Toward a More Complex and Difficult (Great) Depression

[marmar]

by Richard Thomas at HuffPost:

Toward a More Complex and Difficult Depression
Posted August 16, 2007 | 01:41 PM (EST)



The current liquidity crisis can be paralleled to events leading up to the Great Depression. Specifically, the departure from fundamental valuation principles and extension of credit in the subprime market is consistent with mistakes made by speculators in the late 1920s.

After World War I, the U.S. economy experienced a brief recession from 1920 until 1921 and then experienced robust growth until 1926. The economy grew because new retail markets and credit instruments were introduced to the public. Consumers were bombarded with notions of "buying now and paying later" from retail stores like Macy's (who recently posted a loss in profits). For the first time people could have things they really wanted without having to wait until they saved enough money to pay for it. This included the purchase of securities , and bank loans leveraged on them. Thus, the volume of credit transactions increased the volume of sales and loans, i.e. demand for goods and services. In short, people borrowed and spent like crazy not worrying about the debt they were incurring.

In response to the spending frenzy, firms increased investment to meet the demand for new goods and services. The markets that boomed most were new homes and automobile sales. However, these spending habits and increased production levels could not be sustained forever. The accumulating debt had to catch up with consumers at some point. That time came at the end of 1926, where gross investment peaked and market saturation took toll. Households fell into an unfavorable liquidity positions because of debt burdens and, therefore, demanded fewer goods. In effect, producer inventories increased and gross investment declined from 1927 until 1935.

Does this sound familiar? ......(more)

The complete piece is at: http://www.huffingtonpost.com/richard-thomas/toward-a-more-complex-and_b_60731.html

[nadinbrzezinski]

1. But, but, I have made that case

and been called a loon

Damn

:-)

Better not think too much bout it huh?

[marmar]

3. I get the feeling that those who've been called "loons" on a great many issues....

are going to look like prophets in the very near future.

[fed-up]

4. Some of us listened-thanks for taking the time to post all your warnings-nt

[fasttense]

9. Oh yes you have nadinbrzezinski. And you

were ridiculed as if you had no idea about what was going on. Seems many warned about what was coming and now...well, you can stand proudly knowing you warned people like me. I listened and stayed away from stocks. I'm so glad I did.

[nadinbrzezinski]

10. Well, if this is just a correctin

I will gladly eat humble pie, and I mean the humble part

Will see, if this keeps up for two to three weeks... we may be talking crash

[Subdivisions]

13. Don't feel like the lone stranger on calling this collapse

back when folks were lookin' at you sideways like a dog does when you'd try to tell them what was coming. I was foretelling the same prophecies, along with a couple others not related to the economy or markets, at my previous construction job and my workmates thought I was batshit crazy and they called me "Dr Doom" for it. The ones I'm still in touch with remain basically clueless but one is aware enough of the current situation and doesn't wanna hear the "I told you so" bit.

[nadinbrzezinski]

17. Well I will know how the guy who handles our meager

investments did soon

If he managed to keep the red to less than five percent I will be overtly impressed

If he managed to keep it in the black... I will be VERY impressed

[SoonerPride]

2. From Hoovervilles to Bushvilles

The new ramshackle and homeless can call their shanty towns Bushvilles.

[shraby]

5. Kinda like not living in the "boonies" but the "bushes" n/t

[ThomWV]

6. That's a nice, but inaccurate, version of the Great Depression's cause

Well, maybe not so much inaccurate as it is misleading.

You see, the difference is that when your borker calls you have a very short time to come up with cash or lose everything, which is what happened in the leadup to the GD. That is a far different thing that people making regularly scheduled payments on a mortgage.

Next month millions of homeowners will be making payments on those very notes that that we are being told today are worthless. The only difference is that today's holders of those mortages will be out of business next month and someone who bought them up for peanuts is going to be receiving the payments.

[nadinbrzezinski]

8. Tom the comparisons are apt

the macro economic issues are very similar and we both know it. Let me post them again

1.- Increased disparaty in income as in severe

2.- Negative saving by consumers

3.- Increased inbalance of trade

4.- Credit (to partly keep those at the middle and even botton able to buy what they could not afford otherwise)

What we don't have today and existed back then was a high tarriff standard... well I will argue that the WTO and NAFTA are just as bad. See imbalance of trade and loss of jobs

Macro factors present back then were also the dustbowl, which helped to exarcerbate things and we may see it again, due to the consequences of global warming

So yes, the paralells at the macro level are there

There are major differences at the micro level, including the rules for trade in the exchange, why a one day collapse will not happen today... in the hopes that you can stabilize the market before it gets to crash territory

But there were also liquidity problems back then

So yes, the paralells are there

[Manifestor_of_Light]

12. Read books by Dr. Ravi Batra.

He is an economics professor at SMU.
He has written "The Great Depression of 1990".

The depression was postponed becasue of Clinton digging us out of a budget surplus, but he accelerated the trade surplus with NAFTA etc. He created jobs, but better wages and better jobs were out of the question. He sped up the destruction of the middle class.

He's already stated that trickle down doesn't work, and neither does laissez faire capitalism.

He predicted the Shah would be overthrown in 1979 and a right wing religious movement would take over, among other predictions that were shown to be right.

He's unpopular with other economists because he deals with reality.

[Odin2005]

15. I know an economist who disagrees with Batra somewhat

On a history forum I post on there is an economist/stock market analyst named Mike Alexander who claims that Batra was essentially right, but got the timing wrong. Back in the late 90s Mr. Alexander predicted that boom would end in 2000, and he was right.

[nadinbrzezinski]

16. I've read both

and also read quite a bit on economic boosts and busts

Hell, I "designed" the economy for one of the two superstates I created for a role playing game

I read quite a bit from the ever so popular 1930s books, all the way to Friedman's the World is Flat

And trust me... I expected this mess a while ago

They have been holding it off by injecting massive ammounts of cash (like oh today) and that will only make it far worst

[sutz12]

7. After the Great Depression.....they put in a lot of safeguards in the financial markets...

Most of them have been dismantled.

:shrug:

[maxrandb]

11. Why do you hate 'Murika?

The "Deciderator" says the economy's "strong" and we need another "Tax-Cut".

:sarcasm:

[sarcasmo]

14. If you can't afford it you DON'T need it.