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Stock markets are a powerful force in the economy, but when they fall, it can be devastating to an economy.
In the past week, the Dow Jones Industrial Average has dropped nearly 200 points, closing at an all-time low.
At the same time, the S&P 500 index has dropped almost 60 points, and the Nasdaq has dropped just shy of a half a point.
What can we learn from the past few weeks?
In the past two weeks, the financial markets have been in turmoil, with several major indexes falling.
The Dow Jones industrial average has fallen more than 300 points, while the S & P 500 index lost more than 500 points.
The Nasdaq composite has also dropped more than 400 points.
Is this a one-off?
This is not a new phenomenon.
In February 2009, the Federal Reserve, which oversees the markets, said that the Dow was likely to crash after the financial crisis and the Great Recession.
However, this time around, there is no such prediction.
Why does this matter?
As the financial system has become more interconnected, it is more difficult for financial markets to be independent of the economy.
With financial markets now operating independently of the US economy, we will see a lot more losses in the coming months.
Will we see another crisis?
The market was on an upward trajectory when the financial collapse hit, and it is likely that the stock market is not going to follow the same path.
It is possible that some sectors of the market will benefit from the stock markets downturn, and that some industries will see their profits fall.
How should the US cope?
For now, the stock and bond markets are resilient, but they cannot withstand another financial crisis in the US.
Do the markets have the resilience to withstand another crisis in other countries?
There are many financial crises and crises in the world, but most are not the kind of crises that the US will experience in the near future.
Financial markets in other parts of the world have been on an uptrend for the past decade, but the last major crisis, the Global Financial Crisis of 2008-2009, is not as significant.
So, the US stock market and bond market could withstand a downturn in Europe, but not Japan.
Who can avoid the stockmarket crisis?
The US financial system is highly regulated and it does not require a lot of trust.
If you do not trust the government, you cannot trust the financial market.
Should the financial industry go bankrupt?
It would be difficult to imagine that the financial sector in the United States could go bankrupt, but this is what happened in 2008-09.
Was the financial downturn a catalyst for the financial crash in the UK?
On the contrary, the UK stock market was already on an upwards trajectory when Britain’s financial system crashed in 2008.
Did the financial meltdown in the USA and Japan lead to financial crises in other nations?
For example, in the aftermath of the financial crises, the global financial system, such as the European financial system or Japan’s, were still in good shape.
As for the US financial sector, the country has been in good health for some time.
Are we living through another financial crash?
Sadly, we are not.
It is not easy to predict what the future will bring.
I hope that you enjoyed this article.
Follow me on Twitter @M_M_Kaneda for future articles.
Disclaimer: This article is for educational purposes only.
It should not be considered investment advice.
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