Should We Be Concerned About America’s Next Financial Crash?

Andrew Deen  |

History repeats itself. Unless society learns from the past and changes their ways, people are fated to suffer similar negative consequences -- which may be more extreme.

This applies to America's current financial market as well. The market experiences highs and lows and random dips. With the state of the current economic system, should Americans be worried about their financial future?

No Doubt, Our Financial Security Is in Jeopardy

Lax banking regulations and needless risk-taking have propelled the US economy into the worst financial crisis since the Great Depression, and during the recent 2008 depression 9 million people lost their jobs.

Recovery from the latest financial crisis was painfully slow and worsened economic inequality across the nation. This led to widespread discontent and an intense backlash from the general population.

Today the current administration is working to dismantle the Dodd-Frank act, a move supported by economic experts. The revised legislation would exempt smaller financial institutions from the more intense provisions of the mandate and has already strengthened the nation’s institutional monetary system and made it easier for lawmakers to shut down banks -- rather than use taxpayer money for excessive financial bailouts.

Will New Currency Cause a Big Shift in Our Financial System?

In 2008, Sathoshi Nakamoto created the first peer-to-peer digital currency. Since, the phenomenal rise of Bitcoin has left a strong impression on the public. On December 17, 2007 -- the digital currency reached a historical value of $20,089 per coin. The moment sparked a rapid influx of speculative investors. At the same time, critics voiced their opinions concerning the currency’s security and reputation as an anonymous payment system for illicit goods.

Today, Bitcoin is known for quick and private transactions. However, detractors such as the president and CEO of MasterCard, Ajay Banga, denounce the currency for its volatility and instability. He also believes that the coin is a threat to the credit industry.

Furthermore, the currency is not compatible with the current banking system. Still, the coin continues to grow. Despite Banga’s sentiments, lucky speculators can still benefit from investing in the relatively new financial instrument.

Past Problems and Irresponsibility Have Created Our Present Financial Issues

Data released by the International Monetary Fund reveals that the world's nations held $164 trillion in debt towards the end of 2016. This amount represented 225-percent of the global gross domestic product (GDP) and exceeded $50 trillion of the world's debt before the 2008 recession. In the U.S., excessive national debt and high-interest rates have created substantial financial losses and economic imbalances. In effect, debt will most likely continue to rise unless the nation's government implements effective long-term solutions.

According to Jeffrey Kleintop, economic systems are most vulnerable near the end of global finance cycles, when nations hold excess funds that may have been neglected. While Kleintop doesn't directly indicate a looming financial crisis, he does express concerns regarding global debt. The Schwab chief global investment strategist believes that this debt potentially could lead to another crisis resembling the world's most recent global financial snare.

Schwab analysts forecast that the United States could be the leader of growing debt in the coming years. Says Kleintop, America is the only economy that will experience further debt-to-GDP ratio over the next half-decade. Theoretically, this means that rising interest rates will cause more losses than ever before -- especially with a stronger US dollar bolstering the expansion of US debt held outside of the nation.

Can We Lower Our Debt and Decrease War Costs and More?

The nation’s financial system will inevitably face changes over the next few years. While it’s impossible to predict the future, consumers can do their best to protect themselves by remaining knowledgeable about financial issues and preparing for a potential future downturn.

One event that consumers can learn from is World War II. It was the most expensive war in the United States, costing more than 4 trillion of today's dollars. During the war, the government used -- what was at the time -- new tactics to raise funds for the combat initiative. While many modern wars are significantly costly, they've generated nowhere near the expenses produced by World War II.

During World War I, $334 billion was spent, a fraction of what was spent on World War II. In part, this massive difference was due to the fact that soldiers fought for only one year in World War I, while military forces engaged the enemy for four years during World War II. Subsequent enemy engagements have cost much less, ringing in at $1.5 to $1.7 trillion. However, the War on Terrorism costs much more, as it's taking place over an extended period of time.

Several economists have cautioned that with debt twice the amount of 2007 levels and publicly-held federal debt at 77-percent of the GDP there’s a growing need for concern. Without a sustainable remedy, warn economists, the current economic environment will slowly strangle consumers.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

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