Expert Commentary

"The Next Great Depression is Here."

Editor’s Note: Elliott Wave International is the world's largest independent market-forecasting firm. Its monthly Financial Forecast Service has been serving subscribers with monthly big-picture updates since 1998 under the editorial guidance from Steven Hochberg, Peter Kendall and EWI's long-time president Robert Prechter. The Service has been a leading authority on deflation since inception.

Here is an excerpt from the August Elliott Wave Financial Forecast:

Economy & Deflation

In 2019, the Elliott Wave Financial Forecast addressed various "cracks" in the credit structure. Even as unemployment hit its lowest level in 50 years, auto, student, credit card and mortgage default rates edged higher. By September of last year, EWFF concluded that "the dawn of the next Great Depression, to be led by a fall in property prices, is very much at hand. There is no avoiding it now." With global unemployment rates skyrocketing to the highest rates "since the Great Depression," it makes sense to stick with what seemed inevitable last September. By measures of economic activity, the current contraction has already surmounted the Great Depression. Here's a headline from CNBC:

Second-Quarter GDP Plunged
by Worst-Ever 32.9%

The next Great Depression is here. Investors obviously disagree. And by the looks of all the debt they are snapping up (see Bond Market section), they are vehemently opposed to the idea that debt can be risky. But here too, there is an important divergence. Banks are clearly far less certain on the topic, as shown on this next chart. More than 40% of U.S. banks tightened lending standards on loans to large and mid-size firms. At the same time, the percentage of banks reporting an increased willingness to make consumer loans fell by 20% (bottom graph). As the grey shaded areas indicate, similar levels prevailed at the outset of the last three recessions.

Lenders Fold on the Economy

As for the anticipated fall in property values, the Green Street Commercial Property Index shows that it is right on schedule. Home prices are still buoyant, but sales are down from the beginning of the year, and we continue to believe prices will follow. Last year, we discussed "the depleted rainy-day preparedness of most consumers." At this point, the only factors protecting the economy from consumers' inevitable breaking point are government stimulus checks and the temporary largesse of landlords, banks and other creditors. A federal moratorium on eviction notices may be extended, but The Washington Post says at least 20 million renters face eviction by September 30. "There's a cliff approaching," says the Post.

The Great Property Bust is Underway