The case for a second Great Depression

The parallels between today and the 1920s are manifold:

1. We see weak growth in most of the world, with the US as the sole – and stuttering – motor, with even data there patchy recently. With, China now slowing and Japan and Europe weak, there is no leader to pick up the slack if the US falters.
2. Commodity prices have collapsed globally due to massive overproduction across the spectrum. This leads to weakness in what we call the economic periphery and gives a very weak backdrop.
3. Although we no longer rely on the Gold Standard we still have a global monetary system that ensures the importing of US monetary policy by a significant proportion of countries and a reliance globally on the US dollar as a funding currency.
4. The US is stepping back as an economic leader and China is not yet willing able to step up in its place, so there is a lack of coordination allowing issues to fall through the cracks.

Though not our base case, there seems a real risk that the global economy could take another tumble.

See Keith Wade set out his case against a second Great depression