When we think of the stock market, we think of it as some sort of gold standard indicator. When the stock prices are high, the economy is good. When the stock prices are down, the economy is bad. However, when following the economic collapse caused by the pandemic, it becomes clear that the patterns just don’t line up.
The reality is, the stock market crash has already begun before the health crisis, and the ripple effects of lockdown orders and shuttered businesses only emphasized an already bursting bubble. Buybacks of corporate stock, investor overconfidence, and just plain American greed had all gotten to the system first.
In this video, we’re going to discuss the five major indicators of the next Great Depression, as well as how each of these has shown itself in the US and global economies.
Over the past weeks and months, we have watched wild fluctuations in the stock market. While amateurs and experts alike have written at length about what this means economically, the most secure conclusion we can draw is just that something is wrong, but not what that something is.
Paul Kaplan, the Director of Morningstar Research, a popular investment research firm, said that the New Great Depression could not be treated the same as the housing bubble of 2007-2009 either. In fact, he argued, their structure was mirrored–while the 2008 crisis was a financial crisis which in turn caused an economic plunge, what is happening now is an economic plunge caused by a pandemic that is creating a financial crisis.
With such an unfamiliar set-up for an economic collapse, many experts have found themselves completely in uncharted waters. The health crisis has caused unprecedented damage to the global economy, and economists have little historical basis with which to compare. Typically, prior events and the handlings of them would serve as a huge advantage when learning how to deal with a new crisis. Now, we’re flying blind.
According to assistant professor of economics at Trinity College, Ibrahim Shikaki, recessions are often categorized by two quarters in a row of negative economic growth, using the gross domestic product, or GDP, as a measure. Depressions, on the other hand, are more severe. They are typically marked by little to no growth for more than a couple of years, as well as a spike in the unemployment rate, increased inequality across the globe, a wiping-out of production, and a drying-up of demand.
During the Great Depression, GDP contracted by 8.5 percent in 1930, dropped another 6.4 percent in 1931, and bottomed out at a 12.9 percent shrinkage in 1932.
During the coming quarter of this year, Federal Reserve Bank of St. Louis President, James Bullard, anticipates the devastation of the pandemic to cause a 50 percent drop in GDP. Recall that, back in the time of the Great Depression, the United States GDP took what now looks like a leisurely tumble of 27.8 percent over the course of 3 years. Bullard’s forecast over the next 3 months is nearly double that downturn.
Some predictions aren’t nearly so extreme. Goldman Sachs, for example, pegged the number at 24 percent. While less drastic than other estimates, this would still represent by far the biggest GDP drop in a single quarter, ever.
Even JP Morgan, the most optimistic of the bunch, estimated a decline of 14 percent next quarter.
Morgan Stanley straddled the middle ground, putting out a statistic of 30.1 percent. If they are correct, that would mark the worst quarterly performance of GDP in the past three-quarters of a century.
Therefore, when it comes to this indicator, it seems the conclusion is obvious–the US, and thus the entire global community, is headed for a New Great Depression.
The second measure–a spike in the unemployment rate–means that we will see an unprecedented spike in the number of people who experience job losses.
As the pandemic shows no signs of slowing and government responses fail to adequately address the economic collapse, devastating data shows the cold, hard reality that citizens worldwide will be forced to accept as the new normal. As a result of the present, and worsening, financial crisis, the World Bank estimates that up to 60 million people across the globe could be pushed into “extreme poverty” as a result of job losses and financial insecurity.
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