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The First 'Global Inflationary Depression' Is Very Possible

Bruce Wilds profile picture
Bruce Wilds


  • The money flowing from the central banks and governments has created the so-called "pent-up demand" and predictions of 5% or more GDP growth next year. But capacity utilization is down even while trillions of new dollars pour into the system.
  • Inflation expectations are continuing to grow, and the law of diminishing returns is wreaking havoc with the efforts of central banks to control the economy. We are now seeing that large sectors of the economy are broken.
  • Inflation brings with it higher interest rates, which generally hit many sectors of the economy. It puts a great deal of stress on all parts of the economy, including the government deficits that have exploded since the 2008 financial crisis.

It is possible that we might soon be witness to the first global inflationary depression. This is not a mix of words we normally see placed together. Several factors make this scenario possible. First, we seldom have depressions, but instead tend to roll through mild recessions; however, what we face may be far more severe. Second, in the past, times of falling economic activity have generally been deflationary as defaults rise, but this time not so much. Third, but not least, in the past, many events tended to be regional rather than global, but over the years, as economies have become more interconnected, the resulting codependency presents an increased possibility of problems spreading across the world.

Currently, the biggest source of demand comes from governments and not working people earning a living or businesses growing. If you remove all the money being spent on Covid-19 vaccinations, tests, and a slew of inefficient spending that has created little long-term benefits to the economy, the GDP would fall like a stone. The money flowing from the central banks and governments has created the so-called "pent-up demand" we have been hearing about and predictions of 5% or more GDP growth next year. In truth, capacity utilization is down even while trillions of new dollars pour into the system. This is the logic behind saying a depression may be in the wings.

China's Economy Shows Signs Of Slowing

Recently, several articles have appeared indicating the big boost China experienced post Covid-19 has come to an end. China's economy was the first to recover from the Covid-19 collapse due to trillions of credit pumped into the economy at home, as well as Americans rushing out to buy imported goods using stimulus money. With China again showing signs of economic weakness, the story that it takes more

This article was written by

Bruce Wilds profile picture
Bruce Wilds is an independent businessman and licensed general contractor that owns real estate in the Midwest, his holdings include apartments, retail space, and office complexes. He has invested in several businesses and traded both commodities and stocks for several decades. Wilds considers himself well anchored to reality and the economy as he maintains, designs, and leases buildings. His work has made him keenly aware of rapidly changing lifestyles and trends in new business formation. The not for profit blog he maintains incorporates many of the experiences and knowledge garnered from his hands-on business style, extensive travels, and studies of history, politics and economics. Bruce Wilds is also the author of the book "Advancing Time", the book focuses on how the ever quickening pace of change impacts today’s society and the massive challenges it creates. He feels that it is crucial we understand that we are living in a unique era the likes never before experienced by past generations. History viewed in the framework of mans time on earth forms the crux of this somewhat radical perspective. Journeys from the beginning of man to our current state helps us make sense of our fast changing chaotic world. Advancing Time illuminates the responsibilities society faces. Used as a tool Wilds wrote it with the hope it would help clarifies the choices before mankind, guiding and giving hope to those who want to have a positive impact.

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Comments (16)

Reading this in June 2022 it seems much of this is correct and could be republished today without adjusting anything.

The can has been kicked down the road for 50 years or more and now it appears that the can is so worn out it will no longer accept another kick.

Thank you, a year late, for this article.
mysonchino profile picture
I doubt it.
Inflation will be tamed by higher taxes rather than higher interest rates. It is a new scenario but not one we haven’t experienced before. The problem is, we may never get much growth or inflation if the dollar remains overvalued like it is today. Much of the stimulus will just flow overseas.
@dougkitchen Democrats made a big mistake in 2013 by neglecting the dollar. It led to 4 years of stagnation and the loss of the Senate and Presidency. It looks today like they’re dumb enough to do it again.
Where do you hide as the 1970’s return.
Tips are about the only place that comes to mind. However the value of the USD declining continues to erode the wisdom of that!
Depression is not our friend.
panzer profile picture
This is a great article, and if its strongly thesis comes into being, we are done for.
The article keeps refering to "the government" employment growth. There are several levels of "government" i.e, fed, state, county, municipal. To which are you refering?
mpschaff profile picture
@Christopher Redwood - It seemed pretty clear to me the author was referring to federal employment growth, since that is the level that can "underwrite" its growth with its own monetary policy (debt now, taxes later). Local governments I've observed and read about seem (by and large) to be in austerity mode. States are also dependent on federal largesse as well. For example, California has one of the highest state income tax levels in the nation, but it still depends significantly on federal funding to feed the beast. I may be wrong, but that was my interpretation.
@mpschaff ..and that was my initial thought also but not wanting to make assumptions, I checked the numbers and the federal job growth (actual federal employees) is falling. The massive job growth we see is actually in contractor support positions not federal employees...a big difference. Sometimes contractor support personnel outnumber employees as much as 3:1 depending on the agency.
Bruce Wilds profile picture
@Christopher Redwood wrote; " Sometimes contractor support personnel outnumber employees as much as 3:1 depending on the agency."

The government masks the numbers of people on its payroll in many ways. The point here is, who is really paying these people when all is said and done.
Regarding: “inflation is theft moving money from people to government coffers.”

I understand that it destroys the value of peoples’ money - but I don’t get how it moves money to the government. Inflation tends to destabilize and put governments under significant pressure eg Wiemar Germany or Argentina.
@Diego Rodriguez de Silva y Velazquez Government bonds have fixed, nominal coupons. Inflation makes the debt owed by those governments to private borrowers (bond holders) worth less in real terms. Governments already got the money when they sold the bonds. With inflation, they owe less of it back, in both interest and principal, in constant-currency terms. In effect, they're allowed to keep the difference at the bondholders' expense.
@Diego Rodriguez de Silva y Velazquez
In addition to the effect noted by DCO1982, as wages (eventually) increase due to inflation workers get pushed into higher marginal tax rate brackets (in nations that have progressive income tax rates). This effectively reduces the wage earners purchasing power and increases the proportion of earnings taken by the government.
@DCO1982 so then inflation is also good for the vast majority of Americans who have been left behind the last 30 years? Their debt gets deflated, but they have little savings to lose. Of your mortgage is higher than your savings, deflation is your friend
bear_mkt profile picture
Provocative article with good insights that deserve to be incorporated in a portfolio. Like the possibility of a tsunami off Oregon or a large earthquake under California, the first question always is timing. Not whether but when. And sometimes, that can be a long time out. The second question is, where will the damage hit?

I've always had difficulties hedging against inflation, since the stagflation era. This time around, I've added some commodities and, to date, my existing Ag has done nicely.

When I've looked under the hood, the cleverly named ETFs I've looked at are not the panacea that their marketing materials promise, suffering from flaws in practice.

Just my opinion.

But hey, let’s just keep on printing
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