Is Another Market Crash Coming?

Many economic experts believe that the worst of this recent market crash is behind us.  It seems that the housing markets have stabilized and are starting to recover in some areas, the stock market has had a nice rebound, and job losses are slowing.  Because of this, many people are feeling pretty good about their personal financial planning situation.

Rising Debt

But there are some signs looming out there that indicate that all the trouble may not be over.  One of the biggest signs of trouble is the amount of debt that the United States is accumulating at a rapid rate.  In the next year, the total debt held by the US government will rise to $12 trillion.  All the economic stimulus and the war in Afghanistan continues to fuel this burden.  As the trend continues, our dollar is worth less and less (because we keep printing more and more of them).  The largest holders of all this US debt (which is in the form of treasury bonds) are Asian and European countries.  Once these investors get tired of our fiscal irresponsibility and the low rates that our bonds are paying them, they will start heading for the exits.  As they start selling bonds, the values of the bonds will drop, and interest rates will rise.

How Soon Could This Happen?

The United States has a very large credit limit, so this is not likely to be something that happens very quickly.  But in the next three to five years, this scenario is very possible.  When it does happen, stock and bond markets will take a tumble, and interest rates, inflation and unemployment will rise to levels we haven’t seen in a few decades.

What Can I Do?

Fortunately there are some steps you can start taking to protect yourself from another financial meltdown, and it doesn’t involve putting your money in the mattress.  Stay tuned in the days to come for some personal financial planning ideas that could help you stay afloat if the economy starts to sink again.

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