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The Coming Greater Depression of the 2020s
May 1, 2020
The world has long been drifting into a perfect storm of financial, political, socioeconomic, and environmental risks, all of which are now growing even more acute. 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 ten ominous and risky trends.
The first trend concerns deficits and their corollary risks: debts and defaults.
A second factor is the demographic time bomb in advanced economies.
A third issue is the growing risk of deflation.
A fourth (related) factor will be currency debasement.
A fifth issue is the broader digital disruption of the economy.
This points to the sixth major factor: de-globalization.
The backlash against democracy will reinforce this trend. Populist leaders often benefit from economic weakness, mass unemployment, and rising inequality.
This points to an eighth factor: the geostrategic standoff between the US and China.
Worse, this diplomatic breakup will set the stage for a new cold war between the US and its rivals – not just China, but also Russia, Iran, and North Korea.
A final risk that cannot be ignored is environmental disruption, which, as the COVID-19 crisis has shown, can wreak far more economic havoc than a financial crisis.