Great Depression II threatens the global economy

Senior executive at the People’s Bank of China warns of challenges ahead in worst case scenario

by ATF Contributor
Great Depression II threatens the global economy
Waiting for relief payments during the Great Depression in Calipatrie, California. Photo: Courtesy Wikimedia Commons

A senior executive at the People’s Bank of China has warned that the world economy risks being plunged into a second Great Depression.

Zhu Jun, the director of the international department of the PBOC, the country’s de-facto central bank, told the Chinese media of the dangers and challenges facing the international community.

“The possibility of a ‘Great Depression’ cannot be ruled out if the epidemic continues to run out of control, and the deterioration of the real economy is compounded by an eruption of financial risks,” Zhu said, adding that this was the worst-case scenario.

After the Wall Street crash in 1929 which wiped out millions of investors, the worst economic downturn in the history of the industrialized world dragged on for a decade. 

At the depth of the slump in 1933, up to 15 million, or one in four Americans, were unemployed. By then, nearly half the country’s banks had failed.

Globally, the jobless queues lengthened, triggering a surge in nationalism across Europe.

Rising unemployment

Already unemployment is rising across the United States, Europe and China. Countries across the planet have been forced to lock down populations after closing factories, shops restaurants and entertainment centers in a move to stop the spread of this new strain of coronavirus. 

Business activity has barely a heartbeat. During the opening weeks of March, the US economy shed more than 700,000 jobs ending a decade of continuous employment growth, according to official data.

“This is a crisis like no other,” Kristalina Georgieva, the managing director of the International Monetary Fund, said at a teleconference organized by the World Health Organization last week. “Never in the history of the IMF have we witnessed the world economy coming to a standstill,” she said. “It is way worse than the global financial crisis [of 2009].”

Across a global landscape of depressing numbers, 1.28 million people have been infected by Covid-19 with the death toll hovering above 70,000. In Europe, Italy, Spain, France and the United Kingdom have been ravaged by the virus, while the US has reported more than 336,000 cases of infection with the death toll surging past 9,600.

“So how high could joblessness get? The record unemployment rate came in 1933 when a quarter of adults who wanted to work couldn’t find a job. Back then, the US only estimated annual labor market data,” Jay L Zagorsky, a senior lecturer at Boston University’s Questrom School of Business, said.

“More precise monthly data didn’t begin until 1948. Since then, the highest monthly unemployment rate ever recorded was 10.8% in December 1982 as a result of the Federal Reserve increasing borrowing costs to fight inflation,” he wrote in a commentary for The Conversation, an academic news website.

Still, perhaps, David Riley, the chief investment strategist at asset manager BlueBay, summarized the prevailing mood of gloom.

“If this were needed, [unemployment reports confirm] that the US and the global economy is experiencing the most severe drop in output and income in modern history,” he told the Financial Times last week.