Are we going to have another great depression?

The world might be about to experience the greatest economic crash since if not greater than the great depression in the next two to three years, triggering a collapse of the global economy.

This economic collapse will be aggravated by the massive money printing of the central banks, but it is also consequential of the brutal transition to a new economic the world is heading after suffering several recessions over the last few decades. This will be, of course, much aggravated by the recent pandemic.

There are 4 factor that are taking place in the modern economy that alone could result in recessions:

The first one has to do with the effects of aging population (animated graphic, WEF). Russia, China, Europe and most of the northern hemisphere will start to age very quickly from now on since the population pyramids are quicly inverting due to the low birth rates and aging population. This inversion means that older people will reoresent a greater percentage of the population and, by the othe hand, younger people will be less representative.



History has already shown what happened in Japan (Japan Economic Growth, Trading Economics), where the country has hardly seen economic growth since 1990. This problem currently affects more than half of the world economy, specially developed countries, and could lead to a long-term recession in the coming decades.

The second factor has to do with the end of free trade. Both the US and China are building trade blocs and tariff barriers which in turn are dividing the rest of the world economy. If the two largest economies continue on this path, it will not bode well for the rest of the world.



We're already seing a strong disruption on the supply chains and a consequent rise of the price in commodities which, in turn, generates more inflation and more pressure on the economy. Nevertheless, many countries are coming together, building large trade blocks to protect their distribution channels and gain new market share for their products.

Recently, the world’s largest trading block has reached an agreement after eights years of negotiations. The Regional Comprehensive Economic Partnership (RCEP) comprises 15 countries in Asia Pacific, including South Korea, China, Japan, Australia and New Zealand. The deal excludes the US and Europe and is the first regional multilateral trade agreement signed by China.

The third factor has to do with the accelerated transition to the digital economy that is taking place, which is having and will continue to have far-reaching effects. Remote working is gradually becoming the norm, especially fueled by the pandemic. This means that many people are now leaving the cities, which are overpriced, and are moving to more pleasant rural locations.

Also, online services like content creation are becoming a larger sector of the economy, and with the pace for a digital transformation stepping up greatly where companies start to adopt automated processes and artificial intelligence. In this scenario, the real estate investment that almost everyone considers an incredibly safe investment could itself enter a serious crisis, contributing to the dismemberment of the economy.



During decades the population growth itself has meant that more people needed homes and this has led to the aggravation of the inequalities, and the huge growth seen in the suburban areas of the big cities, leading to sky-high prices in places like New York, London or San Francisco. If we transition to a society where people can work remotely, this could lead to the collapse of the economies of these cities, which are themselves engines of economic growth.

The fourth factor that could cause an economic collapse is the historical debt in which most economies are in. Even before the pandemic, public and private debt have been in all time high, even in comparison with the begining of the 2008 crisis, and the last two years has led to and extensive money printing by many governements, especially the US, the EU and China.



This current situation has created a strong inflationary pressure and could possible result in a deflationary scenery (inflation along side with a recession) that can reduce even more the output of the economy and unbalance the finances of each country and their capacity to sustain their own debt.

Nouriel Roubini, the economist who predicted the 2008 finantial crisis, has named this situation as the "mother of all debts" and the fact that the central banks have no mechanisms left besides money printing, with extremly low interest rates for a decade and the economy still facing extreme problems due to the pandemic and suply-chain problems, we might be soon entering a global economic crash similar of the 1930's.