Both the US and European governments have kept interest rates too low for too long, enabling them to run up huge social welfare programmes, leading to burgeoning peace-time budget deficits, and massive government debts that can’t be repaid. The bills are now coming due in Europe. That’s going on today in the global economy.

This is what Herbert Hoover, the 31st President of the United States from 1929 to 1933, wrote in his Memoirs of the Great Depression 1929-1941:

In the spring of 1931, just as we had begun to entertain well founded hopes that we were on the way out of the depression, our latent fears of Europe were realized in a gigantic explosion which shook the whole foundations of the world’s economic, political, and social structure. At last the malign forces arising from economic consequences of the war, the Versailles Treaty, the postwar military alliances with their double prewar armament, their frantic public works programs to meet unemployment, their unbalanced budgets and the inflations, all tore their systems asunder. (page 61)

European statesmen did not have the courage to meet the real issues. They continued to assert, even after the explosion, that the remedy lay in more credits, more government expenditures, more deficits, and more inflation.
All these things we had known and long feared. But the violence of these forces we did not know. And there were still other hidden explosive materials. They only gradually appeared. In retrospect, it is evident that the inflationary action of our Federal Reserve System in 1925 and 1927, undertaken at the instance of foreign bankers, had contributed to delay their crisis, but in the end created a time bomb through immense short-term borrowing of Central European banks from banks all over the rest of the world. (page 62)

Apprehension began to run like mercury through the financial world. It spread through the world’s markets all during the first half of April. Security and commodity markets in the United States began to slump. I directed the Department of Commerce and the Treasury to inquire at home and abroad as to the situation in each country. They reported steady European selling of American securities in our markets, some flight of capital from Europe to us, and a sharp decrease in orders for our export commodities. European insiders were apparently protecting themselves from something sinister to come. (page 63)

In other words, the world has seen this type of crisis before. Politicians didn’t deal very well with it last time, resulting in a prolonging of the Great Depression that led ultimately to the Second World War. This time around, the problems are deeper and worse, but political leaders are responding in the same way, just more aggressively, with more government spending, bigger budget deficits, and more monetary inflation. The big difference this time, is that the world has no anchor to fix the value of currencies, and a global price inflation is set to accelerate as politicians try to bail out a collapsing system.