The last time the world saw a Great Depression was in the 1930s. It was a time of great economic hardship and upheaval, characterized by high unemployment and falling prices (deflation). The reasons for the Great Depression are still debated today, but what's certain is that it had a profound effect on countries around the globe.
Now, some economists are warning that we may be headed for another Great Depression. Would 2023 be the start of the next Great Depression? It's debatable but there are a few signs that economists are concerned about.
What is the great depression anyway?
The Great Depression was a severe global economic downturn that lasted from 1929 to 1939. It was the longest and most devastating depression of the 20th century. The Great Depression began in the United States after a major stock market crash known as the Wall Street Crash of 1929. The crash signaled the beginning of a decade-long worldwide economic depression.
The main causes of the Great Depression were a combination of structural weaknesses and specific events that turned a recession into a depression. These included the unequal distribution of wealth and income, the stock market crash of 1929 and the failure of key industries such as agriculture and banking.
Key signs that we are heading for another Great Depression in 2023
It's been almost a century since the last Great Depression, and many people believe that we are overdue for another one. Here are some key signs that indicate we may be heading for another Great Depression in 2023:
1. Rising Inequality
One of the main causes of the Great Depression was rising inequality. This is when the rich get richer while the poor get poorer. This creates a situation where the majority of people are struggling to make ends meet, while a small minority have more money than they could ever spend.
In the years leading up to the Great Depression, the top 1% of Americans held about 33% of the country's wealth. Today, the top 1% hold about 40% of the country's wealth. This rising inequality is a key sign that we may be heading for another Great Depression.
2. Stock Market Bubble
Another key sign that we may be heading for another Great Depression is a stock market bubble. A stock market bubble is when stocks are artificially inflated and people are investing in them even though they are overvalued.
The stock market crash of 1929 was one of the main causes of the Great Depression and today, there are signs that we may be heading for another stock market crash. For example, the Dow Jones Industrial Average has been rising for years and is now at an all-time high. This could be a sign that the stock market is about to crash.
3. Inflation
The USA's current inflation rate is 8.5%, which is the highest since 2012. According to economists, the average inflation rate in any country is around 3% per year. So, 8.5% is very high and it may be a sign that we are heading for an economic downturn.
It's making the cost of living very high for people on fixed incomes, such as pensioners. It's also making it difficult for businesses to make a profit because their costs are rising but their prices are not. This could lead to businesses shutting down, which would lead to job losses and further economic decline.
4. Increasing unemployment
One of the major reasons why the last Great Depression happened was because of the high unemployment rate. When people are out of work, they don't have any money to spend. This lack of spending leads to businesses shutting down and further job losses.
One of the main reasons for the increasing unemployment is the Covid-19 pandemic. People had to shut down their businesses and stay at home. This led to mass job losses all over the world. The unemployment rate is still high in many countries, which could lead to another Great Depression.
5. Increasing credit card defaults
Another key sign that we may be heading for another Great Depression is increasing credit card defaults. A credit card default is when you don't make your credit card payments for six months or more.
In the last few years, there has been a sharp increase in credit card defaults. This is because many people are struggling to make ends meet and are turning to credit cards to make up the difference. If this trend continues, it could lead to a financial crisis.
6. Decrease in property sales
When people are struggling financially, they are less likely to buy big-ticket items such as houses and cars. This decrease in demand leads to a decrease in prices, which can further hurt the economy.
Another reason could be the increasing unemployment rate. If people are out of work, they may not be able to afford a house or car. This decrease in demand could lead to a decrease in prices and further economic decline.
7. Increasing interest rates
Interest rates play a big role in the economy and they affect everything from home ownership to business investment. When interest rates are low, people are more likely to borrow money and invest in the economy. However, when interest rates are high, people are less likely to borrow money and the economy can slow down.
Currently, interest rates are rising in many countries. This is because central banks are trying to combat inflation due to the high cost of living. However, this could lead to a slowdown in the economy as people are less likely to borrow money and invest.
Conclusion
These are seven warning signs that we may be heading for another Great Depression. Of course, this is not a guarantee that the economy will crash. However, it's important to be aware of the risks so that you can prepare yourself financially. It can be a good idea to have an emergency fund in case you lose your job or your business fails.