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It wasn't exactly a fireside chat, but the language the President used was definitely from a time when the only thing we had to fear was fear itself.
"Without immediate action by Congress," Bush warned in September, "America could slip into a financial panic... More banks could fail... and inaction could cause millions of layoffs, bank failures, business closures, lost retirement savings, more foreclosures, and a further drying up of credit."
And when he was finished his prime time speech one thing at least was perfectly clear: The ghost of the Great Depression had slipped into the room.
That made for an early Halloween for investors, as the levels of market fear became more shrill with every failed negotiation.
The big question now, of course, is whether or not any of this scary language is accurate or whether it just makes for good copy and interesting headlines. The problem with that though, is that economics isn't exactly our national strong suit.
In fact, when it comes to the Great Depression, most of what people know about it is sketchy at best, falling somewhere between Black Tuesday and Smoot-Hawley.
Meanwhile, the fact is that the Great Depression itself wasn't defined by either event, but by scores of decisions both good and bad. As a result, the episode lasted over ten years and its different causes are still being argued about today.
However, what manages to stick out from that great morass are the statistics themselves. And it's those numbers more than anything else that gives the slump its ultimate definition.
The Numbers Behind the Great Depression
So is the U.S. really headed for another Great Depression... if we don't give Congress a giant blank check to fix it all?
Well, let's hope not. Because the numbers from the first one are so off the charts that they make it almost impossible to comprehend a second one.
Consider these facts:
- From 1929 to 1933, production at the nation's factories, mines and utilities fell by 50%
- Real disposable income fell by 28%
- Stock prices fell by 90%
- The number of unemployed rose from 1.6 million in 1929 to 12.8 million in 1933
- At its worst, 1 in 4 workers nationally were out of work
- Auto production fell 75% from its 1929 peak
- Nine thousand banks failed between 1930 and 1933
And it was only after 10 years of stumbling and bumbling through that tangle that the economy finally began to rebound for good.
Kind of hard to fathom, isn't it?
So, by comparison, at this point, there really is none and it's doubtful that there ever will be — all fear mongering aside.
Nonetheless, there are certainly more than enough similarities between these two events to make you wonder exactly what lies ahead. Here are few of them.
The Depression's Ben Bernanke
They come to us courtesy of Marriner S. Eccles, the Chairman of the Federal Reserve from 1934 1948 — think of him as the Ben Bernanke of his day.
In his 1951 memoir Beckoning Frontiers, Eccles detailed what he believed caused the Depression.
Eccles wrote:
"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nations economic machinery. [Emphasis in original.]
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low. Private debt outside of the banking system increased about fifty per cent. This debt, which was at high interest rates, largely took the form of mortgage debt on housing, office, and hotel structures, consumer installment debt, brokers' loans, and foreign debt. The stimulation to spending by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product — in other words, had there been less savings by business and the higher-income groups and more income in the lower groups — we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.
The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment.
Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices. Earnings began to disappear, requiring economies of all kinds in the wages, salaries, and time of those employed. And thus again the vicious circle of deflation was closed until one third of the entire working population was unemployed, with our national income reduced by fifty per cent, and with the aggregate debt burden greater than ever before, not in dollars, but measured by current values and income that represented the ability to pay. Fixed charges, such as taxes, railroad and other utility rates, insurance and interest charges, clung close to the 1929 level and required such a portion of the national income to meet them that the amount left for consumption of goods was not sufficient to support the population.
This then, was my reading of what brought on the depression."
Now does any of that sound familiar? You bet it does.
But does that mean we are actually headed for a repeat of the Depression?
Of course not. No two historical events are exactly alike and ours is a story that is still being written.
Even so, you can't help but believe that some sort of pain is going to be found somewhere in our current tale. However, in all likelihood it will be much closer to what Jack Welch described not in a return to apples and boxes to sell them in.
Jack Welch commented earlier , "I now believe we are in for one hell of a deep downturn," adding that the first quarter of 2009 will likely be "brutal."
For investors, however, that means looking beyond the fear to the future. Because as this crisis begins to clear — and it eventually must — it will represent one of the greatest buying opportunities of all time for those of you that managed to keep your heads.
That much I'm sure of.
And if you don't believe me, just ask Warren Buffett about it.
He sunk $5 billion into Goldman Sachs on the very day the President conjured up the ghost of Tom Joad.
And as an investor, I'd be willing to follow him anywhere — even past the graveyard on the darkest of nights.
By the way, here's something else you need to know about the Great Depression. The stock market bottomed long before the crisis itself ended. Stocks actually bottomed in July 1932 before the next uptrend began. That was long before FDR took office and delivered his first fireside chat.
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Comments
Interesting article... especially the mention
"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nations economic machinery. [Emphasis in original.]
Now is the time to allow a a hundred million legal immigrants to come roaring in and look the other way as another 20 million illegal invaders slither their way in so as to get those wages as low as possible.
America's better classes deserve an underclass to serve us.
Obbop, you are a retard.
Buffet did not buy Goldman common stock. He bought a blend of preferred shares and warrants that guarantees profit for him no matter what happens to GS. The preferred shares earn 10% interest per year, no matter what, and are payable before any other dividend for common stock shareholders. $5B for Buffet is like $500 to you and me... he hardly went "all in." The lesson we should learn here from Buffet is one of exceptional risk control.
Let's see - a government that seems incapable of even *identifying* the fundamental problems, much less implementing viable solutions. A government that is wasting tax dollars to bail out the thieving scum exeuthieves that created this disaster? Oh, we're in great shape. The Depression era had Hoover Coal - I guess we will have Bush Briquettes, Bush Bungalos (cardboard boxes), Bush Bucks (barter), Bush Beef (roadkill), ad nauseum.
Of course not! All the negative economic reporting has done its job of getting Obama elected. You can talk about something else now.
It will take at least 4 years to get us out of the clusterfark that George Bush put us into.
It will take at least 4 years to get us out of the clusterfark that George Bush put us into.
This author's take/analogies are very slanted, myopic, and plainly wrong. Please do not believe that reading this article is informative about anything to do with either the depression or the current financial state.
This author's take/analogies are very slanted, myopic, and plainly wrong. Please do not believe that reading this article is informative about anything to do with either the depression or the current financial state.
Raise the goddamned wages or suffer the consequences.
Raise wages or suffer the consequences!!!
Raise wages or suffer the consequences!!!
Oh, sure, blame everything on Bush. Talk about myopic, slanted and plainly wrong. Bush can be blamed for a lot of problems, but this credit crisis started way back in the Carter administration, was exascerbated in the Clinton years, as more and more people took advantage of de-regulation. Funny how the Democrats escape any blame for any of this, even after things really started going bad after they took control of Congress a couple of years ago. The mistake the Republicans made was trusting the American public to act in a responsible manner. As more and more credit became available and easier to get, many of our countrymen over-extended themselves and now look for the government to bail them out. Need proof? Read the front page story of today's Sun.
And now we expect policies that have failed time and again throughout history to fix things? Sorry, the solutions Obama will put forth will only make things worse.
While stocks bottomed in 1932, they were not an ideal invesment at any point during the depression era. Buffet's firm's performance is down 75%.
I can't see how anyone can invest when the government is giving away billions like haloween candy. First it was the banks, now the auto makers, next the airlines and everyone else who can't run their business is determined to drag down those who can.
"First it was the banks, now the auto makers, next the airlines and everyone else who can't run their business is determined to drag down those who can."
Don't forget Arnold lining up in Kalifornia with his hand extended towards the tax payer in DC!
Hey..the worse the economy gets the higher price I get for my FIREWOOD! Bring on the depression. I'll be rich that's very hard to pull off living here up here in north Idaho. google Rick Reed, Idaho Comedy and see the comedy club I hand built with five balconies and seats 70 people.
Hey Rick Reed...WHO CARES ?
Hey Rick Reed...WHO CARES ?
Tell me why congress spent so much of its time interrogating sports celebrities about their drug use instead of spending time working on the economy?
Tell me why congress spent so much of its time interrogating sports celebrities about their drug use instead of spending time working on the economy?
Hey Ken,
This is an issue caused by both parties and deregulation. This is caused by greed from all sides. Making this a partisan issue is futile. Blaming Bush, for BEING Bush, isn't partisan...but rather the cumulative perception of the fumblings this "WORST" president in history has made.
Tell me why congress spent so much of its time interrogating sports celebrities about their drug use instead of spending time working on the economy?
an old quote from Henry ford (that guy who virtually invented industry as we know it today);
There is one rule for industrialists and that is: make the best quality of goods possible at the lowest cost possible, paying the highest wages possible."
I think every middle manager on up to top executive in every company in the country needs a postcard sent to them with this message on it.
AC I like the input.We allowed our leaders to do the most distruction with the least amount of accountability for the sole benifit of themselves at the expense of our future. Would you think at some point an act against the American people and their future would be an act of treason against the country??
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