You've probably seen video clips of the annual Domino Day competition, where contestants topple elaborate structures made of dominos.
The nudge of a single domino launches a cascade that knocks down the whole beautiful set-up within a few moments.
Are those "interconnected" domino structures analogous to today's global economy?
The nudging finger may be the unprecedented worldwide credit build-up, which includes the historic credit expansion in the United States.
The debt in 1929 was a molehill compared to the mountain of debt that's been created up into the highs of the past several years. The total amount of dollar-denominated credit as a percentage of annual GDP peaked in 1929 at about 210%, while recently it's been as high as 370%. This is a lot more credit today relative to the country's ability to pay it off. It's an extremely dicey situation. The Fed is doing everything it can to try to keep the credit balloon inflated.
The Elliott Wave Theorist, October 2012
Indeed, the Federal Reserve recently announced that it "will keep up its bond buying to stimulate the economy." – Bloomberg, March 20
The Fed's bond purchases amount to $85 billion every month.
Financial history shows that every true credit boom is followed by a credit bust. The massive credit mountain you see on the chart will be leveled by a financial implosion. The credit must deflate.
The latest round of financial headlines remind us that unsustainable debt is crippling Europe. And in the U.S., heavy debt burdens have put state and local governments in deep financial trouble. Federal debt rapidly approaches $17 trillion.
What will be the first financial domino to fall? Well, whether it's Cyprus or another economic crisis, historians will call that first domino the catalyst.
Robert Prechter wrote that "No such event is really a trigger; it just happens to be the first disaster among the many inevitable ones that must follow a credit bubble."
America's last deflationary depression was from 1929 to 1933. Prechter noted that today "government borrowing and spending has produced a deficit ... 11,500 times that of 1931."