Amid the fluctuations of global financial markets and increasing fears of a new economic crisis, this article presents a deep analysis of the events that the American market experienced on August 5, and the subsequent repercussions. U.S. stock markets witnessed a sharp decline, the largest since the beginning of the COVID-19 pandemic, leading to a state of panic among investors. However, this collapse was not a fleeting event; it served as a wake-up call regarding the deep structural problems facing the U.S. economy, which include rising debt and distorted inflationary conditions.
Based on a conversation between independent journalist Ben Norton and renowned economist Michael Hudson, this article explores the nature of the economic contraction that the United States is experiencing, along with the financial considerations behind this scenario. We will also discuss the impact of monetary policies, structural issues in the financial sector, and how current imbalances may herald new chapters of acute economic crises. Through this analysis, we aim to provide a deeper understanding of the paths the U.S. economy may take in the future, and how these could affect the average citizen.
Challenges of the U.S. Economy: Debt and Ongoing Recession
The U.S. economy faces a set of challenges that have significantly affected its stability, most notably reflected in its unsustainable debt structure. Economist Michael Hudson explains that both public and private debt in the United States has increased dramatically, allowing financial sectors to benefit from continuous interest income. This growing public debt is attributed to government policies, such as increased military spending and tax cuts for the wealthy, leading to an environment of excessive borrowing. It is worth noting that rising debt does not only impact institutional levels but also extends to individuals and small businesses, exacerbating economic inequality and worsening financial crises.
Additionally, Hudson criticizes the method used to calculate inflation in the United States, pointing out that it can be misleading. Official inflation data does not account for the increase in asset prices such as stocks and real estate, resulting in a decrease in the real wages of workers. In this way, the real standard of living for workers is diminished, as wage increases do not keep pace with the actual rising cost of living. This emergent inflation can be attributed to economic strategies that benefit the wealthy at the expense of the vast majority of the population, creating a politically and economically challenging environment.
Moreover, Hudson asserts that the U.S. economy is not merely experiencing a recession but a continuous contraction, with the recorded growth in GDP often resulting from financial gains rather than real productive activity. Here, economic opportunities for many social groups are diminishing, leading to an increased gap between the rich and the poor.
The Relationship Between Geopolitical Changes and Financial Markets
Increasing geopolitical tensions contribute to the impact on financial markets, as transcontinental crises lead to a deterioration of financial stability. The situations in Ukraine and the calculated decisions by NATO to increase pressure on Russia are among the factors that may contribute to heightened uncertainty in financial markets. Furthermore, the escalating tensions in the Middle East could develop into a potential military escalation in the region.
As these events interact, financial markets begin to respond rapidly, with investors preferring to shift towards safer assets such as government bonds, leading to volatility and instability in major markets. International investments may also face reevaluation due to geopolitical shifts, as companies seek to mitigate risks by diversifying their portfolios and moving towards more stable regions.
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On another front, there is a geopolitical effect benefiting some economies such as China, where major economic nations cooperate to reduce dependence on the US dollar, which could lead to the rise of currencies like the yuan. These shifts are part of the grand strategy of a few countries to achieve a higher level of economic independence and avoid Western dominance. Therefore, financial markets are not isolated from geopolitical contexts; rather, they are both influenced by and influence the dynamics of global transformations.
AI Crisis: The Bubble and Challenges
Financial markets are experiencing a state of anxiety regarding the bubble surrounding investment in artificial intelligence technologies, where massive gains have been recorded but without realistic fundamentals supporting these increases. Major companies like “Apple” and ”Microsoft” are pushing significant portions of market capitalization towards AI, raising questions about sustainability. If markets continue down a path of irrational investment, similar to what happened during the internet bubble in the late nineties, we may be awaiting another major collapse.
A major problem lies in the fact that most emerging companies in this field may not have strong economic fundamentals, but are driven to secure massive investments without effective returns based on genuine innovation. If the inconsistency between market gains and actual value continues, a sudden royal collapse in prices may occur when investors lose confidence.
This situation could add to macroeconomic challenges in the United States and around the world, where companies will find themselves unable to generate real value, leading to further accumulation of debt. Based on the above, the effects of artificial intelligence on financial markets will not only be obvious but may also pose a threat to market sustainability in the near future.
Necessary Actions to Address Future Economic Crises
Addressing economic crises is vital for maintaining long-term financial stability. This requires a commitment to new and comprehensive economic policies that address the root causes of problems rather than just treating the symptoms. Effective policies include reforming the tax structure to bridge gaps between the rich and the poor, as well as more effectively regulating the financial sector to prevent excessive financial leveraging.
It is also important to enhance investment in infrastructure and innovation. Providing good jobs, educating the workforce, and supporting small businesses can contribute to sustainable economic growth. The government must adopt comprehensive strategies to ensure the safety of the financial system by protecting consumers and promoting socio-economic systems.
From a geopolitical perspective, a cooperative approach should be adopted to confront international challenges and tensions, rather than confrontation. Cooperation with other countries at the economic and political level can help build a more stable and secure world for all nations. There should be effective dialogue on issues of debt, finance, and inflation so that best practices can be exchanged between countries to work towards achieving economic stability for all.
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