Will 2008-2009 be the Great Recession or Depression of our era?

By
Education & Training with XYZ Sales & Consulting Group NMLSRID#887159

 I think the jury is out, and the question isn't if we're heading into a recession, but the real question is how long will this recession affect markets, and how harsh will it become.  This morning I read an alarming article about the impending recession, Impending Financial Hurricane, Now I know that you don't want to be overly negative because of some bad news you read on the Internet.  But neither should you stick your fingers in your ears and close your eyes when the train is heading towards you. I guess the question is the media over blowing the risks to our economy, or can we learn something from our past history.  So I checked google and searched the "chronology of the Great Depression", and soon found a great time line that we all should look at closely.  Time Line 

((Interesting exert from that article))

 1928

  • Between May 1928 and September 1929, the average prices of stocks will rise 40 percent. The boom is largely artificial.

1929

  • Herbert Hoover becomes President.
  • Annual per-capita income is $750. More than half of all Americans are living below a minimum subsistence level.
  • Backlog of business inventories grows three times larger than the year before.
  • Recession begins in August, two months before the stock market crash. During this two month period, production will decline at an annual rate of 20 percent, wholesale prices at 7.5 percent, and personal income at 5 percent.
  • Stock market crash begins October 24. Investors call October 29 Black Tuesday. Losses for the month will total $16 billion, an astronomical sum in those days.

1930

  • By February, the Federal Reserve has cut the prime interest rate from 6 to 4 percent. Treasury Secretary Andrew Mellon announces that the Fed will stand by as the market works itself out: 'Liquidate labor, liquidate real estate... values will be adjusted, and enterprising people will pick up the wreck from less-competent people'.
  • The Smoot-Hawley Tariff passes on June 17. With imports forming only 6 percent of the GNP, the 40 percent tariffs work out to an effective tax of only 2.4 percent per citizen. Even this is compensated for by the fact that American businesses are no longer investing in Europe, but keeping their money stateside. The consensus of modern economists is that the tariff made only a minor contribution to the Great Depression in the U.S., but a major one in Europe.
  • Supreme Court rules that the monopoly U.S. Steel does not violate anti-trust laws as long as competition exists, no matter how negligible.
  • The GNP falls 9.4 percent from the year before. The unemployment rate climbs from 3.2 to 8.7 percent.

 

So the question is, are we headed for the same fate.  It looks like Banks are going down in record numbers, the Federal Reserve has promised to reduce rates and do what is necessary to keep the credit market alive, which sounds allot like 1929.   Are we going to now raise taxes on the richest American's?  Are we going to have 24.9% unemployment rates?  Or are we going to spend ourselves out of depression through Keynesian Economic theoriesJohn Maynard Keynes of government spending?  Are we going to make decisions that will make the crisis worse? 

So what can the little guy do?  Are you going to prepare now, there still is time if History has any say in our current crisis.  Or is this just a bad dream and everything will get back to normal in 2009 like some people are saying?

I think it may be a little of both. I'm not that our economy today can actually be compared directly to that of the 1930's. I think the sophistication of our markets maybe one reason we rebound sooner, and furthermore I think the baby boom generation is still not in the draw down stage of their lives.  Once the baby boomer's stop making major purchases, then we may actually see a true depression.  But this one could be a sharp and harsh recession before the last Boom cycle.

Anyway, time enough to speculate over the next few months, but as my father always taught me, never ignore the past, because it can come up in bite you in the butt if you don't pay attention to it's lessons. 

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Rainer
34,861
Mehmet Met Dilsiz
FND Photography / M2 Real Estate Solutions - Midvale, UT

Very well covered...  I like the facts and your take on it, and I'd like to agree with you on the sophistication of the current market place as opposed to the 1920-30s...

Even if we hit the depression, I don't think that it will be as bad as the 1930s

Nov 14, 2007 08:30 PM #1
Anonymous
Anonymous
bubba nokarind

if we have a depression it might hurt us bad but we should be able to recover

 

Nov 14, 2007 08:38 PM #2
Rainmaker
305,524
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
VA Home Loans/San Diego
There was a property crash in 1928 that preceded the stock market crash.  This is eerily parallel to the 80 years prior.
Nov 15, 2007 03:33 PM #3
Anonymous
Anonymous
Kayden Cross

The problem is most Americans don't save anything anymore. We are better collectors than saver's. There will be a huge washout, most will families will feel the pain. In the end, it should humble most people.

Nov 18, 2007 04:01 PM #4
Anonymous
Anonymous
Mark Church
Severe Recession through 2008, MOTHER OF ALL DEPRESSIONS 2009! I can almost guarantee it.
Feb 21, 2008 04:24 AM #5
Rainer
70,594
Karl Christen
XYZ Sales & Consulting Group - Pleasant Grove, UT
Don't agree with the Depression talk as of yet.  We're too close to a major demographic shift, which should hit us in the mid 2010-2015.  Then we could see the Mother of all Depressions. Unless of course the world economy crashes this year, which is possible due to China's ridiculous expansion.
Feb 21, 2008 10:32 AM #6
Rainer
4,241
Crandall Thomson
Keller Willaims - Salt Lake City, UT

Hmm.    Don't know, dont have time to speculate on it I am just going to make a ton of money this year and buy gold and food stuffs. HAHAHAHA

Sorry I though it was funny.

May 23, 2008 07:21 PM #7
Anonymous
Anonymous
jasanaha

Try reading the book " Who Moved My Cheese", it will talk about lots of things includng change and how to see it coming and what to do to prepare for the change that is coming.

Jun 02, 2008 04:02 PM #8
Anonymous
Anonymous
Joel

If inflation continues to rise and interest rates rise as well regardless of what the fed is doing to prevent that, i.e. inflation,  there will certainly be a world of hurt to come.  The housing market will only continue to fall as home buyers won't be able to get a reasonable mortgage because interest rates will be high, i.e. 8,9,10 % (the cost of borrowing money) coupled with more inflation (the governments way of preventing gold from going through the roof but at the same time decreasing the value of the dollar).  With banks going under like Indy Bank, the 2nd largest in history, it alone will eat up nearly 10% of the FDIC's piggy bank nearly 54 billion dollars to cover peoples accounts, leaving far less to cover other banks that may fail.  Many banks are hurting right now.  There is a list that exists but the government will not give it out because it will cause havoc as people will want to pull their deposits out in mass from those banks. If that were to happen there would certainly ensue a depression.

 

However, keep in mind, interest rates in the 1970's, during that recession and the shortage of gas, were in the neighborhood of 17%.  If that were to happen now, count on a depression.  So far interest rates are at 6.35% (the government is printing more money--inflation and arbitrarily keeping them there) but they are rising nonetheless.  Coupled with that fact, if energy costs and food costs continue to rise, i.e. oil at $200 a barrel, right now it's at $140 something, you can count on a depression of great magnitude.

 

The depression of the 1930s spanned 3-4 years.  I expect we are in the beginning stages of that as we recognize that the world is becoming a smaller stage and given that this nation has become a consumer nation we better get our act together and bring some of what we exported back to this country by offering incentives to business in the form of tax breaks because that's what sent it overseas to begin with, that and labor costs, so that we don't put ourselves in a position to buy everything from China.

Jul 17, 2008 05:51 PM #9
Rainer
70,594
Karl Christen
XYZ Sales & Consulting Group - Pleasant Grove, UT

I certainly agree that thinks are not going well, but allot of the current inflation is direclty related to Oil.  If oil does moderate to $90-120 a barrel, then I'm not sure inflation will take as big a toll as your response would suggest.  There are stories out there in the media that predict dire $200-300 oil prices, but reality is demand has been dropping quickly.  The other issue is that China and India cannot continue subsidizing their own oil consumption, and in result the Chinese manufacturer will find his cost of goods soaring.

I also work with a number of distribution rep's that work with manufactureres.  There recently has been a strong demand for US products in China.  As you stated Joel, we need to see manufacturing return to our country and as these third world countries become more first world, you'll see their consumers desire American made products.

The big issue is energy at this point.  Will it continue to go up, or will we see costs subside in time.  Current inflation numbers are primarily from the high cost of energy.  If the price goes down, then what happens to the cost of goods?  Probably go down as well.  The big problem is that we've never dealt with an economy like the one we're in currently, nothing in our past is identical to what is going on in 2008.  So comparisons to 1929-1934 are fairly useless.

 

Again, our economy is much more dynamic and complicated then the 1930's.  Much higher GDP now then in 1930 if you adjust for inflation.  The reality is that we can take a much bigger hit financially before it topples our economy.  The other aspect is that globally we're much more tied into other countries then we ever have been in the past.  Unlike the 1930's, are tarrif's on imported goods both helps us buy and export goods to other countries.  The reason we've not been able to sell much out of the country is due to the incredible amount of capital we've expended in the past 20 years.  Our dollar has also been so strong, that many countries are unable to move our products in their own countries.

I can tell you from personal knowledge that large purchase orders are still being issued by major retailers.  People are still shopping, they still are driving their cars, despite the price of gas.  Life is continuing, and there are signs that the credit crisis will eventually abate..Look at the recent numbers posted by Morgan Stanley.

I guess it's not diffficult to jump on the depression bandwagon when your constantly hammered by bad news in the media and from other sources.  I'll admit that some day's I get a little down, but then I keep plugging away and business continues to come in.  Keep working hard and things will eventually work out.

But I'm not buying into the depression hype.  I just don't see it happening, I personally think Oil is going to be 90-120 a barrel by spring 2009, and I can already see the real estate market heating up in certain locations, both those buying discounted property and some area's like San Fran are actually maintaining their values.  It's not all bad, and it's not going to last forever.  Just my opinion, but I recently predicted that oil would start peaking, and look at the last few days.  It's not exactly a route, and I'm sure there willl be some political story or foreign crisis that might drive it up temporarily, but inventories are way up right now, and the so called oil demand is rapidly losing it's investors.

Jul 17, 2008 08:01 PM #10
Anonymous
Anonymous
TJefferson

The depression is weeks away and it will be MUCH worse than 29'. People have little savings now, unlike in 29'. People in 29' knew how to DO THINGS. Most people now cannot put oil in there own car. In 29' the nation and no debt and could afford to print some money. Well, you know how much bogus money there is now...

Oct 02, 2008 11:19 PM #11
Rainer
70,594
Karl Christen
XYZ Sales & Consulting Group - Pleasant Grove, UT

Ok everyone...I know this subject is popular right now, but this blog is not a place to vent your DOOMSDAY predictions, or for every QUACK and NUT case to post his link for president...

Oct 06, 2008 02:23 AM #14
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Rainer
70,594

Karl Christen

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