- The next recession could be worse than the Great Recession of 2008–09, experts say.
- The Federal Reserve’s seemingly unlimited supply of “free liquidity” has been the main driver of economic expansion.
With the stock market at all-time highs and seemingly endless “free liquidity” being provided by the Fed, the last thing most people can envision right now is a major recession—particularly one that will be the worst since the Great Depression of the 1930s, says an article published in Eurasiareview.
Here are the four key reasons to believe the next recession could be worse than the Great Recession of 2008–09—which would make it the worst since the 1930s.
High asset values
Informed investors know that we are currently in the midst of a “everything bubble,” fueled by large and ongoing central bank money creation. The stock market capitalization–to–GDP ratio, for example, is Warren Buffett’s favourite valuation metric—and the one that best predicts future long-term stock market returns. Stocks are already trading 30% higher than their previous all-time high, set during the 2000 tech bubble peak! For this ratio to revert to the levels it achieved at the stock market low in March 2009, stocks would have to decline by more than 60%.
Weak economic fundamentals
The US economy is no longer as powerful as it once was. That is especially true in the aftermath of the Covid epidemic, but it has been true for the past two decades as well. All of the recent government interventions in the economy, such as taxes, regulations, and other government interventions, have resulted in a weaker and more unstable economy, which will exacerbate the next recession.
Excessive debt levels
Due to previous money creation out of thin air, excessive debt has been a problem in every financial crisis in history, therefore the upcoming one threatens to be one for the record books, given current unusually high debt levels. Deflation will result from debt liquidation and defaults, as we saw during the Great Recession and even more so during the Great Depression.
Limited policy options
The Federal Reserve’s seemingly unlimited supply of “free liquidity” has been the main driver of economic expansion in the twelve years after the Great Recession ended. It’s almost as if money actually grew on trees!
Money created out of thin air, on the other hand, does not generate new commodities and services that raise living standards. If it worked, a country like Zimbabwe would be the richest on the planet. Newly produced money, on the other hand, can flow into financial assets, explaining why their valuation levels are so high.
Conclusion
There is much more that can be said to prove our case, but hopefully the facts provided in this article are sufficient for people to understand the current risks in the economy. While the exact timing of the next recession is unknown, given the potential magnitude, now is the time for people to start preparing for it.
Did you subscribe to our daily newsletter?
It’s Free! Click here to Subscribe!
Source: Eurasia Review
