Did this spark the next global recession?
Waking up this morning to see World War Three trending on Twitter wasn’t the most pleasant start to 2020.
It was, of course, reaction to the news that US President Donald Trump ordered the killing of Iranian military commander, General Qasem Soleimani, in an airstrike in Iraq.
Soleimani ran Iran’s military operations in the Middle East, as head of their elite Quds Force.
As you can imagine, his death was met with condemnation in Iran, where three days of national mourning were announced alongside a promise that “severe revenge awaits the criminals” responsible.
Twitter went quickly into meltdown, not helped by Trump posting (without comment) an image of the US flag. It’s almost like this impeached US President is seeking a distraction for American voters, ahead of his trial and subsequent Presidential election…
From an economic and markets perspective, the assassination has led to a sharp rise in oil prices.
The price of benchmark Brent crude was up by close to 4% overnight. Consequently, the oil-heavy UK stockmarket dipped in morning trade, with the FTSE 100 index of leading UK company shares down 0.5% this morning.
Could the assassination of General Qasem Soleimani prompt the next global recession?
Global economic growth was already fragile before this latest Trump-inspired intervention in Middle East affairs. Looking at traditional economic cycles, we’re long overdue a recession.
My concern for several years now is how the next recession will look (in terms of length and severity) off the back of so much quantitative easing.
The US Federal Reserve has pumped more than $2 trillion into the global money supply since 2008, with the Bank of Japan, European Central Bank, Bank of England and others also printing huge sums of money.
This quantum of QE means the next recession when it arrives, is unlikely to look like any previous recession. On the bright side, central bank responses to the next recession will likely be unconventional too.
Instead of printing money to buy bonds from banks, we might see central banks using ‘helicopter drops’ to inject cash into the consumer economy directly.
This kind of approach could do the trick in the short-term, lessening the severity of any recession, but long-term I’m fearful it’s similar to the kicking the can down the road approach adopted in recent years by Europe in response to their sovereign debt crisis.
We’re not in the business of making predictions here at Informed Choice. Instead, we construct Financial Plans based on sensible assumptions about the future; assumptions which are regularly monitored and adjusted as reality takes grip.
What we do know about 2020 is a) global economic growth is already fragile, b) we’re long overdue a global economic recession, based on all historical measures, and c) Trump is unlikely to help the situation with his warmongering.