PDF Summary:The New Great Depression, by James Rickards

In The New Great Depression, James Rickards examines the devastating consequences of the COVID-19 pandemic—the economic slump it triggered, the government response, and the lasting societal impacts. Rickards analyzes the unique characteristics of the SARS-CoV-2 virus that fueled its rapid spread, the misguided lockdowns that failed to curb infections, and the botched global response that exacerbated the crisis.

Offering insights from historical precedents, Rickards explains how the economic downturn surpassed even the Great Depression in severity, and how traditional stimulus measures have proven futile. Exploring the long tail of psychological strain and social upheaval unleashed by the crisis, Rickards assesses both the obstacles and opportunities this new landscape presents for investors in a highly volatile economic environment.

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The escalation of mental health problems, the increase in substance abuse, and the intensification of social discord were significantly influenced by the imposition of isolation and the mandate to maintain separation from others.

Rickards argues that the financial turmoil, coupled with the enforcement of quarantine measures, caused considerable mental anguish to numerous Americans who suffered through extended periods of solitude. Rickards emphasizes the significance of interpersonal relationships and the disruption caused by measures to confine people, referencing insights obtained from the journal Brain, Behavior, & Immunity-Health. The crisis poses a significant threat to elements beyond these, profoundly impacting our core human instincts, especially our tendency to form social connections.

During the period of enforced isolation, there was a significant increase in the consumption of alcohol and illicit substances as individuals sought methods to cope with their increased stress and emotional turmoil. He also cites data from a well-known charitable research organization that highlights an increase in interactions with emergency services stemming from mental health issues. Rickards argues that these issues will persist long after the pandemic has subsided, leaving a profound psychological scar on society.

Restrictive policies infringed on civil liberties and eroded public trust in institutions

Rickards criticizes the overly stringent application of quarantine rules by authorities, pointing out cases where people faced legal consequences for seemingly minor infractions of the rules. He narrates the tribulations faced by Shelley Luther, a Dallas-based hairstylist, who faced imprisonment for continuing to offer hair-styling services, and he details the challenges faced by Rick Savage, a well-known brewpub proprietor in Maine, who was in jeopardy of losing his health license for defying an order to shut down his establishment. Rickards argues that these actions represent a violation of civil liberties and a dangerous erosion of public trust in institutions.

Eroding trust has resulted in significant unrest and a sense of alienation within specific groups. Rickards argues that the already difficult path towards recuperation is further complicated by the erosion of social cohesion.

Other Perspectives

• Lockdown measures were implemented based on the best available data at the time and were intended to prevent healthcare systems from being overwhelmed.
• Strict protocols were often a direct response to the rapid spread of the virus, and many health experts agreed that without such measures, the death toll could have been significantly higher.
• While there were issues with transparency, many governments and health organizations worked diligently to provide accurate information as it became available.
• The early phases of the pandemic were marked by a lack of information and understanding of the virus, which affected all countries, not just China.
• The World Health Organization operated within its mandate and the information available to it at the time, and it provided guidance that many countries found invaluable.
• Measures to tackle the pandemic, including social distancing and isolation, were aimed at protecting public health and were based on historical precedents of managing infectious diseases.
• While mental health and substance abuse issues increased during the pandemic, these measures were often seen as necessary to protect the greater public health, and many governments and organizations provided additional mental health support services.
• In many cases, restrictions on civil liberties were temporary and deemed necessary under emergency powers to protect public health, and they were often supported by legal frameworks.

The resulting economic downturn was marked by its profound depth and resistance to resolution.

This section of the analysis will explore the severity and length of the economic slump triggered by the COVID-19 pandemic, highlighting the ineffectiveness of conventional economic tactics in initiating a substantial recovery.

The coronavirus outbreak triggered an unprecedented economic slump in modern history.

The section delves into the unprecedented economic turmoil characterized by the obliteration of wealth, extensive joblessness, and disruptions in the global financial frameworks, which were all set off by the pandemic.

The downturn was triggered by a sharp rise in joblessness, extensive closures of companies, and disruptions in supply chains and distribution networks.

James Rickards describes the impact of the COVID-19 pandemic on the financial system of the United States as a decline in the economy without parallel. He emphasizes the rapid and extensive rise in joblessness, impacting a vast number of individuals, exceeding 60 million, throughout the United States in a short span of time. The authors describe the employment decline as a lasting phenomenon, rather than a transient one, with permanence in numerous instances. Numerous businesses that ceased operations amid the pandemic have either faced insolvency or significantly changed their mode of operation.

Rickards emphasizes the extreme downturn of the economy, highlighting that it shrank by an unprecedented 9.5 percent, marking the steepest decline in history. The $22 trillion economic value experienced a substantial contraction, with the output falling by more than $2.1 trillion in the second quarter. The situation is significantly different from the financial crisis that occurred in 2008. The circumstances are without precedent when contrasted with the era from 1929 to 1933. The downturn experienced in this instance was markedly more drastic. The United States experienced a reduction in quarterly production during this period that was unparalleled in its historical records.

Expectations suggest that the economic recovery will be drawn out, with forecasts showing that returning to the output levels witnessed prior to the pandemic will span across multiple years.

Rickards disputes the idea of a quick economic recovery, arguing that the deep-seated effects brought on by the pandemic cannot be undone hastily. He foresees an extended period before the economic output of 2019 is reclaimed, even under circumstances that would be conducive to swift expansion.

Despite beginning with a 2019 economic benchmark of 100 and anticipating a vigorous surge of 6 percent in 2021 followed by a 4 percent increase in 2022—expansion rates unmatched on a yearly basis since 1984—the economy is still expected to not reach the production heights achieved in 2019. It is an irrefutable fact that 99.2 does not equal 100. To reach the heights of productivity seen in 2019, the economy would have to sustain a rate of real annual expansion not seen in over forty years, and this increase would need to persist for two consecutive years.

Rickards paints a bleak picture of an economic recovery that echoes the aftermath of the 2008 crisis, characterized by prolonged stretches of limited growth, persistently high unemployment, and a widening gap in the distribution of wealth.

Traditional methods of spurring economic revival through government spending and central bank policies have not succeeded in driving vigorous expansion.

This section scrutinizes the inadequacy of conventional economic tactics, such as governmental spending and the actions of central banks, in addressing the financial challenges that surfaced as a result of the pandemic and the subsequent economic downturn.

The significant growth in government spending coupled with the expansion of the money supply did not result in a proportional increase in economic activity.

Despite the substantial monetary injections by the Federal Reserve and considerable fiscal spending by Congress, Rickards argues that the economic situation has not shown any significant improvement. He elucidates that while such actions have averted a total financial meltdown and bolstered asset prices, they have failed to tackle the root causes of the economic downturn.

James Rickards points out that the inefficacy of monetary policy is partly due to a slowdown in the velocity of money, a detail that proponents of Modern Monetary Theory frequently neglect. He explains that prioritizing the repayment of debt and increasing savings over spending can slow down the velocity of money, potentially resulting in a decline in GDP unless the Federal Reserve offsets this by increasing the money supply. The Federal Reserve is significantly boosting the money supply to maintain the nominal GDP during a period of reduced money velocity, a problem not encountered since the 1930s. The economy also grinds to a halt when the velocity of money approaches a standstill. Creating seven trillion dollars out of thin air proves futile; the outcome remains zero regardless of the multiplication factor. When banks are reluctant to extend credit and consumer uncertainty leads to a decrease in the velocity of money, it becomes unfeasible to stimulate growth in the economy. The absence of velocity can render an economy nonfunctional.

The effectiveness of monetary policies is weakened due to significant indebtedness and tendencies toward deflation.

Rickards contends that the effectiveness of monetary and fiscal policy measures is significantly diminished by the substantial debt burden in the U.S. economy. He cites the findings of Carmen Reinhart and Kenneth Rogoff, which indicate that when debt exceeds a certain ratio to GDP, further borrowing no longer results in commensurate economic expansion.

Rickards questions the prevalent belief that measures labeled as "stimulus" are indeed effective. He argues that the concept, when understood through the lens of Keynesian economics or Modern Monetary Theory, is not devoid of limitations. The United States and global economies are slowly nearing a pivotal point, one that remains undefined, where the escalating obligations of debt compel creditors to insist on substantial alterations, pushing the indebted nation to either adopt drastic economic policies, announce bankruptcy, or confront steeply rising borrowing costs.

Additionally, Rickards explains how deflationary pressures further exacerbate the situation. Deflation is characterized by a reduction in the prices of goods and services. Lower prices for consumer items can enhance the quality of life without necessitating higher salaries. Technological advancements and improvements in productivity are anticipated to lead to favorable results, which, over time, result in some items becoming less expensive. Why is the Federal Reserve compelled to undertake extraordinary policy measures aimed at fostering inflation, especially considering its strong reluctance to experience a decrease in the general price level?

Governments often prefer inflation because it reduces the real value of their debt, while deflation increases the burden of repayment. Rickards emphasizes the contradictory function of the Federal Reserve, tasked with creating inflation yet lacking the crucial understanding required for its effective implementation.

The expected economic slump could persistently undermine the unity of society.

This section delves into the widespread impact of the economic downturn, highlighting its influence on various sectors, geographical areas, and the overall structure of society.

The increase in business failures and employment cuts will precipitate substantial transformations throughout various industries and communities.

Rickards argues that the depression's effects will profoundly and enduringly alter the social landscape of America. He underscores that even with monetary aid and relaxed credit terms, a considerable portion of small businesses will cease operations forever. Rickards posits that such a trend will lead to a marked decrease in job opportunities, particularly for individuals engaged in manual labor, who play a crucial role in maintaining the foundational economic framework of the United States.

Rickards predicts that the shift towards working from home, triggered by the health crisis, will have a durable impact on various industries. He anticipates a decline in the appeal of commercial real estate, a slump in traditional retail spaces, and growth in industries catering to a workforce that is more and more often working remotely. The reconfiguration of economic terrains, while potentially opening doors to new opportunities, will inevitably cause upheaval in the lives of numerous workers and result in profound changes to social structures.

The financial repercussions will intensify societal divides and undermine confidence in institutions, weakening the communal bonds.

Rickards argues that the intensification of the downturn will deepen existing societal splits and further diminish confidence in established institutions. As unemployment rates climb and economic hardships expand, it is anticipated that a rise in dissatisfaction will occur, possibly leading to increased social unrest and a growing sense of disillusionment with those in power.

Rickards argues that the lasting impact of this societal division will be a weakened sense of togetherness and a decline in societal cohesion. He cautions that such patterns may foster an environment conducive to extremist ideologies and weaken the pillars of a stable society.

Other Perspectives

• The economic downturn, while severe, may not be entirely unprecedented, as past crises have also had profound global impacts.
• Some sectors and companies have adapted to the pandemic, showing resilience and innovation, which may mitigate the overall economic impact.
• Economic recovery could be accelerated by factors not fully accounted for, such as technological advancements, new industry growth, or more effective pandemic management.
• Government spending and central bank policies may have prevented a worse economic scenario, even if the recovery is not as vigorous as desired.
• The relationship between government spending, money supply expansion, and economic activity is complex, and some economists argue that these measures are necessary for stabilizing the economy, even if the results are not immediately apparent.
• High levels of indebtedness and deflationary pressures may not uniformly weaken monetary policy effectiveness; some argue that these conditions can be managed with appropriate fiscal and monetary strategies.
• Economic slumps often lead to structural changes that can eventually result in a stronger, more resilient economy.
• Business failures and employment cuts, while challenging, can also lead to labor market realignments and new opportunities in emerging industries.
• Societal divides and institutional distrust can be addressed through policy reforms, social programs, and community engagement, potentially leading to stronger social cohesion in the long term.

The upheaval led to broader impacts that influenced cultural practices, mental health, and economic structures.

The final section offers an insightful analysis of the psychological and social consequences arising from the health crisis and offers practical guidance for navigating the uncertain economic landscapes ahead.

The pandemic and ensuing economic crisis have resulted in considerable psychological and social turmoil.

This part of the discussion will delve into the lasting effects on psychological health and community relationships resulting from the crisis, emphasizing the strain placed on the psychological condition of individuals and the ties that bind society together.

The upheaval has led to heightened psychological distress, an escalation in the misuse of drugs and alcohol, and intensified disturbances in the social fabric.

Rickards underscores the psychological impacts of pandemics, drawing on historical instances like the influenza pandemic that occurred in 1918. He presents compelling evidence suggesting the virus could directly influence brain function and potentially cause lasting damage to neurological systems.

Rickards argues that the enforced isolation from lockdowns, coupled with the economic hardships brought on by the downturn, has resulted in a marked rise in psychological distress, escalated drug abuse, and increased societal unrest. He emphasizes the vital significance of personal connections and the deep consequences that arise when these ties are severed.

The disturbance of customary social engagements and daily patterns has caused enduring harm to the societal structure.

Rickards argues that the turmoil stemming from the health crisis, along with the subsequent economic decline, reaches deeper than typical disturbances, striking at the very heart of social unity and long-standing norms. The compulsory isolation, coupled with the fear of transmitting the virus, has altered our social interactions, eroded our trust in others, and fostered a widespread sense of unpredictability.

James Rickards warns that the lasting impact of societal division was substantial. Rebuilding trust and harmony within society will likely be an arduous and extended process.

The upheaval has accelerated existing trends, offering both obstacles and prospects for investors in the financial markets.

This section offers practical advice for investors, acknowledging the volatile landscape and offering guidance on navigating the risks and opportunities.

The pandemic has hastened the decline of traditional industries and the rise of new technological and economic structures.

Rickards argues that the pandemic has hastened the downturn of traditional sectors such as retail while concurrently propelling the growth of tech-driven industries. Investors must swiftly adjust to the changing economic environment, which has far-reaching implications.

The author encourages investors to think outside the box and adopt inventive strategies for investing. He underscores the necessity of spreading one's investments across various sectors to take advantage of possible expansion in specific industries.

Investors must utilize sophisticated forecasting methods and flexible strategies to navigate the highly volatile and uncertain environment

Rickards underscores the necessity of adopting sophisticated predictive methods that go beyond traditional economic frameworks, incorporating insights from complexity theory, Bayesian statistics, and examinations of historical trends and the nature of human actions.

Rickards emphasizes the shortcomings of traditional financial models used by Wall Street, which frequently fail to predict substantial economic downturns. He recommends staying informed about changes, remaining adaptable, and using advanced models to secure a competitive edge in the financial markets. Rickards concludes with advice for investors to protect their wealth by diversifying their portfolio to include cash, precious metals, real estate, and various other assets, instead of solely relying on stocks and bonds.

Other Perspectives

• While the upheaval may have led to broader impacts, it's also possible that it acted as a catalyst for positive change in some cultural practices, mental health awareness, and economic innovation.
• The psychological and social turmoil attributed to the pandemic and economic crisis might be mitigated by community resilience, social support systems, and effective mental health interventions.
• The increase in psychological distress and substance abuse might be counterbalanced by the growth of telehealth services, online support communities, and increased mental health resource allocation.
• The crisis's impact on social interactions and trust could be seen as a temporary disruption, with the potential for societies to adapt and develop new forms of social engagement and trust-building.
• The assertion that societal division will have a lasting impact may overlook the historical resilience and adaptability of societies in overcoming division and strife.
• The acceleration of the decline of traditional industries might not account for the resurgence or transformation of these industries through innovation and adaptation.
• The advice for investors to diversify might be too generic, as successful investment strategies can also depend on specialization and deep knowledge of specific sectors.
• Sophisticated forecasting methods are not foolproof and can also lead to overconfidence or reliance on flawed assumptions, potentially overlooking the value of simpler, time-tested investment principles.
• The criticism of traditional financial models might not recognize their utility in certain contexts or the ongoing efforts to improve these models in light of new data and economic understanding.
• The recommendation to diversify investments, including into assets like precious metals and real estate, may not be suitable for all investors, depending on their individual risk tolerance, investment goals, and time horizons.