similar position where government debt is increasing, and economic policies are fraught with challenges. Without significant reforms or a shift in policy, the risk of another financial crisis remains high.

Key Takeaways

Economic crises often result from collective panic, leading to hoarding and reduced consumption. Increased unemployment and corporate bankruptcies are common outcomes, with potential for higher crime rates. Government spending bills may exacerbate economic inequality and increase public debt. The adaptation of the population to these economic policies will significantly impact the likelihood of a financial crisis. The 2022 and 2024 elections will be crucial in determining the future direction of the economy.

As the world continues to grapple with the ongoing impacts of the pandemic, understanding the potential risks and the necessary steps to mitigate them is essential for ensuring a stable and prosperous economic future.

Keywords: economic crisis, financial crisis, debt increase, US economy, inflation