The 2008 financial crisis triggered by the US subprime mortgage crisis is considered the worst economic crisis since the Great Depression of 1929.
We analyze the two crises in depth and explore the possibility of an economic crisis in the United States in 2022.
01 The two crises arose from the attenuation of the driving force generated by the previous round of technological revolution
Driven by the second technological revolution represented by electricity, internal combustion engines, and automobiles, industrialized countries such as Britain, the United States, Japan, and Germany generally experienced long-term economic prosperity from 1870 to 1920.
But this long cycle of technology came to an end in the 1920s, with severe overcapacity in the industrialized countries.
In the late 1920s, the economic growth of the United States was weak, and in 1926, the economic growth rate of britain, Germany, and Japan declined, and unemployment increased.
The biggest manifestation of the recession is that the growth of the real economy is weak, and the flow of funds to the stock market is accelerating.
Driven by the third long cycle of technology driven by electronic computers, nuclear energy, and aerospace science and technology, capitalist countries experienced a golden period of development for 30 years after the war.
However, this round of long-term technology cycle also entered the end of the early 21st century, and the profit margin of the US real industry declined, and the industry moved outward, forming a hollowing out of the real industry.
Emerging countries have taken on a large amount of production capacity and become global manufacturing centers, which has been delayed but difficult to fundamentally change the trend of decline in the driving force at the end of the technological revolution.
In the years leading up to the crisis, there was also overcapacity in emerging market countries.
The funds squeezed out by the hollowing out of the US industry and the accumulated funds from trade surpluses with emerging countries have flowed into the financial asset markets such as the housing stock market, spawning a huge bubble and laying the groundwork for the outbreak of the crisis.
02 Both crises have been linked to large monetary releases
Before both crises, the U.S. government adopted an accommodative monetary policy, that is, a monetary release.
Before the Great Depression of 1929, rampant monetary policy caused bubbles and speculation in the stock market.
At that time, the U.S. financial industry was in a laissez-faire era, there was no financial legislation, and only 10% of the margin was paid to buy stocks, and 90% of the funds were available from banks.
High leverage has led to a large amount of bank money entering the stock market, and speculation, fraud and insider trading are prevalent in financial markets.
Before the 2008 crisis, the Fed's extremely accommodative monetary policy, financial deregulation, and subprime lending were all at levels unprecedented in history.
Highly leveraged trading is widespread in the securities market, with leverage reaching 30 times in 2007; real estate-related financial products are overinflated.
Huge amounts of money poured into the housing stock market, creating a huge bubble, and when the bubble burst, a financial and economic crisis broke out.
03 Excessive income distribution disparities are a precursor to a crisis
Every time there is a big release of money, it makes the rich rich richer, the poor poor poorer, and the gap between the rich and the poor even greater.
Between 1917 and 1928, the richest 10 percent of household income in the United States accounted for 50 percent of total income, and the U.S. income gap reached all-time highs before the Outbreak of the Great Depression.
At the end of the 20th century, the IT industry represented by Silicon Valley and the financial industry represented by Wall Street continued to grow, and wealth accelerated to the IT industry and the financial industry.
In 1985, the salaries of U.S. corporate management were 60 times the wages of workers, and in 2007 it reached 350 times. Social polarization in the United States once again reached an all-time high in 2007, with the richest 10 percent of households rising to 50 percent of total income.
Excessive disparities in income distribution are a precursor to the crisis.
04 Before both crises, there was unsustainable excessive debt
In the 1920s, when the overall U.S. debt as a percentage of GDP went from 170 percent in 1916 to 300 percent in 1933.
At the beginning of the 21st century, in order to eliminate the bursting of the Internet bubble in 2001 and the adverse effects of the 9/11 incident on the economy, the Federal Reserve cut interest rates 13 times in 2001-2004.
In the loose monetary and financial environment, the credit consumption in the United States has increased rapidly, the real estate market has been over-inflated, and household debt has surged.
Overall debt levels reached an all-time high of 370% of GDP in 2009.
With such a high level of debt, a thunderstorm is inevitable.
05 The United States is currently one step away from the crisis
The impetus brought by the first and third technological revolutions has declined, and the fourth technological revolution is still brewing, and the United States cannot rely on the new technological revolution to drive economic growth and get rid of the quagmire.
The United States is still the richest country in the world, but the vast majority of wealth is in the hands of a small number of powerful people. The wealth of the richest 0.1% is equivalent to 90% of the wealth owned by ordinary Americans, and the gap between rich and poor is too large, and the ethnic division is serious.
The three-core powered printing press frantically printed money, and the debt level hit a record high
By the end of 2021, the level of U.S. debt had reached $29 trillion.
According to the 2022 Fed's interest rate hike plan, if the interest rate is raised 6 times and the interest rate rises to 1.5%, it will pay $770 billion more in interest, which is equivalent to 1 year of military spending to pay interest.
Such a huge financial pressure, the US government simply can not bear.
The U.S. stock market is crumbling like a raging fire
The stock market is the core of the US economy and the lifeblood of finance, and the entire US resource allocation is based on the stock market mechanism.
The U.S. government can shut down, but the stock market can't shut down.
In February 2020, the US stock market broke down three consecutive times.
In order to save the stock market, in just half a month from March 3 to 16, the Fed cut interest rates to 0, and studded all the policy cards.
As if that wasn't enough, Trump also let the Fed print trillions of dollars directly to stabilize the U.S. stock market.
At the same time, the Fed directly announced "unlimited QE", that is, no upper limit, unlimited printing of money.
The stock market is unstable for a day, and the printing machine does not stop for a day. In the end, the life of the US stock market was hanged.
The retribution for the crazy printing of US dollar bills in the United States in 2021 is coming, and inflation is getting worse and worse.
U.S. inflation broke 5 percent in May, 2.5 times above the warning line, and the Fed got to the point where it had to raise interest rates and have to pull back the dollar.
Otherwise, hyperinflation will stimulate social contradictions in the United States and cause large-scale civil unrest.
In summary, the factors for the current crisis in the United States are already in place, and if the United States wants to escape, it will have to "miracle" happen.
There are two "miracles":
1. The fourth technological revolution will fall from the sky in 2022, driving a great economic leap forward and social development in the United States and the world.
2. The Fed will raise interest rates 3-6 times in 2022, harvesting enough assets from the world to fill the pit of $29 trillion in debt.
Will these two "miracles" happen in 2022?