One of the central tenets arising from the Financial Crisis and the various interventions taken during the period was that by enacting the various interventions, an economic depression was avoided.
Now, over five years after the Financial Crisis, many global stock markets have been booming, economic growth has been evident in many measures, and the overwhelming consensus among prominent economic forecasters is that the odds of a near-term recession are low, generally ranging from 0% to 15%. The near-term odds of deflation, according to economic forecasters and models, is at or very near zero.
As I discussed in the February 24, 2014 post, titled "Economic Expansion, Recession Or Depression?", while GDP and various other measures over the last five years indicate expansion, the expansion has been “subpar” – as well, many other measures are at (highly) disconcerting levels. Regardless of how one chooses to categorize this economic situation, from a broader perspective, perhaps the main questions should be how “durable” and sustainable is this increase in economic activity? Is the financial system and economy structurally more sound now than previously? Is the financial system more or less susceptible to future major disruptions and upheaval?
As I explained in the September 18, 2013 post titled “Has The Financial System Strengthened Since The Financial Crisis?”, there are a broad array of underlying problems inherent in today’s financial system. While various aspects of economic growth have occurred, the existence and continual propagation of these various problems is alarming. Various aspects and manifestations of these problem areas are plainly evident, and have been highlighted throughout this site. However, most lack recognition, especially compared to the recognition afforded to various statistics such as records achieved in the stock market.
While the overwhelming consensus believes that overall economic expansion will continue unabated, as will stock market gains, what seems ignored are the risks inherent in today’s underlying financial structure. That many are unaware of these risks is not to say that such risks do not exist – in fact, not only do they exist, but they are growing, as I have explained in the “Building Financial Danger” posts.
Perhaps the central question with regard to these various risks and underlying structural frailties is what level of damage will result from them. If one uses history as a guide, one might be led to believe that any resulting damage may be significant, but over the intermediate- and long-term, able to be overcome and transcended, such as (purportedly) experienced during the post-Financial Crisis period.
While I don’t believe that today’s economy and financial system are directly comparable to that of the Great Depression, I do believe that the two periods have similarities. While no one likes to contemplate a future rife with economic adversity, I do believe that our current economy and financial system on an "all things considered" basis have vastly problematical working dynamics much more pernicious than those existent prior to and during The Great Depression. As such, due to the magnitude and complexity of the economic problems inherent in today’s economy, my analyses continue to indicate that additional oncoming weakness will (unfortunately) not only be severe in nature, but also constitute what I have previously referred to as a “Super Depression,” whose main attribute will be problems of an intractable nature, with concomitant economic and societal ramifications.
The magnitude of these economic problems must be properly recognized and rectified if any true long-term economic vitality is to be realized.
The Special Note summarizes my overall thoughts about our economic situation
SPX at 1858.83 as this post is written