Great Depression: Soaring inflation drowns the U.S. economy

ByGemma Iso

October 9, 2023

Alarming data, some of which has not been witnessed since the Great Depression of the 1930s, is sending shockwaves through the financial world. The key culprit? Soaring inflation, driven by unchecked government spending, which, if not curtailed, could lead to catastrophic consequences.

Great Depression, again?

When President Biden assumed office in January 2021, hopes were high that the pandemic-induced economic turbulence would subside. The availability of COVID-19 vaccines and the gradual reopening of states offered a glimmer of economic recovery.

However, instead of returning to pre-pandemic spending levels, the Biden administration, backed by Congress and the Federal Reserve, chose to maintain elevated government expenditures.

This decision, coupled with the Federal Reserve’s commitment to low interest rates and external factors such as the Ukraine crisis, catapulted inflation to levels not witnessed in over forty years. Prices for everyday essentials, from groceries to fuel, skyrocketed, burdening American households.

In an attempt to regain control and tame rampant inflation, the Federal Reserve began a substantial interest rate hike in 2022, a policy that continued into 2023. Meanwhile, government spending remained far above pre-pandemic levels, further complicating the economic landscape.

Reliance on credit cards

While these measures have somewhat curbed inflation, it hasn’t been enough to bring prices back to pre-pandemic levels. The cost of consumer goods and services, as well as housing and rent, remains significantly elevated, eroding the purchasing power of everyday Americans.

Survey data from the Federal Reserve reveals a worrying trend: the bottom 80% of income earners, who make up the majority of the population, now possess less real household savings than they did before the pandemic. Top earners are also on track to see their savings dip below pre-2020 levels within the next year.

The confluence of surging prices and a shrinking money supply has forced Americans to increasingly rely on credit cards and other forms of consumer debt. Could this to another great depression?

Reduce government spending

The only viable solution lies in a reduction of government spending—a challenging decision that only Congress and the White House can make. As the nation teeters on the brink, the urgency of this decision cannot be overstated, for failing to act may plunge the United States into yet another devastating economic crisis.