5 Signs We’re in a Global Depression

5 Signs We’re in a Global Depression

Britt Gillette

The world is now facing the worst economic environment since the Great Depression, and before the dust settles, the world will also witness the greatest financial crisis in human history.

A debt-based monetary system (such as the one the world runs on today) is much like a Ponzi scheme. It requires ever increasing amounts of debt to avoid implosion – just as a Ponzi scheme implodes once it runs out of new investor cash.

In a system such as ours, once debt reaches its pinnacle, the system starts to collapse. This is because bankruptcies and defaults result in a shrinking currency supply, and that shrinking currency supply makes it more difficult for other borrowers to meet their debt obligations. This, in turn, leads to more defaults/bankruptcies and further shrinking of the currency supply. This vicious cycle continues until it reaches a free market equilibrium, and then growth can begin anew.

This process is known as a deflationary spiral.

The Great Depression was a deflationary spiral spurred on by massive central bank credit creation, and we’ve seen many of the same policy mistakes that led to the Great Depression repeated our day and time – most notably, massive central bank credit creation in the aftermath of both the Great Financial Crisis and the COVID pandemic.

Now, the consequences of those poor policy decisions threaten to plunge the world into a new economic depression.

Below are five signs we’re already in a global depression, and one set to get much worse before it gets better:

1) A Global Trade War

Following the Trump administration’s tariff announcements on April 2nd, the world is now engaged in a trade war in addition the deflationary problems it’s already dealing with.

As reported by CNN:

“President Donald Trump on Wednesday unveiled expansive new tariffs in a major escalation of his trade war, referring to the historic move as a “declaration of economic independence.”

Using national emergency powers, Trump announced 10% tariffs on all imports into the United States, and even higher tariffs on goods from about 60 countries or trading blocs that have a high trade deficit with the US. That includes China and the European Union, which will be levied new duties of 34% and 20%, respectively.”

In response, China’s Finance Ministry said it will impose a 34% tariff on all goods imported from the U.S. starting on April 10. Meanwhile, Reuters reports the European Commission offered a “zero-for-zero” tariff deal to avert a trade war with United States as EU ministers agreed to prioritize negotiations, while striking back with 25% tariffs on some U.S. imports.

In addition to the tariffs themselves, one of the biggest problems businesses now face is uncertainty itself. Regardless of whether the trade war now underway results in higher or lower tariffs, businesses face increased uncertainty when it comes to planning and making decisions on future capital expenditures. This uncertainty is illustrated in the chart below:

And many of these companies make up an outsized portion of the average person’s retirement accounts.

In my January 21st article, “This is the Biggest Speculative Bubble Since 1929…It Will End in Similar Fashion,” I pointed out Apple comprised 7.41% of the S&P 500 index – a larger percentage than any other company. It also sported a price-to-sales ratio of 9.65 and a price-to-earnings ratio of 39.8 – both of which are extreme overvaluations for a mature company such as Apple....

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Prepare for the Fallout

Given the state of the global economy – with the first, second, and third largest economies in the world all in outright contraction – is this the best time for a trade war? No. The uncertainty of the trade war alone, aside from the risk of retaliatory tariffs, is already halting economic activity.

The global economy is broken, and the risk of something big breaking within the depths of the global financial system increases with each passing day. Last week, The Daily Mail reported, “Hedge funds are facing Lehman-style margin calls as a market crash triggered by President Donald Trump’s tariffs raises fears of a looming ‘Black Monday.'”

What happens when the market realizes the Bank of Japan has reached the end of the road? What happens when the world wakes up to the realization the world’s fourth largest economy has either defaulted on its government obligations and/or decided to hyper-inflate its currency? The margin calls will exceed anything the world has ever witnessed.

As over-leveraged hedge funds, family offices, and banks implode, prepare to see mass panic in financial markets as a derivatives complex valued in the quadrillions of dollars collapses.

As credit markets freeze due to counter-party risk, prepare for a bank holiday and a complete shutdown of the entire global economy – one far worse than the pandemic shutdown.

Prepare for the greatest financial crisis the world has ever seen.

And remember this – “the solution” is conveniently waiting in the wings.