The Great Depression: Ominous Signs It's Happening Again!

Could we be on the path towards another Great Depression? Right now, signs in our economy might be pointing - to yes. Despite what you hear about our strong economy and robust financial systems, there are echoes of the 1920s that can't be ignored.

Introduction: The Great Depression of 1929

Back in 1929, the Great Depression began with massive unemployment, a plummeting stock market, and a severe downturn in industrial production that impacted lives globally for over a decade.

Now if you listen to the talking heads on mainstream media they'll say that this idea of a modern day depression is absolutely crazy. They’ll say we have the strongest economy in the world, our dollar is the world’s reserve currency, and we have the powerful Federal Reserve which prevents such things from happening again. But is that confidence misplaced?

In this blog post, I'll break it down with 9 warning indicators you can’t ignore, on why the idea of heading into a new Great Depression isn't as far-fetched as it sounds. We'll look at the ominous warning signs and alarming similarities between our current economic climate and the conditions that led to the worst financial crisis in history. 

But before we dive in, if you don't know me, I'm Noel Lorenzana. As a CPA, not an economist, I still have a strong sense of the economy and the markets. Despite a strong stock market and claims of a robust economy, my instincts, coupled with observations of business and economic events, tell me that something isn't quite right.

Warning Indicator #1 - The Silent Recession

So, let's talk about something a bit unspoken that’s going on in our economy. It’s what some refer to as the "Silent Recession." Now, this isn't the kind of downturn that makes headlines with dramatic stock crashes or massive layoffs hitting everyone at once. No, this one's a bit more under the radar, but for many folks, it's painfully real.

You see, while the overall economy might seem okay on the surface, there's a growing divide that's hard to ignore. On one side, we've got folks who are really feeling the pinch. I'm talking about people dealing with job losses, skyrocketing living costs, and diving deep into debt. It's especially rough for those in sectors like tech where layoffs are becoming quite common, or in the trucking and housing-related industries where the struggle is just as real.

Then, on the flip side, there's the other crowd— let’s call them the 'haves'. These folks are riding high with increasing salaries, steady stock market gains, and benefiting from ever increasing real estate prices.

It's like they're living in a different world.

This split is creating a tale of two classes, and it's not just an economic divide—it's a reality for many. It's like some of us are stuck in a recession that nobody's talking about, while others are living as if everything's just fine, surrounded by abundance and prosperity.

Let me know what you guys think…

Warning Indicator #2 - Inflation

I think there's a huge disconnect between the economic indicators reported by the media, and what’s actually happening in the real world. Allow me to explain. When the media reports about inflation, Typically, they report on the headline CPI, which is the Core CPI. This excludes food and energy. It’s currently running at about 4%, but if you add back food and energy, according to the Bureau of Labor Statistics, it goes up moderately. Let’s be real though. Do you believe those numbers? Personally, I have my doubts..

Anyone going to the grocery store knows prices have gone way up at least 20 to 25% in the past year or so. In this homeowners association I work with, they received painting proposals, which were 70% more than the previous year. Insurance rates have also shot up considerably, along with many other things like rent and housing costs. I can go on and on.

These high prices are hitting everyday consumers, hard.

Warning Indicator #3 - Layoffs

Let’s talk about layoffs or unemployment. The Bureau of Labor Statistics tells us the unemployment rate is 3.8%, which on the surface is a fantastic number. It means that out of every 100 people who are employable and want to work, approximately 4 can’t find work.

I don’t know about you, but I think this number is very optimistic.

Major companies are laying off employees left and right, according to many reports.

You have Tesla laying off 10% of its workforce, Google just announced more layoffs with plans to relocate jobs overseas, and many other tech companies are doing the same thing. In the housing sector, real estate agents, mortgage brokers, and others tied to the industry are facing serious hardships. The trucking industry, which is often used as a barometer for the economy has been struggling for several years as well.

I understand that each sector has its unique issues, but overall, I'm struggling to reconcile the realities I’m seeing with my own eyes, with the positive economic news about GDP growth, employment, and strong industrial production that we keep hearing about on the news.

Warning Indicator #4 - Ballooning Government Debt

America is now facing a staggering $34 trillion in federal debt.

Right now, the U.S. national debt is increasing by about $1 trillion dollars every 100 days. Can you imagine that? 1 trillion dollars every hundred days. That’s roughly $3.6 trillion per year. And that’s just the interest payments!

That's such an obscene, and unheard of amount… It seems like there's no way our government can dig their way out of this huge debt hole.

Our government is spending, deficit spending, by the millions and billions of dollars. They've been spending and printing money at an unsustainable rate. They've given money and support of Foreign Affairs, and Foreign Wars that in my opinion we have no business being involved with. We've got our own problems at home that need taken care of first.

We're now seeing the real-world impact of the huge federal debt load. The U.S. government is borrowing more money than investors are willing to lend, so it has to pay higher interest rates to attract lenders. This increase in rates makes loans more expensive for everyone else, including consumers and businesses.

History tells us there are only two ways out of this. Hyperinflation and austerity. Which one do you think they’ll choose?

Warning Indicator #5 - The US Dollar and Gold

There are strong indications telling us that the strong US dollar will no longer keep its status as the world’s reserve currency for much longer. It's being devalued along with other currencies and especially against gold.

Look at this chart on the gold price. It’s pushing all time highs that have never been seen before. History tells us this is a MAJOR warning signal. Possibly signaling trouble for the US economy. It’s also not good for the US dollar and other fiat currencies.

If you didn’t know, the U.S. dollar is what is called - a fiat currency. Fiat means ‘by agreement’. Essentially, the US dollar is backed only by the government's promise to pay.

Since the 1970s, the U.S. dollar has enjoyed its status as the world's main reserve currency, giving the U.S. a big advantage in the global markets. But times are changing. More countries are looking to step away from the dollar, and we’re seeing a gold rush among nations like China and foreign central banks, which suggests they might be gearing up for a future where the dollar is no longer the dominant currency.

Overall, while the dollar still holds a lot of power, its future as the top global currency isn't as clear-cut as it once was. Other countries are increasingly looking for other options, and possibly turning to gold as a safer alternative.

If you didn’t know, Gold is historically considered a form of sound money.

Warning Indicator #6 - High Stock Valuations

Right now, stock prices are sky-high, kind of like they were back in the 1920s just before the big crash. It's great to see your investments grow, but these high numbers can be a bit worrisome. Why? Because last time stocks were this high, it preceded the 1929 crash and kicked off the Great Depression.

Let's paint a picture here—what if, all of a sudden, your stock portfolio was worth half of what it is today? That could change a lot of things, right? Maybe that vacation you were planning becomes a staycation, or you start thinking twice about big purchases, or even scaling back on plans like college for your kids. Maybe even delaying retirement.

I’ve been through a few market crashes myself, and trust me, they’re not fun. Your account can vanish right before your eyes, and you feel like you’re dying. One thing I’ve picked up along the way is to avoid trading on margin. It’s tempting to borrow to boost your buying power, but if things go south, your losses can be massive.

Keep an eye on these sky high stock prices, and stay alert. You can’t stop a crash from happening, but we can definitely be prepared.

Warning Indicator #7 - Real Estate Bubble

You may not be aware, but in the 1920s, there was a frenzied speculation in the real estate market, kind of like we’re seeing today. It was especially notable in Florida, where their real estate bubble popped in 1925. This crash was preceded by excessive speculation and development, along with unrealistic rises in property values. Does this sound familiar?

The situation was made worse when a major hurricane hit Miami in 1926, further depressing the real estate market and contributing to the financial losses that would eventually feed into the broader economic issues… ultimately leading to the Great Depression.

Today, we’re seeing those sky-high real estate prices once again, coupled with high mortgage interest rates. All of this, making it very difficult for first-time home buyers. Or any home buyer for that matter. If you wanted to make a sideways move in your same neighborhood. With higher mortgage rates, you would find yourself paying thousands more per month for the exact same place.

Back then, when the bubble burst in the mid-1920s, it was a sneak peek of the crash that would hit Wall Street just a few years later. So, if we’re walking down a similar path with these crazy high real estate prices and buyers stretching their limits, we've got to wonder if we’re setting up for another big financial fall.

What’s key here is understanding how intertwined the real estate market is with the broader economy. A sharp downturn in the housing market can ripple out, impacting jobs, consumer spending, and even the stock market.

Warning Indicator #8 - Are Banks Headed for Trouble?

Is your money actually safe in the bank? We all hope so, but recent events might raise some eyebrows. Just last year, we witnessed troubles with Silicon Valley Bank, a financial institution that primarily served tech companies and startups. It faced a swift collapse due to a sudden bank run when depositors, worried about the bank's solvency, and rushed to withdraw their money. This panic was triggered by significant losses on bond investments and rising interest rates.

This was followed closely by the fall of Signature Bank, which catered to the tech and cryptocurrency sectors. Regulators quickly shut it down to prevent a wider banking crisis, marking it the third largest banking failure in U.S. history at that time.

More recently, we’ve seen soaring office vacancies in commercial properties, a direct result of the pandemic and the shift to working from home. Companies are struggling to bring employees back to the offices, leading to high vacancies and underutilized spaces.

So, who bears the financial brunt here—the commercial building owners or the banks, or maybe both? Remember, these banks have loaned out millions, even billions, to finance these massive office buildings. If these spaces aren't used, they're sold at drastically reduced prices, or worse, returned to the banks due to unpaid commercial loans.

So, amidst these modern banking crises and shaky commercial real estate loans, it's important to consider how these conditions mirror past troubles. In the 1920s for example, excessive lending, lack of regulation, and inadequate crisis management by the Federal Reserve led to bank failures and ultimately, the Great Depression. Could we be seeing history start to repeat itself? Hmm…

Let me ask you this. How secure do you feel about your money in the bank, especially with the possibility of bank failures?

Warning Indicator #9 - World War 3

Let's take a hard look at what's happening around the world right now—it's pretty intense. Over in Eastern Europe, the situation between Ukraine and Russia is heating up, and there’s a real chance it could pull in countries like Poland, and even NATO into the mix. It’s a powder keg that could spark something much bigger.

Switching over to the Middle East, things are equally unstable. Israel has been hit by terrorist attacks, leading to severe retaliatory strikes on Gaza, devastating the Palestinian people. And Iran? They’re firing hundreds of rockets and drones at Israel, which is pretty much an act of war. In response, Israel has fired rockets back at Iran. I’m afraid that this won’t end well.

Then there’s Asia. China’s muscle-flexing with Taiwan and its tension with the Philippines over the South China Sea are ramping up the stakes in the region. Each of these spots could be the flashpoint that sets off a larger conflict. Personally, I know people in the Philippines that fear that war with China is looming.

So, what does all this mean for the global economy? Are we inching towards World War 3 and, potentially, a significant economic down turn? It’s a chilling thought, but with all these conflicts simmering, it's something we need to think about. Major wars can disrupt trade, fuel inflation, and strain economies, possibly leading to a global economic downturn.

Conclusion

As we've explored throughout this blog post, there are striking similarities between the economic conditions of the 1920s and today's financial climate. From high stock valuations and real estate bubbles to precarious banking systems and global conflicts, the warning signs are clear.

While we do have modern safeguards like the powerful Federal Reserve, and mechanisms like federal regulations that weren't available before the Great Depression, no system is entirely failsafe.

So, what does this mean for us today? Are we possibly headed towards another Great Depression, or can our leaders navigate our way through these troubling times?

Are there particular economic indicators or historical lessons you think are relevant?

How are today's economic challenges affecting you?

Let me know what you think. If you think I’m completely out of my mind, I want to know. You can share your thoughts, insights, and questions in the comments section of my YouTube Video.

Thanks for reading and see you in my next blog post!