2025 Great Depression?

Summary

This video explores the parallels between the Great Depression of 1929 and the modern-day economic climate in 2025, focusing on tariffs, the role of the Federal Reserve, and economic cycles. It clarifies that while tariffs, like the Smoot-Hawley Act, worsened the Depression, they were not the cause. The script compares the 1929 economic setup, marked by low interest rates and rampant speculation, with the current situation, where high interest rates prevail. Additionally, the Quarter Century Cycle theory is introduced, suggesting major economic shifts occur every 25 years, forecasting a 'Great Pause' in the late 2020s or early 2030s.

Takeaways

• 😀 The Great Depression of 1929 was largely triggered by a combination of speculative economic policies, not solely by tariffs like the Smoot-Hawley Act.
• 😀 The Federal Reserve's efforts to protect the value of the British Pound by lowering interest rates in the U.S. fueled wild speculation in the stock market during the 1920s.
• 😀 Tariffs, such as the Smoot-Hawley Act, worsened the economic conditions during the Great Depression, but they were not the primary cause of the crisis.
• 😀 The real cause of the Great Depression was the global financial system's mismanagement, including the return to the gold standard and its negative effects on trade and employment.
• 😀 In 2025, the U.S. economy faces high interest rates rather than the low-interest environment seen in the 1920s, which makes the likelihood of a similar speculative crisis less probable.
• 😀 The comparison between the 1930s Smoot-Hawley Tariffs and Trump's 2025 tariffs is flawed due to differences in how these tariffs are being implemented and their context within the global economy.
• 😀 Unlike in 1929, when tariffs were enacted into law, the 2025 tariffs are executive orders that can be challenged in court, giving them less staying power and influence over the economy.
• 😀 The S&P 500’s quarter-century cycle theory suggests that major market changes or shifts happen approximately every 25 years, predicting a shift around 2028-2034 rather than immediately in 2025.
• 😀 The Great Depression was not solely caused by tariffs or trade policies but was a consequence of speculative financial behaviors, particularly related to credit and interest rates.
• 😀 The economic downturns predicted for 2025 are unlikely to mirror the scale or severity of the Great Depression, as the foundational conditions are different, such as higher interest rates and a different global economic context.

Q & A

What triggered the Great Depression in 1929?

The Great Depression in 1929 was primarily triggered by the collapse of speculative investment fueled by low interest rates, and not directly by tariffs, like the Smoot-Hawley Act. The Federal Reserve's policy of lowering interest rates to protect the British Pound led to excessive speculation, which ultimately resulted in the stock market crash of October 1929.

What was the role of the Smoot-Hawley Tariff in the Great Depression?

The Smoot-Hawley Tariff, enacted in 1930, worsened the already existing economic crisis but did not cause the Great Depression. It aimed to protect American industries by raising tariffs on over 20,000 imported goods, but it intensified global trade tensions and led to a decline in international trade.

How did the First World War influence the global economy leading up to the Great Depression?

The First World War left Britain with massive debt, especially to the U.S., and drained its gold reserves. To restore confidence in the pound sterling, Britain returned to the gold standard in 1925, which ultimately weakened its economy. This situation led to international monetary coordination and had far-reaching effects on global financial policies, including the U.S. Federal Reserve's decisions.

How did the Federal Reserve's actions contribute to the financial instability in the 1920s?

In the 1920s, the Federal Reserve lowered interest rates to support the British pound, creating a sea of cheap credit. This fueled speculation in the stock and real estate markets, leading to a fragile economic boom. When the Fed raised interest rates in 1928 and 1929, it caused a financial crash by making credit more expensive, triggering the Great Depression.

What was the impact of the 1929 stock market crash on the American economy?

The 1929 stock market crash led to widespread economic collapse. Unemployment reached 25%, industrial output fell by 50%, and 9,000 banks failed. Many people lost their savings and homes, and the crisis lasted for nearly a decade, severely impacting both the U.S. and global economies.

How did tariffs impact the economic recovery after the Great Depression?

While tariffs like the Smoot-Hawley Act were meant to protect American industries, they exacerbated the depression by reducing international trade. The tariffs were part of an effort to address global overproduction and help domestic farmers, but instead, they led to retaliatory measures and worsened the global economic crisis.

What role did the gold standard play in the global economic challenges of the early 20th century?

The gold standard contributed to economic challenges by tying currency value to gold reserves. After World War I, Britain and the U.S. struggled to maintain the gold standard. The U.S. Fed kept interest rates low to prevent gold from leaving England, which encouraged financial speculation and created an unstable economic environment.

What was the relationship between the Bank of England and the U.S. Federal Reserve in the 1920s?

The Bank of England and the U.S. Federal Reserve had a mutually protective relationship. The Fed lowered interest rates to prevent gold from leaving England, which helped support the British pound. This policy, however, encouraged speculation in the U.S. and contributed to the financial instability that led to the Great Depression.

How do historical economic cycles, such as the 25-year cycle, help us understand future economic trends?

The 25-year cycle theory suggests that major changes or the start of new trends in the stock market tend to happen every 25 years. This cycle is driven by macroeconomic and geopolitical patterns that repeat over time, providing insights into when significant shifts might occur. According to this theory, a major economic pause is expected around 2028-2034.

What are the key differences between the Great Depression in 1929 and the economic situation in 2025?

In 2025, the economic setup differs from 1929. While the Great Depression was preceded by low interest rates and speculative investment, 2025 will start with already high interest rates. Additionally, tariffs in 2025 are executive orders, not laws, and their potential impact is not likely to lead to a recession or depression as in 1929. The conditions and policies surrounding these tariffs are different.