Market Insights

9 Reasons Why an Economic Depression May Sweep the US Soon

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An image of newspaper headlines about the US economy, recession, depression and inflation.

Concerns over America’s economic future are mounting with warnings of a coming recession and possibly even a depression. 

Chris Watling, chief executive of the financial advisory firm Longview Economics, says leading economic indicators are “pretty compelling” and “brutally bad.”  

JP Morgan says the US is “already past the point of no return.” 

And former Treasury Secretary Larry Summers says the US economy may be racing toward a “Wile E. Coyote moment” — where we’ve already sprinted off an unforeseen cliff… and we’re hanging in the air for a moment before a sudden, cataclysmic fall into economic recession. 

But ITR Economics CEO Brian Beaulieu believes a recession is only a prelude to an economic depression, saying: “Make no mistake about it: there is a depression coming in approximately seven short years.” 

What’s the difference between a recession and a depression? And what may cause them to sweep the US? 

An economic recession refers to a fall in GDP (Gross Domestic Product) for two consecutive quarters in which US business trade and industrial production slow significantly. 

An economic depression, on the other hand, means a much steeper fall in GDP. And it can last for years. 

A depression is generally marked by a decrease in consumer confidence and spending, as well as decreased investment and business activity. And these sharp decreases can lead to a downward spiral where the economy shuts down and businesses and consumers reel from the impact.  

The US went down this road during the Great Depression of the 1930s. And according to the Federal Reserve, its main causes were “the collapse of world trade… government policies; bank failures and panics; and the collapse of the money supply.”  
Today, we’re facing similar challenges, but the economic factors that could lead to a depression have grown far more numerous. 

Let’s briefly examine 9 of those contributing economic factors.

#1 An increase in unemployment  

As businesses cut back on spending, lay off workers and reduce hours, the unemployment rate may rise.  

During the Great Depression, for example, unemployment rose from almost 0% in 1929 to 25% in 1933. During the last 12 months, unemployment levels have been hovering near 3.5%. So, this indicator does not point to an economic depression yet.  

However, some experts believe the number of people working part-time jobs and those who have given up looking for work altogether show the labor market isn’t as strong as it seems. 

Bank of America says data shows the “US labor market will weaken [over the] next few months,” and February and March produced “the last strong payroll reports of 2023.”  

And with significant recent layoffs in the tech and financial sectors, some companies may be preparing for economic hardship.  

#2 Consistent GDP shrinkage  

Economic activity is typically measured by GDP, which shrank by 30% during the Great Depression.  

While the US economy did contract for two consecutive quarters in the first half of 2022, GDP rose in the second half of 2022. But despite this short-term rise, Goldman Sachs has lowered its growth forecast from 1.5% to 1.2% for 2023. And the World Bank recently cut its forecast from 2.4% to a meager 0.5% for this year, calling it “the weakest performance outside of official recessions since 1970.”  

Without doubt, analysts will keep a close eye on GDP reports in the coming months to see if the trend continues.  

#3 Lower inflation to deflation  

While inflation reached a 40-year high in the US in 2022, it has been cooling off in recent months. But it is still historically high. At today’s inflation rate, you will lose 50% of your purchasing power in 14 years, so this is not meaningless. 

But we want to look here at the trend. Because a continuous decrease in the price of goods and services, known as deflation, can signal a depression. This is often caused by a decrease in consumer spending, which leads businesses to cut prices to attract buyers.  

During the Great Depression, for example, deflation reached an annual rate of 10%.  

#4 An increase in bankruptcies  

The number of bankruptcy filings typically increases during a depression as businesses and consumers struggle to make ends meet.  

This can further worsen economic problems, as businesses and banks may be forced to close their doors causing consumers to lose access to credit.  

During the Great Depression, for example, the number of bankruptcies and defaults soared, causing over 1,000 US banks to close each year between 1930 and 1933. Today, the trend is not our friend as US bankruptcy filings for the beginning of 2023 are at their highest in 12 years.  

A chart showing how US bankruptcy filings are at a 12 year high in 2023.

#5 Reduced trade and global commerce   

A decrease in international trade is another sign a depression may be looming.  

Why? Because a decrease in international demand for goods and services leads to a decrease in production. And a decrease in production can lead to a decrease in domestic economic activity.  

During the Great Depression, global trade fell by as much as 60% in some developed countries between 1929 to 1932. Today, global trade growth is decelerating due to rising interest rates, international conflicts and growing economic uncertainty— a trend experts say could continue. 

#6 Lower spending and higher savings  

The foundation of the US economic growth is consumer spending, which accounts for nearly 70% of all economic activity. When consumers decrease their spending and increase their savings, it can have a ripple effect throughout the economy. Fewer buyers means businesses make less money, which can lead to tighter budgets and potential layoffs.  

According to the US Bureau of Economic Analysis, inflation-adjusted consumer spending has been relatively flat for the past two years. And this may mean consumers are tightening their belts.  

#7 Sovereign debt defaults  

One of the most serious economic depression indicators is a default on sovereign debt. This happens when a country cannot repay its debt. And a default on debt payments can lead to a decrease in confidence in the country’s economic stability and a decrease in investments.  

According to the UN, more than 50 countries are in danger of bankruptcy. In the US, we may soon be facing our own crisis when the federal government reaches the debt ceiling in July. And the probability of a default due to political gridlock has risen five-fold since January, says research provider MSCI.  

#8 Depressed currency values  

A decrease in the value of a currency compared to other currencies is another sign that an economic depression may be on the horizon. This is because a decline in the value of a currency can contribute to inflation, which then leads to a decrease in buying power and economic activity.  

The US dollar index has declined steadily since October last year and is expected to decline further throughout 2023, according to Business Insider. Just as it has since 1971, when the government decoupled the US dollar from gold. 

#9 Deficit spending  

The national debt is over $31.7 trillion (about $98,000 per person in the US). And according to the Cato Institute, a respected public policy research organization, deficit spending will reach an “unsustainable” level as a percentage of GDP. Already, the debt is 120.35% of GDP. 

The US Government Accountability Office agrees and says, “We project the debt will grow faster than the economy in the intermediate- and longer-term… This situation will pose serious economic, security, and social challenges if not addressed.” 

And Peter G. Peterson, co-founder of the Blackstone Group, supplies the rationale behind our grim national debt level: 
“Prior to the pandemic, our public debt was on a path to exceed the size of our entire economy in 10 years, but now we have already reached this unfortunate milestone. At the same time, our nation has suffered considerable economic damage, with millions out of work and steep declines in growth and opportunity.” 

An image of the national debt clock which shows US federal national debt is over 13.7 trillion dollars.

Our excessive national debt will force the federal government to pay ever-higher interest rates to pay it off… or raise taxes to help foot the bill.  

And if taxes go up, disposable income and business cash flows will go down. Both are disturbing symptoms of an economic recession and depression. 

The bottom line:  

While the US economy has not yet reached the point of a depression, several economic indicators are trending towards it.  

ITR Economics President Alan Beaulieu agrees and says, “A high probability exists that the decade spanning 2030–2040 will be one of lost opportunities, great economic distress, lost fortunes, deep regrets, and despair over what might have been.”  

Yes, the prospect of a recession and a long depression speeding our way is worrisome. But with proper foresight and planning, you can help prepare your finances for both. 

Fortunately, many high-profile analysts and experts believe the confluence of many global factors happening at once could push the price of gold to record levels

In other words, now is the time to own gold to help protect your purchasing power, secure your savings and fortify your financial legacy for generations to come. 


If you’re an existing Gold Alliance client, right now may be the best time to fortify your holdings. And if you’re new to gold and want to know more about protecting your savings from a possible recession or economic depression, click here to get your FREE Gold Information Kit now or call toll-free 888-529-0399 to speak with a Gold Specialist while gold is still available at a relative discount.