Is the U.S. economy headed for the biggest crash in history?

In recent months, there have been increasing signs that the U.S. economy may be heading for a crash. Inflation has hit concerning levels, the stock market has been volatile, and housing prices are beginning to fall. Is this the beginning of the end?

Inflation on the Rise
One of the most noticeable indicators that something may be wrong with the economy is inflation. Inflations happen when prices for goods and services go up. This often happens when there is more money than there are goods available—aka “demand exceeds supply.” When this happens, people start bidding up prices for things until they reach a level that everyone is comfortable with.

In recent months, inflation has been on the rise in the United States. The most recent inflation reading from the Bureau of Labor Statistics showed that prices increased by 2.3% over the past year—the biggest jump since 2012. Many other indicators are even worse. The Consumer Price Index for All Urban Consumers (CPI-U) increased 8.2 percent. While this may not seem like much, it is cause for concern because it signals that prices are rising faster than wages. And when wages don’t keep up with inflation, people have less buying power and can’t afford as much as they could before.

The Stock Market Is Volatile
Another sign that something may be amiss is the stock market’s recent volatility. And this is volatility to the downside. The stock market is where companies raise money by selling shares of their business to investors. The price of these shares is determined by supply and demand—if more people want to buy a share than there are available (i.e., demand exceeds supply), then the price goes up.

Over the past year, we’ve seen both highs and now new lows in the stock market as investors try to figure out where the economy is headed. Recently, we saw one of the biggest single-day point drops in history amid fears of inflation and interest rate hikes. Then, Friday, we saw another sharp decline as the U.K. took a major hit.

It’s worth noting that the stock market is not always an accurate indicator of how well the economy is doing—factors like emotions and speculation can influence it—but it can give us a general idea of how confident investors feel about the future. And right now, people are fearful.

Housing Prices Are Falling
Finally, another sign that something may be wrong with the U.S. economy is that housing prices are beginning to fall after years of steady growth. Many factors determine housing prices, but one of the most important is how confident consumers feel about their financial future—if people feel like they’re going to have more money in six months than they do now, they’re more likely to buy a house or upgrade their current home.
However, if they feel like their financial situation may worsen, they’re more likely to delay making any big purchases.

We’ve already seen this play out in other countries like Australia, Canada, and China, where housing markets have begun to cool off after years of rapid growth. And now it seems to be happening in the United States as well. According to the real estate website Zillow, home values in America’s 20 largest cities are all forecasted to decline over the next year. Why? Because folks are starting to feel like they might not have as much money in their pockets tomorrow as they do today.

So what does all this mean? Is the U.S. economy doomed? Michael Burry, famous for being one of the few investors to predict the 2008 financial crisis, thinks so. He called the previous crisis, and it seems like he is right again. His only investment right now is in a company that owns private prisons and mental health facilities—hardly a vote of confidence in America’s future. Additionally, he’s concerned about Americans’ high levels of debt—both public and private. We’re currently seeing record levels of government debt due to stimulus spending related to COVID-19, and many consumers are also struggling with mounting credit card debt and student loans. When people are saddled with too much debt, they’re less likely to spend money.

While it’s admittedly concerning to see inflation rising at such an alarmingly rapid pace, it’s important to remember the Biden administration is still saying we are not currently in a recession. The unemployment rate remains relatively low (although it has increased in recent months), So if we believe Biden we are fine! Or we should keep an eye on economic indicators and make smart financial decisions—just in case.

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