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Is a Depression Coming?

Is a Depression Coming?

| April 02, 2020

“Could there be another depression” is one of the top questions we’ve received over the past week. “Yes, we are in a recession and many are worried if things may get much worse before they get better,” explained LPL Financial Senior Market Strategist Ryan Detrick. “But we continue to think the double-barrel of support from the Federal Reserve (Fed) and the $2 trillion CARES Act should help to provide a bridge for consumers and small businesses to help get them to the other side of this slowdown. Once things pick up, the second half of this year could see explosive growth as a result.”

So could there be another Great Depression? We don’t think so. There were four major mistakes made after the Crash of 1929 that helped form the Great Depression. First off, the Fed actually tightened monetary policy to help stave off outflows of gold. Second, the government increased taxes on individuals and corporations to help balance the budget. Additionally, the government cut spending by 25%. Third, increased regulation hampered small businesses and lastly there was a global trade war. All four of these mistakes add up to why nearly nine years after the Crash of ’29, unemployment was still at 15%.

Looking at today, we have a very accommodative Fed. The government isn’t increasing taxes and instead they are directly trying to help those impacted by this tragedy. There are no new regulations and although there’s the trade dispute between China and the US, this isn’t a global trade war at all like the 1930s.

In this week’s LPL Street View video, LPL Financial Senior Market Strategist Ryan Detrick discusses these points.


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