Is Another Global Financial Crash About To Happen? This Leading Indicator Says Yes

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Image Via Pixabay available under a Creative Commons Attribution-Noncommercial license.

Unless you’re intimately involved in the world of big business or high finance, chances are that you’ve never heard of the Baltic Dry Index. The Baltic Dry Index (BDI) tracks the cost of shipping dry goods around the world. It is often seen as one of the most reliable bellwethers for the global economy. The logic of using the BDI goes like this: If prices fall, it means that trade is dropping. And if trade is decreasing, then the economy is about to take a dive.

As recently as 2013, the BDI looked incredibly strong at a level of 2,330. In August, it had decreased, but was still at a robust 1,222.

But take a look at this chart which shows the current BDI level:

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Yes, the current BDI is 369, a new low. This should concern all of us because the last time it was at this level, we had a global financial meltdown which we have only just begun to fully recover from.

Business Insider notes that this drop in the BDI is often what might be called a “canary in a coal mine,” and is a leading economic indicator which has historically been reliable. As they recently reported:

“There are several other occasions when the index has pointed to a big correction in the global economy. The Baltic Dry Index has existed in its current state since 1985, and it had its first big drop in mid-1986, just under a year before the Black Monday crash hit markets in 1987.

“In 1999 the Baltic Dry slumped to 12-year lows, very soon before the dot-com bubble burst. It slumped again to another massive low in 2001, around the same time the US economy fell into a recession that lasted until 2003.”

Just how concerned should we all be about this new low for the BDI? William White,  who is the former chief economist at the Bank for International Settlements, warns that the future does not look bright. Far from it:

“The situation is worse than it was in 2007. Our macroeconomic ammunition to fight downturns is essentially all used up.

“The only question is whether we are able to look reality in the eye and face what is coming in an orderly fashion, or whether it will be disorderly.”

Hold on tight because we could be in for a very bumpy ride.

Featured Image by Wikipedia available under a Creative Commons license.