NO.194 The world economy in an ultra-low interest rate environment enters the Great Depression when interest rates are raised


2019 Principles of the onset of the Great Depression of the World Economy



This article is based on the article No.184.

This article is a postscript of the consideration that I have done in No.184.


The global ultra-low interest rate policy has widened the economic inequality on a global scale.



World finance incorporates dynamism that distributes most of the wealth of the world economy to a small number of wealthy people. The world has shifted to ultra-low interest rates, and the amount of currency supplied to society on a global scale has increased dramatically. Most of the currency supplied to the society continues to be distributed to a few rich people by world finance.
The global ultra-low interest rate policy has widened the economic inequality on a global scale.


What happens if interest rates are raised after very low interest rates continue for a long time?



The world economy will enter the Great Depression.
Increasing interest rates reduces the amount of currency supplied to society. If the total amount of merchandise remains the same, but the amount of currency circulating in society decreases, deflationary pressures will arise. The scale of products sold by companies remains the same. Nevertheless, if forced to cut prices, companies cut labor costs.
If wages drop at the same rate as prices, there will be no problem.

However, the nominal wealth of wealthy people remains the same.
If the interest rate goes up, the yield of stock dividends may increase. High stock dividends to wealthy people will be a burden on companies.
If interest rates rise, investors will expand their investment in real estate. Investors procure investment funds from finance using assets of asset owners as collateral.
Real estate prices soar.
The rise in real estate prices is a burden on companies and individuals.
Rent prices will soar. Individuals reduce product purchases by the rise in rent prices.
For many companies, soaring real estate prices and chilling personal consumption are burdensome. Many companies' performance deteriorates. Many companies dismiss workers. Corporate bankruptcies will continue.
A large number of unemployed people appear. Unemployed people cannot consume because they cannot sell their income. Increasingly, the performance of many companies deteriorates.
The emergence of a large number of unemployed people and a vicious cycle of recession occur.
The world economy enters the Great Depression.


In the United States, interest rates rose after the very low interest rate continued due to the Lehman shock.



Currently, there are an increasing number of American middle class workers who have graduated from college and are becoming homeless without paying rent. They are employed by companies. But they can't pay rent with wages.
It seems that those people now support Democratic Socialists of America.


In major leagues in the United States, multi-year high annual salary contracts continue.



Due to the US ultra-low interest rate policy, the total amount of dollars circulating in American society has increased dramatically. Therefore, the annual salary of major leaguers would have soared.
If the US raises interest rates, the total amount of dollars circulating in society will shrink, so the major leaguer's salary should also go down.
Even if the US economy enters the Great Depression, contracts that have already been signed will bind the team. Each team will continue to bear the burden of the multi-year high annual salary concluded in the low interest rate era.
It may happen that multiple teams go bankrupt?

The same thing can happen outside the major leagues, right?
I want to share my awareness of the crisis, so I make this proposal.




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