In a recent piece, Fox Business sounded the alarm on the latest GDP Report, and for good reason: GDP report reveals ominous Great Depression warning sign not seen since 1932
The recent GDP report from the Bureau of Economic Analysis paints a concerning picture of the state of the US economy. Despite the White House hailing the 2.9% growth in the fourth quarter of 2022 and 2.1% growth for the entire year, this report should set off alarm bells, not celebration.
It’s true that economic growth is slowing down, with business investment only growing at 1.4% in the fourth quarter and nonresidential investment, a crucial factor for future growth, only increasing by 0.7%. This can be attributed to the decline in real disposable income, which fell over $1 trillion in 2022.
This is a warning sign not seen since 1932, during the Great Depression.
The drop in real disposable income is the second-largest percentage drop ever recorded and is a clear indication of the struggling state of the economy. Consumers are now having to deplete their savings and rely on credit cards to keep up with inflation.
As a result, savings plummeted $1.6 trillion last year, which is below the levels seen in 2009.
The decline in real disposable income is having a major impact on the average family, who has lost approximately $6,000 in annual purchasing power, with higher interest rates adding an extra $1,400 to their annual borrowing costs.
This equates to roughly $7,400 less in the average family’s annual budget.
For those trying to purchase a median priced home, the situation is even bleaker. Monthly mortgage payments are 80% higher than when President Biden took office, meaning they now have to spend an extra $9,500 a year. It’s no surprise that many people are taking on second or third jobs just to make ends meet.
To make matters worse, it’s not just Fox Business sounding the alarm bells.
Hedge fund superstar, Mark Spitznagel, is also making a grave Great Depression prediction. According to The Wall Street Journal, in this latest letter, he calls for…
“Objectively the greatest tinderbox-timebomb in financial history—
greater than in the late 1920s, and likely with similar market consequences.”
Mark Spitznagel is the manager of hedge fund Universa, who has had an “epic 15 year run,” and is a protégé of “Black Swan” author Nassim Nicholas Taleb.
When the Covid pandemic caused global markets to plummet, Universa’s returns in Q1 of 2020 were estimated to be 4,000%. The fund also recorded a staggering $1 billion in gains in just one day during the 2015 “Flash Crash.”
According to The Journal…
“Just a 2% allocation to Universa Investments, with the remaining 98% in an S&P 500 index fund, would have produced an 11.8% annualized return over the fund’s life compared with 9.6% for an index fund alone, according to Mr. Spitznagel.”
Pretty impressive, right?
Conclusion
The White House can celebrate all it wants, but the decline in real disposable income is not good news. The fact that this hasn’t happened since the Great Depression should be a wake up call, and be the precursor of governmental action.
Let’s hope we don’t have to relearn the lessons of 1929 when we had 25% unemployment and bread lines wrapped around the block.
The bottom line is, the latest GDP report is a warning sign that should not be ignored.