Another Great Depression?

Concerns about the economy are justified. But to compare this to the Great Depression is blowing things way, way out of proportion.

Even as people have spoken about "recession" for the past year, the GDP figures that keep coming out continue to show positive GDP growth. No more than 1 percent growth, but growth nonetheless.

If one accepts the standard definition of a recession, two quarters in a row of zero or negative growth, we still aren't in a recession despite all of the forcasting heard about this last year.

Consider that the Great Depression was caused by the Federal Reserve allowing the money supply to be cut by 1/3rd and compare that to today, where the federal funds rate, adjusted for inflation, is negative. Clearly, we have learned a lot about monatary policy since the 1930s.

On the negative side, just as the economy has slowed down, Congress decided to raise the minimum wage and just as any economist would tell you, the unemployment rate went up for younger workers. In addition, the Bush tax cuts are about to expire. This is probably already priced into the stock market. In fact, the stock market has already probably priced in an Obama victory this fall.

Still, if you are investing for a longer time horizon than 5 years, I'd say increase the amount of money you are putting into your 401(k) and buy stock funds. With the S&P 500 priced at about 13 times projected earnings, you are getting a bargain.

Let's look at history too. Clinton and a Democrat Congress got elected in 1992. By 1994 the voters elected their first Republican Congress in 40 years. And how did the stock market do from 1995-1999 ? Very well. In fact, I wish I had been more in stock back then instead of split between bonds and stocks.

Oh, well. You know what they say about hindsight.

Surprisingly enough, there has to be a recession before there's a depression

Stephanie:
this is NOT a market correction - the vagaries of the financial eddies we are all experiencing are the wake of the Fed's riding rough shod on Jetskis across the calm waters of the ports in the global economic storm we have built for ourselves.

Read what our "betters" (the elites Rod excoriated in a post following this one) think their vocation in life is:

"In historical perspective inflation is a means to diminish the stress felt by debtors. The policy of the US central bank is construed to create inflation to alleviate that stress."

cited from blog.mises.org/archives/008257.asp

Nanny State wants to indulge your orgiastic consumerism, isn't she nice?
Bollocks!
Since when did we request our government to "alleviate stress" by creating the maddeningly stressful chaos of inflation? Scusi? The mafia shakedown of the Naples trash collection services looks like child's play compared to what our nation's private banking moghuls have done to our economy (and they're increasingly not "our" nations moghuls either, they're sovereign wealth funds from Singapore, Dubai, China etc)!

Oops seems b**ll*cks is not acceptable parlance, so I'll try again:

Stephanie: this is NOT a market correction. The vagaries of the financial eddies we are experiencing are the wake of the Fed riding rough shod on Jetskis through the calm waters of the tranquil bays in the economic ports of the global storm we have established for ourselves and our families.

Y'see our "betters" think their vocation is to indulge orgiastic consumerism and then ask "Nanny State" to alleviate the chronic priapism that results:

"In historical perspective inflation is a means to diminish the stress felt by debtors. The policy of the US central bank is construed to create inflation to alleviate that stress."

now consider these words of wisdom from the comments thread also:

"This sword (the counterfeiting potential by the government-sanctioned money monopolist) has two very sharp edges to cut deeply into the flesh of property rights and ethical prosperity.

One is the devaluation of the money defined as legal tender to reduce the debt of the gluttonous usurpers of the Constitution by stealing from the creditors. Futhermore, this undermines the capital structure which advances the socialistic and fascist objectives of the ego-driven interventionists.

The second very sharp edge is the redistribution of wealth from those who receive the 'dollar' later to those who receive it early on solely because of their connection to the self-serving plans of the power elite who are redirecting resources to themselves to enhance their power and wealth."

One could say that our political landscape is a kind of "flatland" with the freedom of association in two political parties simply an expression of which side of the sword's scathing justice do you want to live under? Elections are debased to a version of the childhood roundabout: when the group on the roundabout is smaller than those waiting to get on, they're trounced and have to vacate the playground. Pick your flavor: "redistributors" of private gain, or "redistributed" socialized losses. Manifestos only differ in perspective: "we seek power to reduce burdens to people like us" or "we defend power to maintain priviliges to people like us" i.e. are you an incumbant or a challenger?

Sound like the grim reaper anyone?

Justice requires Truth.

Rod rather than consulting your financial soothsayer (who's spectacles are all wet from the Jetskis too, so don't trust the financial statements he's or she's reading) encourage folks to understand money supply from an Austrian (ie Crunchy Con) perspective not the Calvinist/British school "labor theory of value" Wall Street is so enamored with. But don't expect either McCain's people or Obama's people to have a clue, this debate will rage for another whole generation, our grandkids may benefit if we can begin to take away the reins from the JetSki generation. Fighting bullies need b*lls, ninnies need not apply. Courage is the virtue of the Christian ethic, in service to the truth!

the devaluation of the money defined as legal tender to reduce the debt of the gluttonous usurpers of the Constitution by stealing from the creditors.

Are you saying that currency devaluation is unconstitutional? Why?

The best financial advice I heard recently came from a friend who took a long hard look at the economy after Bush/Cheney were re-elected -- the overheated real estate market, the overpriced health care sector, the narrow margins in retail, etc -- and put all his investment money into oil and oil services. He's done very well, but it's too late for the rest of us to follow suit. Even the oil sector will fall as the economy begins to contract. The price of oil has fallen for the last two days: that falling price is likely to be the only ray of hope for some time to come. Remember when CEOs used to say "What's good for US Steel is good for the US economy?" It's not true with Exxon.

The 21st century is teaching us an essential psychological fact: hard truths are hard to face. A Wall Street expert in financial bubbles looked at the real estate market for Harpers a couple of months ago and estimated, using hard numbers and solid logic, that it wouldn't hit bottom until it had lost 40% overall, which means substantially more in some sections of the country.

http://www.harpers.org/archive/2008/02/0081908

But no one likes to lose money; everyone puts off that day for as long as possible. So we have a long ways to go. Similarly, it's much easier to plan for victory than for occupation, for health than for sickness, for cheap energy than for expensive, for the present climate rather than the one we haven't experienced. We will begin to turn the corner as a nation when we begin to ask the authorities for the truth, rather than for what we would like to hear.

"Be grateful you have money to invest"

Yup, (or at least your employers' pension fund perhaps still has some reserves that keep today's golden oldies in clover. Don't count on there being anything for your own dotage tho') 'cos Bernanke's coming after that too:

http://www.marketwatch.com/news/story/bernanke-seeks-new-regulatory-powers/story.aspx?

from the comments at that thread:

"Bernake can't figure out how to use the power he has so he wants more power. Every move like this brings us one step closer to full blown fascism."

And thus Rod's self-fulfilling prophecy comes true: we'll all become voluntary serfs, and enjoy life disembarked from the Axiom? Not so fast, Wall-E fans, a scion of said-slavic-serfs, Gennady Stolyarov II, has a sobering alternate POV at www.mises.org/story/3037

The economic outlook is abysmal and will remain so for quite awhile, especially with the energy situation.

That said, comparisons to the Great Depression are possible only for those entirely unfamiliar with what happened in the Great Depression: 25% unemployment, severe currency depreciation, massive tariffs choking off global trade just as the economy needed it, massive income tax increases intended to balance the Federal budget at a time when the economy desperately needed investment. Worst of all: a widespread elite assumption, shared by both New Dealers and Hooverite Republicans that government tinkering could manage the economy more effectively than the market could, an assumption that led directly to crippling wage and price controls and insane schemes like the Undistributed Profits Tax and the National Recovery Administration.

All of the above turned what should have been a serious 2-3 year economic downturn into a decade-long catastrophe. We have lots of problems in 2008, including problems at the political leadership level. But we've got a LONG way to go before we're anywhere near the depths this country sunk to during the Hoover-FDR Era.

Avoid chasing returns. Most people lose money in the markets because they buy high and sell low. They become captive of the passions of the mob. One of the best indicators of a market bottom is investor sentiment and it is a reverse indicator. IOW when most people are buying and optimistic, it is the top of the market. That's when everybody believes that the good times will roll forever. DOW 35000, 50000, etc. Houses in California only go up. Stocks always return more than bonds. And on and on and on and on.

When stocks are cheap, nobody wants to buy. Can't raise any interest in the market. You can't make money on wall street. It's an insiders game. It's all fixed. blah, blah, blah. If you have a reasonable time horizon and all you do is the following, you will outperform over 90% of the professional money managers. Invest counter-cyclicly on a dollar-cost average basis. Only buy large index funds with low management fees: Such as Vanguard Total Stock Index fund. Never buy any stock fund from a salesman. Always buy direct from a no-load fund. Stay away from financial advisors. If they are selling funds, run at full speed.

If you have any hunches and like to invest in individual securities, never invest or allow any one stock to represent more than 4% of your total invested capital.

Do this and you will outperform the markets as a whole and any possible fixed-income investments.

I've very little expertise in this area, but I didn't need any expertise to observe that the housing "bubble" was going to burst. I occasionally looked at home prices on Craig's List and elsewhere, and they were vastly overpriced.

Even if I could have gotten a mortgage as a first-time homebuyer, I would have had to go way out to the exurbs of Washington, D.C. to find one that was affordable.

I'm 53 and this economic downturn feels different to me than any we've gone through before. Things don't happen the same way twice (as Aslan says in "Prince Caspian") but I do think we could be headed for a global depression. (Half the global population already live in a permanent depression - called poverty.)

Since there wasn't a floating exchange, that is harder to ascertain. In short the French in particular were exchanging dollars for gold. We were one of the last to abandon the gold standard, which I think would be indicative of the strength of our currency compared to others. From BW1 to BW2 there was a fixed exchange rate.

You are correct that I had intended to reference the 1960s.

People who say there could never be another Great Depression are stupid. In fact, it's entirely possible that we could experience an even worse crisis.

Consider, first of all, that the population of the U.S. - and the world in general - is much greater than it was during the Great Depression. There are far more people to take care of. In addition, the U.S. is now far more urbanized. During the Great Depression, many Americans lived on farms and were relatively self-sufficient. Another depression would find many millions of urbanites dependent on government welfare.

And how can we expect any relief from government when our government is so extraordinarily corrupt and dysfunctional? Will Corporate America be more interested in helping people flirting with starvation or using its political muscle to steal their homes and investments?

The world is also a much more complex place. People struggling with the original Great Depression didn't have to worry about global warming, a nuclear arms race or a phony war on terrorism.

The best way to deal with our economic woes is to launch a new revolution and take back our government. But it wouldn't be easy - our corporatized government has been making plans for just such a peasant revolt.

I'm not making specific predictions. I don't know when we'll get hit with Great Depression II, and I'm not even certain it will happen. But we're obviously in very bad shape right now, and it's equally obvious that the situation is continuing to deteriorate - and things will probably continue to go downhill for at least the next few years.

At the very least, we're obviously in store for some major pain - barring a miracle - and I predict we will experience something very similar to the Great Depression and possibly much worse.

Incidentally, I'm running for public office and will be writing an article about this topic and adding it to my campaign website at www.seattle-mafia.org.

David Blomstrom

David, when exactly did they take our government from us? Exactly what form of government would you envision? And, if you're running for office, what will happen to your job when we decide to "take the government back?". Absolutely ludicrous.