19 Reasons Why Another Great Depression Is Likely in the Next 12 Months

By Michael Snyder
June 20, 2011

Do you believe that the U.S. economy is steamrolling toward a depression? If so, you are not alone.

According to a recent CNN poll, 48% of Americans believe that "another Great Depression" is likely within the next 12 months. Are they crazy?

Americans have been waiting for almost three years for a "recovery" to materialize, but instead there are all kinds of signs that the economy is about to get worse yet again.

Inflation is rising but wages are not. There are millions of Americans that would do just about anything to get a decent job. The "misery index" is the highest it has been in almost 30 years.

All of the recent polls show that the American people are more pessimistic about the economy than at any other time in recent memory. World financial markets are incredibly unstable right now and many analysts are expecting a repeat of 2008 (or worse). Meanwhile, our state and local governments are drowning in debt, the federal government is drowning in debt and governments all over Europe are drowning in debt.

No, it is not crazy for 48% of Americans to believe that we are about to go into another Great Depression. [InvestingAnswers Feature: Will America's New Policies Bring on the Next Great Depression?]

Just think about that statistic for a moment. Nearly half of the country expects the economy to fall to pieces at some point over the next year.

So do I agree with them?

Yes, I certainly believe that an economic collapse is coming. But that doesn't mean that it will necessarily happen within the next year. The United States is in the midst of a long-term economic decline, and the next big financial crisis could potentially happen in 2011 or 2012.

But it might not.

There are so many variables and it is so hard to predict with certainty the exact timing of how things will play out.

However, it is true that incredibly painful economic times are coming. Our long-term economic future looks unbelievably bleak.

So anyone that believes that we are headed for another depression is certainly not crazy. The following are 19 reasons why it is perfectly rational to be pessimistic about the U.S. economy right now...

1) Today, 25 million Americans are either unemployed or underemployed. Six million of those have been out of work for at least six months. The average duration of unemployment in the U.S. is now close to 40 weeks.

2) The unofficial misery index, which is calculated by combining unemployment and inflation, is now at a 28 year high. [For more on the misery index, read The Misery Index is Causing Trouble Again.]

3) Sadly, if unemployment and inflation were calculated the same way that they were back in the 1970s, the misery index would actually be much, much higher. According to John Williams of Shadow Government Statistics, the current "real" rate of inflation is approximately 11.2% instead of the 3.6% figure that the U.S. government wants us to believe.

4) Greece is on the verge of complete and total financial collapse. The yield on two year Greek bonds is up to 28%. The European Central Bank (ECB) and the German government have been fighting over what to do to solve the Greek crisis. The truth is that without a bailout the Greek government will default. If Greece defaults, it would be a huge nightmare for world financial markets.

5) Neil MacKinnon, an analyst at VTB Capital, is warning that a Greek implosion could set off a 2008-style financial crisis: "The risk of a 'Lehman moment' for the eurozone is increasing."

6) Spain is also potentially a major problem. The Spanish economy is more than twice the size of the Greek, Irish and Portuguese economies combined. Over the past 12 months, the yield on 10 year Spanish bonds has been rising steadily, and many believe that Spain could be the tipping point that pushes the sovereign debt crisis in Europe over the edge.

7) State and local governments all over the United States are cutting their budgets and are implementing brutal austerity measures. For example, one small town in Alabama has actually decided that they are simply going to stop paying pension benefits to their retirees. In other areas, teachers and police officers are being fired in massive numbers. UBS Investment Research is projecting that state and local governments in the U.S. will combine to slash a whopping 450,000 jobs by the end of next year.

8) The middle class in the United States is being systematically ripped to shreds. The poorest 50% of all Americans collectively own just 2.5% of all the wealth in the United States at this point.

9) It is never a good sign when even the big Wall Street banks start laying off workers. CNBC is reporting that Goldman Sachs, Morgan Stanley and many other big firms on Wall Street are planning some large staff reductions in the months ahead. That is a very bad sign for the economy.

10) Things have gotten so bad that some mainstream media outlets are actually encouraging Americans to go out and start racking up credit card debt once again. For example, one recent USA Today article was actually entitled "More credit card debt might be good for the economy". Of course the big banks are ready to suck the lifeblood out of anyone that does slip up on making their credit card payments. One major bank has announced that a single late payment could result in a penalty rate as high as 29.99%.

11) According to the Bureau of Labor Statistics, the share of national income being taken home by American workers is at a post-war low and is rapidly declining.

12) Reuters is reporting that many of Wall Street's biggest banks plan to cut their use of U.S. Treasuries starting in August. China has already been dumping short-term U.S. debt. But if most of the big players abandon the market, who is going to buy up the massive amounts of debt that the U.S. government needs to issue?

13) Dean Baker of the Center for Economic and Policy Research apparently believes that we are already in a depression... "At some point, the pain of high unemployment may lead to some new thinking in Washington -- but until that time, welcome to the second Great Depression."

14) The U.S. banking system could plunge into disaster at any moment. The FDIC is backing up $7 trillion in deposits with an insurance fund that barely has anything in it.

15) It seems like almost everyone is talking about the next financial collapse. Renowned investor Jim Rogers recently said, "I would expect to see some serious problems in the foreseeable future... By 2011, 2012, 2013, 2013, I don’t know when, we’re going to have an economic slowdown again."

16) Legendary hedge fund manager Mark Mobius is bracing for the worst. Just consider the following quote from Mobius that recently appeared in Forbes magazine: "There is definitely going to be another financial crisis around the corner, because we haven't solved any of the things that caused the previous crisis."

17) Between 2007 and 2010, U.S. GDP grew by only 4.26%, but the U.S. national debt soared by 61% during that same time period. It is clearly unsustainable for our debt to be growing so much faster than our economy is.

18) Peter Yastrow, a market strategist for Yastrow Origer, recently told CNBC that "Interest rates are amazingly low and that, thanks to Ben Bernanke, is driving everything. We’re on the verge of a great, great depression. The [Federal Reserve] knows it."

19) The American people are extremely pessimistic about the economy right now. According to one recent poll, 56 percent of Americans have lost sleep due to the economy and about three-quarters of Americans believe that the nation is on the wrong track.

Note from the Editor: This article was originally posted at The Economic Collapse blog