David Lin: We’re Entering “Greater Depression”: Brace For War, Sovereign Defaults

Markets have seen some increased volatility in recent months thanks to geopolitical events. While Russia’s invasion of Ukraine drags on for a third year, escalating conditions in the Middle East could result in a wider global conflict.

That means that any market selloff we’ve seen so far could pale in comparison. And if war does break other, the reaction among asset classes could result in the economy teetering over into a recession.

That’s especially true is oil prices end up soaring.

While prices have been calm in the past few weeks, soaring oil prices have tipped the economy into a recession several times. That includes the oil shocks of the 1970s, plus the early recession of the 1990s, and in 2008.

Currently, the economy is still recovering from the pandemic. While the private sector has taken off, government spending has led to soaring debt levels.

Now, those debt levels pose a problem as interest rates soar. Debt from two years ago is rolling over at significantly higher rate. Governments face soaring costs to finance their existing debt, while still running massive deficits.

That increases the possibility of a financial shock. And at some point, governments may simply decide to print money rather than go into debt. That would be a de facto debt default.

Even worse, it could create another massive wave of inflation. Investors may want to allocate some capital to gold to protect from these potential dangers.

To watch the full interview, click here.