Although the initial COVID-19 breakout in March 2020 caused shockwaves through the markets and economy, the US economy nearly collapsed again on September 16, 2008. The Reserve Primary Fund "broke the buck" on this day when the value of the fund's holdings fell below $1 per share . Money market accounts, where firms hold cash to fuel day-to-day operations, were raided by panicked investors, who withdrew billions. If withdrawals had continued for even a week, and the Federal Reserve and the US government had not intervened to support the financial sector, the entire economy would have come to a standstill. Trucks would have come to a halt, grocery stores would have run out of food, and companies would have had to close.
Is the US Economy Doomed
It is improbable that the United States' economy will collapse. The government can intervene fast in the event of a total collapse. The Federal Reserve, for example, can utilize its contractionary monetary tools to control hyperinflation or collaborate with the Treasury to provide liquidity, as it did during the 2008 financial crisis and COVID-19 outbreak. Because the Federal Deposit Insurance Corporation insures banks, a banking crisis similar to the 1930s is unlikely. To counteract an oil embargo, the president can release Strategic Oil Reserves. Homeland Security can address a cyber danger. The US military can deal with a terrorist attack, transportation disruption, rioting, and civic unrest. To put it another way, the federal government has a lot of tools and resources to keep the economy from collapsing.What Would Happen If the United States' Economy Collapsed
You would most likely lose access to loans if the US economy collapsed. Banks would be forced to close. Food, petrol, and other necessities would be in short supply. Water and power may be unavailable if the collapse affects local governments and utilities. Global panic would ensue if the United States economy collapsed. The dollar's and Treasury's demand would drop. The cost of borrowing would rise. Other currencies, such as the yuan, euro, or even gold, would see a flood of investors. It would cause inflation and hyperinflation, as the dollar's value against other currencies would plummet. Consider the Great Depression to get a sense of what life would be like in the event of an economic collapse. On Black Thursday, the stock market plummeted. 3 It had dropped by 25% by the following Tuesday. That weekend, several investors lost their whole life savings. One out of every four Americans was unemployed by 1932. 4 Wages for those who remained employed plummeted—manufacturing wages fell by 32% from 1929 to 1932. The gross domestic output of the United States was nearly halved. Thousands of unemployed farmers and employees relocated to California and other states, searching for work. Two and a half million people fled the Dust Bowl states in the Midwest. It took until 1954 for the Dow Jones Industrial Average to return to its pre-crash level.Crisis vs. Collapse
A financial crisis is not the same as a financial meltdown. The 2008 financial crisis was not a collapse as devastating as it was. Even though millions lost their jobs and homes, essential services continued to be supplied. Other financial crises in the past appeared to be catastrophic at the time but are now largely forgotten.Stagflation in the 1970s
Double-digit inflation resulted from the OPEC oil embargo and President Richard Nixon's decision to abandon the gold system. The government responded to the economic downturn by freezing wages and labor rates to combat inflation. Businesses couldn't afford to keep workers at unprofitable wages because of the low pricing. As a result, there is a high rate of unemployment.Recession of 1981
In 1981, the Federal Reserve hiked interest rates in an attempt to bring double-digit inflation to a halt. This resulted in the most significant economic downturn since the Great Depression. To end it, President Ronald Reagan slashed taxes and expanded government expenditure.The Savings and Loan Crisis of 1989
Thousands of banks have closed as a result of bad real estate investments. Charles Keating and other Savings and Loan bankers misappropriated money from bank depositors. The subsequent recession resulted in a 7.5 percent unemployment rate. The government was compelled to spend $124 billion to bail out several banks.The Great Recession of Post-9/11
The terrorist attacks on September 11, 2001, created widespread fear and extended the 2001 recession—which saw unemployment rise to more than 10%—through 2003. The War on Terror, the US response, has cost the country $6.4 trillion .The Financial Crisis of 2008
In 2006, rapidly decreasing property prices and rising mortgage defaults were early indicators of the 2008 Financial Crisis. 17 The subsequent subprime mortgage crisis, which terrified investors and resulted in enormous bank withdrawals, spread like wildfire throughout the financial community if left unattended. The United States government had no choice but to bail out "too large to fail" banks and insurance corporations like Bear Stearns and AIG or risk national and global financial disasters.COVID-19 Pandemic, March 2020
It's too early to calculate the overall expenses of the COVID-19 pandemic; the outbreak is still ongoing, though at a much lower intensity than it was in the beginning. How much should the economic cost be? According to one estimate by IMF Managing Director Kristalina Georgieva, the world economy will lose $28 trillion in output between 2020 and 2025. 20 Government intervention will be critical in moving forward as the US economy recovers from the pandemic's obstacles, including higher inflation, supply-chain interruptions, and labor market upheaval.Most Commonly Asked Questions (FAQs)
How can I prepare for a financial meltdown? An actual economic collapse will not occur because the US government, as it has in the past, will take steps to prevent it. You may still prepare for a financial emergency by keeping your debt low, living within your means, and having money in savings that you can access quickly if necessary. While no investment portfolio is recession-proof, you can work with your financial advisor to reduce risk in your portfolio. Are there any countries whose economies are on the verge of collapsing? The International Monetary Fund recently cautioned that some developing countries (such as Ethiopia, Kenya, Zambia, Afghanistan, Haiti, Samoa, and Tonga) might face financial collapse unless debtor countries continue to provide debt relief.Is there any good that can come from a financial meltdown
While it's difficult to discern a silver lining amid a catastrophic collapse, previous recessions have yielded some positives. For example, during the Great Depression, life expectancy increased. Housing costs may fall, allowing some individuals to purchase a home they otherwise would not have been able to afford. At the same time, enterprises supplying low-cost entertainment may grow.