As the 2016 year begins, and calls for economic readjustments, policy experts attempt to assess how to move forward in a fluctuating global economy due to several, recent economic disturbances.
China maintains the integral role in molding the world economy, even as the United States is juxtaposed in the variety of markets it possesses.
Stock indexes – representing the corresponding supply and demand of the firm’s goods and services – indicates how lucrative that firm stands in the current market.
Due to depressing prices of oil and lowered profits of the respective companies, world markets are losing substantial return.
Oil and economic readjustment in Chinese markets are igniting a bear market response from investors in Europe and the United States.
Global stock prices were in free fall for much of January.
Substantial banks in Scotland and Europe encouraged a fire sale wave in expectation of corporate losses.
Quantitative easing has lowered interest rates and has exacerbated risky trading, further destabilizing the global market scene.
The present situation is familiar to the global instability of 2007 wherein poor returns shocked the markets into a selling frenzy in hope of saving their initial capital investment.
However, the striking difference between 2007 and the financial markets of today is that 2007 markets were built on an asset-bubble of housing prices, whereas today fragile oil prices and a changing Chinese economy are the foremost culprits.
Fragile oil prices are a result of United States effort to regain energy independency.
Fracking for natural gas has given the United States leverage, giving them new exports in the lucrative energy market.
However, this deflates the oil price because of the rush of new oil supply.
In an astonishing short period of a year, global prices of oil have decreased from $53 to $34 dollars per barrel according to The New York Times. Similar to a changing Chinese market, fracking has indirectly destabilized energy stocks.
For nearly three decades, Chinese manufacturing markets have dominated global trade.
Appeasing American demand, Chinese goods satisfied the consumption binge omnipresent in a materialistic American culture.
However, in the purview of former Fed chairman Ben Bernanke, as China’s robust manufacturing sector continues to dump goods in the world market, inadequate consumer demand is pressuring Chinese officials to recalibrate their economic approach.
Rather than encourage investment and expansion, China is aiming to equip its economy with a capacity to consume.
Doing this would require Chinese consumers with more leverage to buy: fiscal policy by Chinese officials should envisage more spending or less taxation in order to achieve this reality.
The economic transition to attain this reality is throwing global markets into a mini-spiral.
Movement of capital is causing chaotic changes in relative stock prices, thereby putting expectations on American markets for stability.
President Obama asserted in his last State of the Union address that the American economy is the strongest in the world.
The International Monetary Fund predicted the American economy to perform at 2.8 percent this year according to The Washington Post.
Currently, economic analysts’ hopes of American consumer strength to stabilize the system will continue to build as Chinese markets attempt to readjust.
Editor’s Note: Information from The New York Times, The Washington Post and Ben Bernanke’s “The Courage to Act” was used in this report.