Common Sense Living

Great Depression 2.0 – Is It Near?

Consider these facts, while the economy is still good:

  • The bull run in the stock market is now the longest on record in U.S. history
  • The stock market is at the 2nd highest valuation, relative to earnings, since 1870.  S&P 500 Price-to-Earnings Ratio
  • The bond market just pulled back from the highest levels, and interest rates came up from the lowest levels, since the year 1790 (the most extreme in U.S. history)

  • When the housing bubble blew up in 2008, there were $10.1 Trillion of mortgages in the United States.  Today, since the government didn’t let the market collapse, there are over $15 Trillion of mortgage debt outstanding, making that bubble the largest ever.  House prices have recently begun going down in many areas of the country.
  • It is estimated there are over $1 QUADRILLION (1 thousand trillion dollars) of derivatives in existence.  These are unregulated financial weapons of mass destruction, about 1/4 of which are held by all the largest U.S. banks, in highly leveraged deals.  (Nothing has changed to clean up these risky gambling bets!)
  • There are $1.5 Trillion of student loans outstanding.  A significant portion is nearing default.  How do you repossess knowledge when the loans don’t get paid back?
  • China, which has funded the U.S. deficits, may stop buying our government bonds.  This is why interest rates spiked considerably today, sending the market into a tizzy.
  • Currencies around the world are crashing.  Indian Rupee Falls to All Time Low.  Argentina, Italy, Greece, Spain, Turkey, Russia, China, Portugal, Venezuela, Iran, and many other countries have currencies which are in deep trouble.
  • Corporate debt in the United States is the highest ever.  The low interest rates we had for nearly a decade created a borrowing-fest that corporate finance officers couldn’t resist getting drunk on.

The Everything Bubble:

We are in the “EVERYTHING BUBBLE”.  It’s not a tech bubble, a stock bubble, a credit bubble, or a housing bubble.  EVERYTHING is in a BUBBLE!  And when it pops, the greatest collapse of our lifetime will be upon us.

 We will not see a deflationary depression as happened in the 1930s.  Instead, we will see an inflationary depression, where you have cash, but it becomes worthless, like Germany in the 1920s, or Venezuela today.  The Federal Reserve will turn on the printing presses, and the increasing supply of money will make the value of the dollar collapse!

You Cannot Believe The “Experts”:

Consider these quotes from just as the Great Depression began:

This crash is not going to have much effect on business.”
– Arthur Reynolds, Chairman of Continental Illinois Bank of Chicago, October 24, 1929

“There will be no repetition of the break of yesterday… I have no fear of another comparable decline.”
– Arthur W. Loasby (President of the Equitable Trust Company), quoted in The New York Times, Friday, October 25, 1929

“There may be a recession in stock prices, but not anything in the nature of a crash.”
– Irving Fisher, leading U.S. economist, New York Times, Sept. 5, 1929

“This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”
– R. W. McNeal, market analyst, as quoted in the New York Herald Tribune, October 30, 1929

“Some pretty intelligent people are now buying stocks… Unless we are to have a panic — which no one seriously believes, stocks have hit bottom.”
– R. W. McNeal, financial analyst in October 1929

All these comments were made just prior to the market dropping another 80%, and the economy dipping into the greatest depression in modern history!

Warren Buffett’s Advice:

“Be greedy when others are fearful.  Be fearful when others are greedy.”

Final Thought:

We are in the 9th inning, and perhaps 4th overtime, of this economic cycle.  All markets are tightly wound springs, ready to snap back at the slightest hint of a downturn.

The Federal Reserve is rapidly and aggressively raising interest rates.  Another old saying is “Don’t fight the Fed”.

When the debt, stock, housing, and derivatives markets collapse together, many trillions of dollars in value will be wiped out of existence.  It will make the “great recession” seem mild.

This will NOT end well!


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