We are in an economic storm. Inflation is soaring, interest rates are rising, sterling is in freefall, energy costs are out of control, and the Bank of England is shoring up pension funds with billions of pounds of investment. UK recession seems certain, but is another Great Depression coming?
The financial crisis cannot be denied. Businesses and homes are counting the costs right now and fearful of the next body blow.
We are left asking whether the outcome will be a modern-day Great Depression or a repeat of the Great Recession. Will the UK recession of December 2007 to June 2009, also known as the banking crisis, happen again? Or will we experience the same impact as the Great Depression from August 1929 to March 1933, which echoed through much of the 1930s?
Global economic crises marked both the Great Recession and Great Depression. It feels like the current maelstrom is focused chiefly on the UK. UK recession exists, the energy price crisis seems to have hit the UK worse than other European countries, and the recent run on the pound was sparked by the tax-slashing UK Government ‘mini budget’. Other ‘developed’ nations may have economic woes, but few have seen their currency tank quite like the pound in September.
UK Recession or Great Depression?
UK recession is expected, and with the pound weak, inflation running away, and interest rates set to rise even further, the real question is just how deep will this crisis be?
Personally, I fear we are on the brink of a new Great Depression. From 2023 to 2026, at least, we will experience exceptionally hard times. The UK housing market will hit the skids, with negative equity for new homeowners alongside crippling mortgage repayments and interest. Sterling will enter 2023 at an historic low.
Like the Great Depression of the early 20th century, economic tremors will be felt worldwide. The US housing market, for example, will also be in trouble over the next three years.
Cryptocurrency
The decentralised nature of cryptocurrency is supposed to protect it from control by a central bank, national government, or traditional financial institutions. Some fans describe it as ‘inflation proof’.
What it is not immune from is losing investors. However it is run, a cryptocurrency needs people to buy it to maintain value. If there is less money about, and fewer investors as a result, cryptocurrency values will fall.
Bitcoin will drop to a new all-time low in the coming months. And where Bitcoin goes, the rest tend to follow where Bitcoin goes, so we can expect another crypto market crash in 2023.
Pandemic Headache
Some believe crypto will weather the current storm and point to the situation during the Covid-19 pandemic. While global economies suffered severe setbacks during lockdowns, with many businesses failing, the cryptocurrency markets remained buoyant and seemed to fly in the face of the naysayers.
The pandemic gave a false picture, in my opinion. Being stuck at home changed people’s behaviour, giving them time – and perhaps motivation – to explore things they hadn’t looked at before, such as cryptocurrency markets. Because it is all online, it was easy to buy and sell cryptos, and NFTs, during lockdown, meaning the markets remained healthy while ‘traditional’ businesses suffered from a dramatic reduction in footfall.
This created a ‘crypto bubble; that saw astronomical crypto prices and eye-watering valuations of relatively new digital businesses. This simply wasn’t sustainable, and as the world began to return to some sense of normality, the bubble burst. That’s one explanation for why the market values plummeted in early 2022.
UK Recession and Preparation
Knowing we are in recession and anticipating a modern Great Depression could lead you to throw your hands up and surrender. The lesson from history – previous recessions, the Great Recession, and the Great Depression – is that they end, and things do improve.
Preparing for what comes in the next three years is crucial. You need a plan to ride out the wave of economic turmoil.
I won’t tell you how to prepare and plan; strategies will differ from person to person and industry to industry. What I will say is that the coming financial tsunami will present opportunities for the bold and the brave, just like the Great Recession and Great Depression did.
There will be mergers, sales, acquisitions, new market openings as old names fail, and fire sales on currencies, commodities, and stocks. Opportunists who can weather the next few years could be perfectly positioned to emerge from what comes next ready for impressive growth.
