Get ready. Here comes the next great depression

Wednesday, February 5, 2014

What follows is a rough transcript from Mike Maloney's February 4 video presentation on the next great depression.  Be sure to watch the full video below.

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I've often said that 2008 was just a speed bump on the way to the main event.

I do believe that we are in for something absolutely catastrophic when it comes to the global economy.

Looking at the chart, this is total debt, including the private sector - home loans and such, as compared to GDP. In 1929, after the crash, there was a huge rise in outstanding debt, but what it actually represented was the economy shrinking. So debt became a larger and larger in proportion, compared to the economy. Mind you, this is not because debt is rising. People did not take on a whole bunch of debt in 1930, '31 and '32. What was happening was that the economy was shrinking. So this chart rises because the debt is a larger portion of the economy. And then, this is all liquidation here. This is people losing the family farm, and homes being foreclosed on, farms being foreclosed on and businesses going out of business.

After the first depression, debt began shrinking compared to the size the economy. And then the economy started growing faster than the debt during World War II and the 1950's. 1973 is when we went off the gold standard - the Bretton Woods system ended - and debt compared to GDP exploded.

And what I'm worried about is that we are starting the Next Great Depression. It is probably going to be a depression, not a recession. There is a hundred years of energy built up of having tried to cheat the system with central banking, and and basically manipulation.

People talk about the free markets aren't working, that we need more regulation and capitalism isn't working. Well, we can't have free markets if 50 percent every transaction involves the currency, and the central bank is deciding how much currency there is, and what interest rates are going to be!

That is a manipulated market! If half of every transaction is manipulated it means that we do not have a free market!

Every transaction in society is manipulated.

So we're going to be starting this thing from way up here. And you'll notice, there were no pullbacks from the debt / GDP ratio on that chart until 2008. That's when it started to collapse. But now we see it is rising again.

But none of the problems from 2008 have been addressed. All they did was paper over the 2008 crisis. All the fundamentals are still there and they're even worse. And then a we've got total debt to GDP and what's interesting in this chart is it breaks it down to federal debt (and so this is US again I'm sorry I don't have data in Canada - see video, 3:00). But this is the private sector here and what you see is all of these are shrinking and this one it looks like it's expanding - but if you compare it to this area right here it's actually one percent less right now, so that even the financial business debt is shrinking, and there's only thing that's expanding, and that is government debt. 

And this is a very dangerous situation. The larger government growth, compared to the GDP, the more frictional jobs there are in the economy that don't produce goods and services that you and I buy. And that basically extinguishes economic energy. It brings about less prosperity, not more.

Watch the full video:

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