ITR: US Debt Will Lead Us Into Another Great Depression

Mon, May 6, 2019 - 5:03pm

The good news: A U.S. economic recession has been delayed for another few years. The bad news: We could be looking at another Great Depression in 10 years. That's the outlook according to ITR Economics, the oldest privately held, continuously operating economic research and consulting firm in the U.S.

Lauren Saidel-Baker, an economist for ITR Economics, recently spoke with Financial Sense Insider to explain their outlook. See ITR Economics: Recession Risk Postponed Until 2022 but Great Depression Forecast Still Stands for subscriber audio.

2019 Recession Pushed Out

The last US recession ended in June 2009 and, for many years, ITR has been calling for the current economic expansion to last for at least 10 years, meaning that a recession—if any—would likely not take place until around the 2019 timeframe.

For reference, consider Dr. Alan Beaulieu: US Economy to Skirt Recession Until 2019, Hit a Brick Wall in 2030.

Lauren now says that their leading economic indicators are forecasting a U.S. economic slowdown over the next 12 months but not a technical recession as defined by the National Bureau of Economic Research.

The good news, she said, is that by late 2020 to early 2021, they expect to see rising growth trends in the U.S. again with the next business cycle recession to not occur until 2022.

Second Great Depression

ITR's Dr. Alan Beaulieu first alerted FS Insider to their 2030 Great Depression call in 2015 when we interviewed him on his book, Prosperity in an Age of Decline.

“In a lot of ways this will be a corollary to the 1930s Great Depression that we suffered," Lauren said. "And a lot of this is driven by our internal long-term business cycle theory. There are very clear drivers” for such an event, she argued.

One such driver is U.S. debt, which is certainly getting worse. Eventually we just won't be able to put off rebalancing. Currently, transfer payments such as Social Security and health care spending are actually larger in dollar volume than our current tax receipts, Saidel-Baker stated.

This will play into a longer, 100-year cycle peaking around 2030, ITR believes. Net interest payments are also the fastest growing portion of federal spending. We’ve existed in an environment with very low interest rates, which is skewing our current thinking and will also contribute to depression-like conditions.

Demographics are also working against the U.S. as baby boomers continue to retire and population growth is not meeting replacement needs. As entitlement transfers continue to balloon and there are no major changes from a demographic perspective, we’re looking at three massive forces—debt, inflation, and demographics—coming to bear on the U.S. economy.

“Eventually, there has to be some solution because this imbalance is just getting worse,” Saidel-Baker said. “We see that pinch point coming sometime around 2030. … We don't know exactly when this will come, but some time around 2030 we do expect a prolonged, multi-year depression-style event in a lot of ways very similar in scale to that experienced in the 1930s.”

For full audio interview, log in and go to ITR Economics: Recession Risk Postponed Until 2022 but Great Depression Forecast Still Stands. Not a subscriber? Click here for more information.

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