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The coming Greater Depression of the 2020s

Gold Greater Depression
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EDITOR'S NOTE: It's pretty clear that the current coronavirus pandemic will have lasting impacts the world over - from vast unemployment, currency debasement and resulting famines resulting in civil disturbance, regional and potentially even another world war. All those cards are on the table. One of the primary concerns surrounds the debasement of the leading fiat currencies of the world, namely that of the US Dollar. One of the very few, if any, real protective measures is gold - which explains the massive ongoing flight into gold, the decoupling of the physical market from the fake and contrived COMEX paper market and the ever increasing spreads in the spot pricing.  In short - get ready for some very interesting times in the gold market, which brings opportunity to the early adopters.


10 trends that will make this a decade of despair for the global economy

NEW YORK (Project Syndicate) — After the 2007-09 financial crisis, the imbalances and risks pervading the global economy were exacerbated by policy mistakes. So, rather than address the structural problems that the financial collapse and ensuing recession revealed, governments mostly kicked the can down the road, creating major downside risks that made another crisis inevitable.

And now that it has arrived, the risks are growing even more acute. Unfortunately, even if the Greater Recession leads to a lackluster U-shaped recovery this year, an L-shaped “Greater Depression” will follow later in this decade, owing to 10 ominous and risky trends.

The first trend concerns deficits and their corollary risks: debts and defaults.

The policy response to the COVID-19 crisis entails a massive increase in fiscal deficits — on the order of 10% of GDP or more — at a time when public debt levels in many countries were already high, if not unsustainable.

Populist leaders often benefit from economic weakness, mass unemployment, and rising inequality. Under conditions of heightened economic insecurity, there will be a strong impulse to scapegoat foreigners for the crisis.

Worse, the loss of income for many households and firms means that private-sector debt levels will become unsustainable, too, potentially leading to mass defaults and bankruptcies. Together with soaring levels of public debt, this all but ensures a more anemic recovery than the one that followed the Great Recession a decade ago.

A second factor is the demographic time bomb in advanced economies.

The coronavirus crisis shows that much more public spending must be allocated to health systems, and that universal health care and other relevant public goods are necessities, not luxuries. Yet, because most developed countries have aging societies, funding such outlays in the future will make the implicit debts from today’s unfunded health-care and social-security systems even larger.

A third issue is the growing risk of deflation.

In addition to causing a deep recession, the crisis is also creating a massive slack in goods (unused machines and capacity) and labor markets (mass unemployment), as well as driving a price collapse in commodities such as oil and industrial metals. That makes debt deflation likely, increasing the risk of insolvency.

A fourth (related) factor will be currency debasement.

As central banks try to fight deflation and head off the risk of surging interest rates (following from the massive debt build-up), monetary policies will become even more unconventional and far-reaching. In the short run, governments will need to run monetized fiscal deficits to avoid depression and deflation. Yet, over time, the permanent negative supply shocks from accelerated de-globalization and renewed protectionism will make stagflation all but inevitable.


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All articles are provided as a third party analysis and do not necessarily reflect the explicit views of GSI Exchange and should not be construed as financial advice.

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