Renowned economist: Countdown to the century collapse, economic recession may exceed the 2008 financial crisis.

Renowned economist Henrik Zeberg warned that the global economy is on the brink of a severe economic recession, which could surpass the 2008 financial crisis and even be compared to the Great Depression of the 1930s. Analysis shows that the illusion of a strong economy has shattered, with leading and coincident indicators both signaling an impending recession. He predicts that the unemployment rate could soar from the current 3-4% to 6-8%, and warns that the United States may first face a deflationary depression, followed by a stagflationary reset.

Henrik Zeberg Warns: Economic Recession Exceeds the 2008 Financial Crisis

(Source: Finbold)

Renowned economist Henrik Zeberg stated in a Substack post on November 28 that the growth of non-farm employment in the United States is slowing down, industrial production and retail sales are declining, and previous employment growth has been overestimated. The convergence of these weaknesses confirms that the long-expected economic recession is beginning. He said, “I believe that the upcoming economic collapse will not only surpass the 2008 financial crisis, but may even be comparable to the Great Depression of the 1930s.”

Zuckerberg's warning is not unfounded but is based on the comprehensive deterioration of multiple leading and coincident economic indicators. Leading indicators refer to data that starts to decline before an actual economic recession occurs, such as new manufacturing orders, building permits, and consumer confidence indices. Coincident indicators are data that fluctuate in sync with economic activity, such as industrial production, retail sales, and employment data. When both types of indicators deteriorate simultaneously, it usually indicates that an economic recession is inevitable.

Compared to the 2008 financial crisis, there are some key differences in the current economic environment that may make the upcoming recession more severe. The 2008 financial crisis primarily stemmed from the collapse of the financial system, particularly the crash of the subprime mortgage market. At that time, the problems were concentrated in banks and financial institutions, while the real economy was relatively healthy. Governments and central banks were able to quickly stabilize the situation through massive fiscal stimulus and monetary easing policies.

However, the current situation is even more complex. The roots of this economic recession lie not only in the financial system but also in the comprehensive weakness of the real economy. Consumers, businesses, and governments are all burdened with record levels of debt, while interest rates are at decades-high levels. This means that policymakers will have more limited tools available to respond to the impending recession. The room for interest rate cuts is limited, and fiscal stimulus is constrained by massive public debt.

The Vulnerability of American Consumers Becomes the Trigger for Recession

This top economist pointed out that more signs of a crash come from the vulnerability of American consumers, as they drive about 70% of GDP growth, and they are now showing clear signs of weakness. To cope with the highest inflation in the past four decades, households have depleted their savings from the pandemic and are burdened with over $1 trillion in credit card debt, with interest rates exceeding 20%.

Five Warning Signs of the American Consumer Dilemma

Exhaustion of Pandemic Savings: The excess savings accumulated from the government stimulus plans during 2020-2021 have nearly been depleted.

Credit Card Debt Explosion: Over $1 trillion in debt with interest rates exceeding 20%, hitting a record high.

Default Rate Increase: The default rates on auto loans and credit cards have significantly risen.

Bankruptcy Applications Increase: The number of personal and household bankruptcy applications continues to rise.

Consumer Confidence Collapse: The consumer confidence index has dropped to levels similar to the most severe period of the 2008-2009 crisis.

The default rates on auto loans and credit cards are rising, along with an increase in bankruptcy filings, indicating that consumers are cutting back on spending. Consumer confidence has collapsed, dropping to levels similar to the most severe period of the 2008-2009 crisis, leading to a decline in auto sales, home renovations, and spending on non-essential goods. This shrinkage in consumption is fatal for the consumer-driven U.S. economy.

Credit card debt exceeds $1 trillion with interest rates over 20%, a staggering figure. During the 2008 financial crisis, although credit card rates were also high, the total debt was relatively low, and household savings rates were relatively healthy. The current situation is characterized by record-high debt, record-high rates, and nearly depleted savings, creating a triple squeeze that leaves consumers with almost no buffer to cope with the impacts of an economic recession.

The decline in automobile sales, home renovations, and non-essential goods consumption is a clear signal that consumers are starting to tighten their belts. In economics, these are referred to as “elastic consumption,” and these expenditures are the first to be cut when household financial pressures increase. Once this trend begins, a vicious cycle is formed: reduced consumption leads to decreased business revenues, corporate layoffs lead to rising unemployment rates, and the rising unemployment rate further suppresses consumption.

The cracks in the labor market signal the impending wave of unemployment

Although the labor market appears resilient, Zuckerberg pointed out that employment data is a lagging indicator, and cracks are beginning to show. The number of job vacancies is declining, hiring plans are being cut back, and layoffs and hiring freezes have begun in the technology, real estate, finance, and retail sectors. At the same time, revisions to the monthly employment data indicate that growth is slower than initially reported, and temporary employment, a leading labor force indicator, is also declining.

Zuckerberg predicts that once the economic recession fully unfolds, the unemployment rate could surge from the current 3-4% to 6-8%. The speed and magnitude of this increase in unemployment will be similar to or even exceed that of the 2008 financial crisis. During the 2008-2009 period, the unemployment rate in the United States skyrocketed from about 5% to 10%, resulting in millions of families losing their sources of income.

The characteristic of employment data as a lagging indicator means that when the unemployment rate begins to rise significantly, the economic recession has usually already entered a deep stage. When the economy starts to deteriorate, companies will first take measures such as cutting capital expenditures and freezing hiring, and only when the situation continues to worsen will they start laying off employees. Therefore, when the unemployment rate begins to climb, it is often too late, and policy interventions are difficult to reverse the situation quickly.

The decline in temporary employment is a particularly noteworthy leading indicator. Companies usually cut back on temporary and contract workers first before affecting permanent employees. When temporary employment continues to decline, it typically signals an impending wave of layoffs among permanent staff. The current trend of declining temporary employment has been ongoing for several months, which reinforces Zuckerberg's prediction of an approaching wave of unemployment.

The Dual Threat of Deflationary Recession and Stagflation Reset

Overall, Zuckerberg stated that the United States may first face a deflationary recession, followed by a stagflationary reset. This not only signifies the end of the business cycle but could also mean the end of the current monetary era. A deflationary recession refers to a state where prices are generally falling and economic activity is sharply contracting, a situation that occurred during the Great Depression of the 1930s. Stagflation is a state where high inflation coexists with economic stagnation, a painful combination experienced in the 1970s.

The two-stage crisis scenario predicted by Zuckerberg is extremely rare and dangerous. First, the deflationary recession phase will be triggered by a collapse in demand, with consumers and businesses simultaneously cutting back on spending, leading to falling prices, corporate bankruptcies, and skyrocketing unemployment rates. This phase is similar to the early days following the 2008 financial crisis, but on a potentially larger scale. Subsequently, in response to deflation, the government and central banks will be forced to implement extreme fiscal and monetary stimulus, which could trigger a second stage of stagflation crisis.

This dual threat scenario makes policy responses extremely difficult. Addressing Deflation requires expansionary policies, while dealing with inflation necessitates contractionary policies, which contradict each other. If policymakers excessively stimulate the economy during the deflation phase, it may sow the seeds for subsequent vicious inflation. However, if the stimulus is insufficient, the economy may fall into a prolonged depression.

In fact, this economist has been warning about the economic situation, stating that most investment assets could crash. However, before assets like stocks and cryptocurrencies collapse, investors should expect the market to experience a euphoric phase, potentially driving record highs, followed by a massive market downturn. This phenomenon of “euphoria before a crash” has been seen throughout history, occurring similarly before the burst of the dot-com bubble in 2000 and the financial crisis in 2008.