Posted by Rewan Tremethick on January 6th, 2016.
Economists were spoiled for choice regarding what to be afraid of in 2015. The fallout from the year’s biggest developments continues to define our living standards and the news today, so it’s worth knowing about them. Also, it makes you sound clever at dinner parties. We’ve all been in a situation where we wished we had something intelligent to say – regardless of how highly intelligent we might be – and the following four events from 2015 provide great fuel for the conversational fire.
Here’s a little boost to your 2015 knowledge so that you can spend the coming year sounding incredibly well-informed and getting invited to lots more dinner parties.
Thanks to the events of the past year, you could probably get by in any conversation about financial matters by saying ‘oil’ and rolling your eyes repeatedly. Oil peaked at an all-time high just before the 2009 financial crisis, but since July 2014 the price of WTI crude (oil from West Texas) has dropped $69.03 to $36.83 per barrel. That’s the cheapest rate since September 2013, which means ‘black gold’ isn’t looking quite so shiny anymore.
But why is it so cheap? Basically, nobody wants to stop producing oil, so around 2 million barrels per day are being pumped from the ground, despite the fact that nobody wants it all and many countries now have huge oil stockpiles. There’s a chance that the price will rebound on its own, but there’s also a chance that the price will fall even further, causing another financial crisis.
Key clever phrase to use: ‘Of course, OPEC (the Organization of Petroleum Exporting Countries) will increase production for as long as the Saudi treasury can weather the resulting budget deficit’.
The Swiss Franc is a safe-haven asset, meaning it’s not as risky as others to invest in. Because of this, demand for the Franc is high, which has been giving the Swiss National Bank (SNB) a real headache. An overvalued currency harms the economy, particularly by making Swiss products unattractive to exporters. Up until January the SNB were trying to battle this problem with a Euro ceiling – buying a significant amount of Euros each month to prevent the domestic tender rising too high against the common currency.
In January the SNB decided that course of action was unsustainable and suddenly stopped buying Euros. With the cap lifted, the Franc was free to shoot up, appreciating 30% against the Euro and 25% against the US Dollar in a day.
Key clever phrase to use: ‘With the Swiss Franc significantly overvalued I’d be surprised if we see the SNB move interest rates out of negative territory for a long time.’
At the beginning of September it was revealed that German carmaker Volkswagen had installed a cheating device which made their cars appear to have significantly lower emissions than actual levels, which turned out to be up to 40 times the permitted range. Unsurprisingly, VW was ordered to recall the 482,000 cars it had sold to date in America. Because this all happened just before the weekend, it wasn’t until Monday that the stock markets reacted – and react they did, with a total of £11 billion quickly wiped from Volkswagen’s share price.
It turned out that 11 million VWs across the world were fitted with the emission test cheat devices. The scandal spread far: several countries banned the sale of diesel VWs or launched investigations into the matter and Leonardo DiCaprio kick-started plans to make a film about the scandal. VW set aside $7.4 billion to cover the cost of fines and litigation, although under US law the carmaker could be fined more than $18 billion – and that’s just in the States.
Key clever phrase to use: ‘The true extent of the damage remains to be seen, especially now Volkswagen has been downgraded to triple B plus by S&P.’
In the middle of December the US Federal Reserve – the American central bank – increased interest rates, making it more attractive for companies to save money rather than spending it, while making it more expensive to borrow money.
Most world economies are still struggling to recover from the last recession (or are still in one), so they can only dream of raising interest rates at the moment. The Fed are basically that one person at the beach who jumps into the sea first. The world is still hoping they will turn around and shout ‘Come on in, it’s lovely’, rather than getting stung by a jellyfish, eaten by a shark, or any other metaphor for bad stuff happening to the US economy.
Key clever phrase to use: ‘The Monetary Policy Committee may have become more hawkish, but have the doves really been silenced in the long term?’
Knowing the key events of 2015 gives you an insight into what’s currently driving the world economy. There’s a good chance that you will be affected by more than one of these events in 2016, whether you are trying to buy a home abroad, or just want to know why petrol has fallen back below the £1 per litre mark. All four issues started in 2015 but they’ll continue well into 2016, so they are bound to be an important topic of conversation for a long time to come.
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