Global Recession Looms: Will the Great Depression Repeat?

• 2024-10-08
• News

Recently, Musk has once again sounded the alarm.

He stated on social media that if the Federal Reserve continues to raise interest rates, the economy, which is already in a "mild recession," will shift into a "severe recession."

The reason Musk made this judgment is because, as a business leader with several cutting-edge technology companies around the world, he has access to a wealth of real-time global economic data.

Compared to the lagging data of the Federal Reserve, Musk believes that the data in his hands is the "real-time scene" that reflects the economic situation, so he has a better understanding of the true state of the global economy at present.

In other words, the real-time data from these companies indicate that the global economic recession is already underway and could potentially worsen.

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The dual crisis facing the global economy

In fact, as one of the top entrepreneurs in the world, Musk has always been very dissatisfied with the monetary policy of the Federal Reserve.

It has long been a common occurrence for him to continuously "fire" on social media.

In order to curb the high domestic inflationary pressures, the Federal Reserve has been aggressively raising interest rates since last March.On May 3rd, just passed, the Federal Reserve announced another interest rate hike of 25 basis points, once again triggering market concerns about a further economic downturn.

The key issue at hand is that a global economic recession has already quietly arrived. Since the Federal Reserve announced the rate hike, global economic development has slowed down. The focus of everyone's attention is whether this recession will continue to worsen and how significant the impact will be.

According to the World Bank's forecast, global economic growth will slow down to 1.7% in 2023, which is the lowest growth rate in nearly 30 years.

Many global financial institutions hold a pessimistic attitude towards the upcoming economic situation, with predicted growth data far below the 3% growth in 2022. A global economic recession has become inevitable.

In addition, since March of this year, the United States has consecutively seen the collapse of three regional banks.

During the just-ended May Day holiday, the 14th-ranked First Republic Bank in the United States suddenly collapsed and was taken over by the Federal Deposit Insurance Corporation (FDIC), and then sold to JPMorgan Chase.

Whether the U.S. banking industry will continue to experience explosions and whether it will trigger a global financial crisis are still unknowns.

Even the Federal Reserve itself is already heavily in debt. Even if it wants to underpin the U.S. banking industry, it is powerless.

No one can predict whether the banking industry will continue to explode and whether it will trigger a widespread collapse of confidence, leading to a run crisis.

Therefore, Musk's viewpoint is not unreasonable. The global economic recession has arrived, and the dark clouds of a financial crisis have gathered. No one can predict whether future problems will become more severe.Moreover, the current situation is particularly similar to two economic crises that have occurred in history, which inevitably leads people to associate them and worry about a similar crisis happening again.

One of these crises was the "Volcker Moment" of the 1980s, and the other was the infamous "Great Depression" in the United States.

The Federal Reserve's aggressive interest rate hikes led to the "Volcker Moment"

In 1980, Paul Volcker, then Chairman of the Federal Reserve, chose to continuously raise interest rates aggressively to ease inflationary pressures, leading to an unprecedented economic recession, known as the "Volcker Moment."

Now, high inflationary pressures have re-emerged in the United States, and the Federal Reserve has once again chosen to aggressively raise interest rates. Moreover, the magnitude of this rate hike is much larger than that of 1980, directly leading to a global economic recession.

In the second half of last year, almost all large American companies were doing one thing, which was laying off employees.

Twitter, acquired by Musk, directly fired half of its staff, Amazon laid off 18,000 people, Google laid off 12,000 people, and Meta and Microsoft each laid off 10,000 people.

Why are high-tech companies collectively laying off employees?

It is nothing more than the slowdown in company performance growth and pessimism about future economic development.

The arrival of the "layoff wave" will inevitably lead to an increase in unemployment rates and a further decline in consumer confidence, triggering a chain reaction.The United States, in an effort to curb inflation and high prices, has no choice but to opt for consecutive interest rate hikes.

However, these hikes are likely to lead to a recession in the domestic economy, with a heavy debt burden and weak income growth, the future economic prospects are naturally a cause for concern.

Will the "Great Depression" in the United States happen again?

The Great Depression that occurred in 1929 is one of the most famous economic crises in the history of the global economy.

At that time, the unemployment rate in the United States reached as high as 25%, the Wall Street stock market collapsed across the board, the lower strata completely lost their ability to consume, the middle class lost confidence in consumption, and the wealthy class saw a severe shrinkage of their wealth.

The economy entered a vicious cycle of spiral contraction and decline, the entire society fell into a state of stagnation, and people gradually moved from disappointment to despair.

What we are experiencing now is actually a bit like a microcosm of the eve of the Great Depression more than 100 years ago.

The past three years of the COVID-19 pandemic correspond to the Spanish flu, and the Russia-Ukraine conflict corresponds to the world war.

This has led to serious disruptions in the operation of industrial and supply chains, a continuous downturn in global trade and stock markets, the beginning of the "deglobalization process," and high inflationary pressures in developed countries.

Prior to this, people had been in a rapidly changing high-speed development, and everyone overlooked a question:A slow and steady economic uptrend is the norm, while the so-called ultra-high-speed development is a rare occurrence that cannot be sought after. Moreover, issues like pandemics and wars could suddenly appear around us, potentially leading to a significant economic recession.

Nowadays, with the U.S. banking sector experiencing successive failures, whether this will trigger a global financial crisis is unpredictable.

The wave of layoffs has already begun, and whether businesses will close in large numbers, and if the economic downturn will further intensify, remains uncertain.

It is difficult to say whether a global depression will recur, but what is certain is that the situation is not optimistic, and life in the future will be harder than in the past.

In conclusion:

The Federal Reserve's aggressive interest rate hikes are in a dilemma.

If they do not raise interest rates, domestic inflation pressures will soar, prices will skyrocket, and a vicious cycle will ensue;

If they raise interest rates, the U.S. economy will fall into further recession, affecting the entire world.

However, fortunately, our country follows a path of "independence and self-reliance," and the process of de-dollarization has been steadily advancing. Even if the U.S. repeats the "Volcker moment," the impact on us will be relatively limited.