‘Great Depression’ ahead? IMF sounds dire warning

‘Great Depression’ ahead? IMF sounds dire warning. By William Pesek.

The International Monetary Fund head isn’t known for breathlessness on the world stage. And yet the IMF sounded downright alarmist in its latest Global Financial Stability report, stating that “large challenges loom for the global economy to prevent a second Great Depression.

Even some market bears were taken aback. “Why,” asks Michael Snyder of The Economic Collapse Blog would the IMF use this phrase “in a report that they know the entire world will read?”

Perhaps because, unfortunately, the findings of other referees of global risks – including the Bank for International Settlements – hint at similar dislocations. …

When the next recession hits, as it inevitably will, central banks cannot lower interest rates much — because we are still on emergency low rates from the GFC ten years ago:

As the BIS [Bank of International Settlements, the central bank of central banks] warned on Sept. 23, the global economy faces a potential “relapse” of the “Lehman shock” of 2008. “Things look rather fragile,” says BIS chief economist Claudio Borio. Equally worrying, he adds: “There’s little left in the medicine chest to nurse the patient back to health or care for him in case of a relapse.”

The central banks will then face the same choice they faced in 1930: allow financial nature to take its course and unwind the bubble in a cascade of defaults and bankruptcies, or print and pump to keep businesses alive? The ever increasing debt mountain — building for centuries on a real per capita basis, but particularly after 1982 — is now twice as high as it was in 1929, so presumably if they chose the former course the depression of the 2020s would be maybe twice as deep as that of the 1930s.

However Ben Bernanke apologized a few years ago for the US Fed making the wrong choice in 1932. This time they will choose the inflationary path instead, to whittle away the real value of the debt mountain over many years.

David Evans, money supply

The debt mountain is currently around 350%.