Mark My Words! The Global Economy Is Headed Into A Depression!!
Mark My Words! The Global Economy Is Headed Into A Depression!!
Yes! You read that right! I’m sticking my neck out and saying it aloud- The Global Economy Is Headed Into A Depression. Decades of easy money are ending (or ended already), with the “higher for longer” mantra of Central Banks worldwide marking a prolonged period of hugher interest rates.
As the cost of capital rises and stays “elevated” for years to come, borrowers would find it expensive to borrow anew, or for that matter, service their existing debt, leading to bankruptcies and an era of a low growth, high inflation world.
When credit becomes costly, incentives to expand and consequently, actualize growth diminish. Coupled with “sticky” inflation, we’re indeed headed for a Deflationary as well as Stagflationary spiral, from which there would be no “escape” hatch in the foreseeable future.
Mind you, it’s not that higher interest rates alone “kill” the Global Economy. As the United States has shown, the economy can “live with” higher rates, and yet, grow, due to “pent up” demand and surplus savings. However, it is a matter of time before this demand diminishes and savings deplete, thereby “crushing” consumption.
Next, typically, monetary policy acts with a “lag”, meaning it takes a year or so before the “impact” of higher rates feeds into the wider economy. Given that we’ve been living with higher rates for more than a year now, we’re beginning to feel the “heat” as can be seen by the Chinese implosion and Eurozone contraction. Heck, even Germany 🇩🇪 has entered recessionary territory, with the UK 🇬🇧 following suit.
Now, if the higher rates persist for another year or so, the Global Economy is sure to be depressed for some time to come. And, if the Ukrainian war drags on, the already persistent “supply shocks” will continue to reverbate, piling on more “pain” on all of us. Already, Russian oil and gas is off the market for the West and its allies. While Europe has avoided a “winter from hell” for now, the same can’t be said of the future. Add Wheat and grains and the “recipe for disaster” lurks everywhere.
Ask the experts and they would point to the “risk” factor as well. Essentially, economic growth is a “bet on the future” and when risks multiply, all bets are off. With a “frazzled” pandemic haunted world, and Putin adding to the misery, there are enough “unknowns” out there. Add Artificial Intelligence and the risk of conflict in the South China sea and the “cup of woes” brimmeth.
While all this might sound as “gloom and doom”, that too on a weekend, remember, I’m in August company here as none other than Donald Trump has been talking about a New Great Depression. Not that many take him seriously outside of the MAGA “filter bubble” universe. So, mebbe yes, I would love to be proved wrong. Yet, I would stick my neck out here and call it for what is woth, namely The Looming Depression! Ahem!