The US Economy: Are We Headed Towards Another Great Depression?

Investing Macro

The US economy has been on a roller coaster ride in recent years, and many experts are starting to ask whether we are headed toward another Great Depression. As George Gammon explains in the above video, the collapse of the money supply is a worrying sign that the US economy is in trouble.

Gammon starts by looking at a chart of bank deposits in the United States from 2006 to 2023. He explains that the black line represents the number of deposits, and the blue line represents the year-over-year increase in deposits. During the Global Financial Crisis (GFC) in 2008, the year-over-year increase in deposits went down to zero.

However, during the COVID-19 pandemic, the year-over-year increase skyrocketed to 50%. Unfortunately, in 2023, the year-over-year increase in deposits has gone negative (-5%), meaning that the amount of deposits has decreased by 5%. This is something that hasn't happened since the 1930s and the Great Depression.

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Gammon goes on to explain that the collapse of the money supply is due to several factors. The first is money market funds. When the average person takes their money out of a bank and puts it into a money market fund, it is no longer a deposit. This causes deposits to come down.

However, money market funds have lately been parking many of those currency units at the Fed in reverse repo. This is taking those deposits completely out of the system.

The second and third factors are when the average person gives their money to the Treasury by either buying treasuries or paying taxes. When the average person buys a treasury, they're not really decreasing their purchasing power because they're just trading cash for treasuries, which is an equivalent asset.

However, when they pay taxes, their assets decrease. They're taking those cash deposits, giving them to Janet Yellen, and poof, they're gone. They no longer have those deposits and must earn some more.

Gammon explains that it's not really about deposits; they're more a derivative of bank lending. If deposits are going down, that could be bad or good, but if bank lending goes down, that's when we really need to be concerned.

The commercial banking system is incredibly fragile, and they see a lot of counterparty risk. They also see economic storm clouds on the horizon and that economic tsunami that's heading right at the shore.

Gammon points out that the real problem is if the banks stop lending. When the average person pays off their debt, their debt has indeed decreased. However, they still have a loan, and now they have no dollars.

One man's spending is another man's income. If the average person has no dollars, how will they pay for their Uber ride or Starbucks coffee?

If the banks stop lending, asset prices would completely collapse, and the real economy would come crashing to the ground. This is what an economic depression looks like.

So, what does this all mean for the average person? Well, it means that we live in uncertain times, and many factors could contribute to a potential economic downturn. While it is impossible to predict the future with certainty, it is important to stay informed and be prepared for whatever may come our way.

As for investing, it is important to take a cautious approach and diversify your portfolio. It is never a good idea to put all your eggs in one basket, and this is especially true during times of economic uncertainty. Consider investing in assets that have historically performed well during times of economic downturns, such as gold, silver, and other precious metals.

In conclusion, the current state of the US economy is complex and multifaceted, with many factors at play. While some experts are predicting a potential depression, others are more optimistic about the future. The best thing we can do is stay informed, be prepared, and take a cautious approach to investing.

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