Some Predictions For 2016
The New Year arrives with reminiscing about the old one and predictions about the new. Well, economically some people are running scared. They are pointing to a set of bad omens which may indicate a recession starting in 2016.
Here's one prophet of doom:
For my own interest, and yours, dear reader, I will list the key points:
- Oil prices are down, leading to OPEC countries selling the 'family silver' to prop up their regimes.
America is becoming more fuel independent, so the price of oil is unlikely to lift. This could be good in the long run as cheaper oil prices generally mean cheaper consumer goods, which encourages Mom and Pop to buy them, which stimulates the economy, but for now the outlook is 'unsteady'.
- China is having a 'correction'; it's communist leaders are trying to cool off a debt-fueled spending spree. Money is leaving the country. Chinese assets generally are going down in value.
This leads to shares and bonds generally being more depressed; if people are selling them off, they become worth less.
- Commodity prices are down. Chinese manufacturing is contracting, so they don't need as much raw materials to make goods. China also is coming to the end of a boom fueled by easy credit.
The great era of Chinese buyers of of Western Anything may be coming to an end.
- Quantitative easing (printing money) is coming to an end.
You can't keep printing more paper. It becomes devalued, in fact and in people's minds.
- The US economy has slowed down recently.
Generally, in the West, manufacturing has been depressed due to the strange attitude of Western leaders; they seem content to have heavy industry migrate abroad.
The basis of gaining wealth is trade; you have something I want, so I pay you for it. A service-based economy is a bit like a town that depends on tourism for its bread-and-butter; when times get harder the rubber-neckers stay home and the shutters go up.
Commodities are down, while stock markets are also currently sliding down. Housing is likely to follow after a delay, as it takes time for the effects of these to filter through to Foxtons.
- The UK government has finally acted to put a brake on the housing madness here, via taxation AKA 'stamp duty'.
Traditionally, a mortgage was a maximum of 3.5 times a man's annual salary. Someone having to take a £250,000 loan to buy an apartment is just stupid, unless they're planning to offload it fast.
It is bad if too many people are paying too much money for any good, even something as basic as a house. A bubble eventually will burst. Businesses dependent on a credit-rich economy or a housing bubble may have tough times ahead.
- Recent bad weather, causing flooding, will cost local government significant funds to address.
Nature hammering roads, houses and farms is all overhead.
- Terrorist activity affects public sentiment.
While atrocities have a small financial effect, the moral effect can be significant. If people are afraid, they won't spend.
What does the above mean for the small businessman?
It means that now is a bad time to buy into money-pit projects that can't survive a shock e.g. a furniture store in a middle-class district.
Small businesses and startups which are lean and offer an essential good should be fine. This is the basis of any good business.
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