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Questions Answered: Is a Depression Coming?

The short answer is maybe. There are so many things that would have to happen for us to have a depression on the scale of the one in 1929. An economic depression is primarily caused by worsening consumer confidence that leads to a decrease in demand, eventually resulting in companies going out of business. When consumers stop buying products and paying for services, companies need to make budget cuts, including cutting workers. A depression would include the following:

  • Substantial increases in unemployment

  • A drop in available credit

  • Diminishing output and productivity

  • Consistent negative GDP growth

  • Bankruptcies

  • Debt defaults on money the government has borrowed

  • Reduced trade and global commerce

  • Falling currency value

  • Low to no inflation, or even deflation

  • Increased savings rate (among those who can save)

That may look a lot like what is happening right now. There are now programs in place to warn us and to correct many of these as it becomes necessary. Inflation is here and we are still purchasing products so it is much more likely we will see a recession, a much less frightening scenario but still one we do not want to live.

A recession is characterized by:

 Excessive individual or business debt. Things like buying houses they can not afford or expanding a business too fast.

 A sudden shock to the economy. Like a pandemic.

 Asset bubbles like a quickly rising stock market or housing costs

 Too much inflation. We've really tried to help you understand that is happening now.

 Too much deflation. Wages and prices on goods go down and unemployment rises.

 Technology change happening too fast. Robots and other mechanization or even zoom conferences eliminating jobs.

A recession can be devastating to the economy but it is shorter lived and not as difficult to pull out of as a depression.

Should you be concerned. Yes. We should be preparing to live as tho there is a depression or recession and if one happens we will be ready. How can we prepare? Watch for that answer tomorrow.

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