Depression? No way. Not even close.
Most people who know my style of writing here would know that I have been very bearish on the world economy since about July last year and that hasn’t changed, including the HK property market. But to state we may be heading towards a depression is in my opinion way off the mark. Let me very briefly explain what happened to the US and world economy between 1929 and 1933 and why I believe we aren’t heading towards a depression.
Firstly during the Depression in the US unemployment reach about 25%. Average wages for those still working fell 42% and US economic output fell from US$103 to US$55 Billion per year. World trade plummeted 65%. GDP in the US from 1929 to 1933 was -8.6%, -6.4%, -13.0% & -1.3% respectively. And finally it is now widely accepted that the US Federal Reserve aggravated the depression by cutting the monetary supply by about 30% where as today they are increasing it.
So what do I think will happen? Well as far as I can see the US has been pretty close to if not already in a recession and it will probably be in it for at least four more quarters. The rest of the world isn’t immune to the woes of the US. Europe is heading for a recession and I can see Asia, Australia and New Zealand doing the same. What will govern who comes out of the recession first is who went into one earlier and where interest rates stand in each country. Based on this I can see the US and Asia will probably lead a recovery because of a low interest rate environment in these economies right now and Europe, Australia and New Zealand lagging substantially behind because there central banks have been tightening monetary policy with increasing interest rates up until very recent times.