Matt D
Topic Author
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Will There Be Another Great Depression?

Mon Jun 03, 2002 9:01 am

This is something that I have been pondering for quite some time now. Could the United States be heading towards another Great Depression? If so? When?
If not, why not?

It is generally accepted belief that the Crash of '29 is what caused the Depression. But was it? Or were the seeds of depression planted during the previous several years, and the Crash simply brought them to blossom?

Consider these parallels between the 1920's and the 1990's.

It sounds like history repeating itself to me:


1. The '20's were among the most prosperous times in history.

2. Very sharp disparity in income among the people; 0.1% of the population had the equivalent of the lower 42%.

3. While the "wealthy" continued to get rich, the poor got poorer.

4. An economy fueled by illusions of wealth based on pure speculation and guesswork.

5. Dramatic increase in reliance of credit and borrowing; personal debt skyrocketed.

6. Borrowing money to buy stocks, using the stock itself as "payment" or "collateral", no actual money backed the transactions, with an assumed expectation of selling the stocks at a higher price and pocketing the difference (i.e. "free money") and using that to pay for the loan(s).

7. Investors and firms telling everyone that we would "all be well", "everyone dabbles in stocks"

8. Encouragement by creditors to spend more than can be afforded and to buy things that may not be needed.

above scenarios 1-8 paraphrased from the Readers Digest book "How Did It Really Happen"? "What Caused The Great Depression?" pp236-240
 
KROC
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RE: Will There Be Another Great Depression?

Mon Jun 03, 2002 9:09 am

Have you ever been to Cleveland? I don't think it ever left!  Big grin
 
777236ER
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RE: Will There Be Another Great Depression?

Mon Jun 03, 2002 9:11 am

1. The '20's were among the most prosperous times in history.

Upto that point. The 90s were the most prosperous times in history upto that point. The 80s too. And the 70s, 60s, 50s, 40,s 30s.

2. Very sharp disparity in income among the people; 0.1% of the population had the equivalent of the lower 42%.

Similar now, been the case for a while. Nothing new.

3. While the "wealthy" continued to get rich, the poor got poorer.

Nothing new.


4. An economy fueled by illusions of wealth based on pure speculation and guesswork.

Always the case. 90s, dot com. 80s, electronics. 50s-70s, defence. 30s/40s, war.

5. Dramatic increase in reliance of credit and borrowing; personal debt skyrocketed.

Happened at the end of the 80s, and in the 70s. Yeah, there were recessions, but nothing like the great depression.

6. Borrowing money to buy stocks, using the stock itself as "payment" or "collateral", no actual money backed the transactions, with an assumed expectation of selling the stocks at a higher price and pocketing the difference (i.e. "free money") and using that to pay for the loan(s).

Always tends to happen around this time in the economic cycle. Nothing new.

7. Investors and firms telling everyone that we would "all be well", "everyone dabbles in stocks"

ALWAYS been the case.

8. Encouragement by creditors to spend more than can be afforded and to buy things that may not be needed

ALWAYS been the case.

On another note, things are VERY different now. It would be very very hard to let the economy spiral into a Great Depression situation. At this time, it seems the economy is on an upturn, and isn't far off the stock economic cycle.

Lies, damn lies, and stats.


Your bone's got a little machine
 
777236ER
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RE: Will There Be Another Great Depression?

Mon Jun 03, 2002 9:12 am

Not to mention that if we all listened to Reader's Digest, the housewives of the world would rule.
Your bone's got a little machine
 
KROC
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RE: Will There Be Another Great Depression?

Mon Jun 03, 2002 9:16 am

In all seriousness, I was under the impression that certain precautions have been taken, to avoid another "Great Depression" should something like what happened in 1929 ever happen again.
 
JetService
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RE: Will There Be Another Great Depression?

Mon Jun 03, 2002 9:58 am

KROC, I heard the same thing. Economic collapse of the magnitude of the Great Despression couldn't happen today.
"Shaddap you!"
 
PanAm747
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RE: Will There Be Another Great Depression?

Mon Jun 03, 2002 12:06 pm

No, it will never happen again.

The Great Depression was caused by the stock market collapse mostly.

And today we have loads of tools to "control" the stock market.

If the stock market starts to drop very drastically, then the SEC has the power to "hold the market". They will stop all transactions for a few hours while everyhting ho[pefully cools down. If that doesn't work, then they can stop it for days. It's all geared to protecting the market.

They also have a red-line phone on the NYSE floor that will automatically call the President.
Pan Am:The World's Most Experienced Airline - P(oor) S(ailor's) A(irline): San Diego's Hometown Airline-Catch Our Smile!
 
Beefmoney
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RE: Will There Be Another Great Depression?

Mon Jun 03, 2002 2:08 pm

You have to read the "Onion" satire newspaper articles. They parody some newspapers just before the great depression, and on the newspaper the day before the crash, the headline say "Stock Market Infallable, Put everything you have into stocks!!" and then on the next days paper the headline says "Pencils for Sale!" It hilarious.
 
Guest

RE: Will There Be Another Great Depression?

Mon Jun 03, 2002 2:52 pm

You guys are forgetting one of the key things that keeps us from having another "Great Depression." The Federal Reserve. The Fed was created for just such a purpose. Will there be another Great Depression? Perhaps, but not anytime soon. You may have noticed that the Stock Market has crashed several times since then, but there's only been one great depression. Besides, I wouldn't believe anything from reader's digest. It's like equating "Meet the Press" with "The View."

'Speed
 
Guest

RE: Will There Be Another Great Depression?

Tue Jun 04, 2002 11:43 am

I don't know but Matt D isn't far off. America is going trough a terrible nationwide recession, the market is down down down. Down 215 today, down last week, the week before. awful, very upsetting.

there are still rich people who are spending, fancy restaurants are full and the real estate market is pretty healthy, but its very tough out there.

Someone mentioned the Fed. Dude there is only so much the fed can do and they've done it. interest rates are extraordainrily low, the price of money is so cheap these days.

but the market keeps falling, the deals business has completely dried up and companies are laying off or falling into disaster, anderson, enron, dynergy, el passo, tyco/cit.

its very depressing out there.
 
prosa
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RE: Will There Be Another Great Depression?

Tue Jun 04, 2002 12:09 pm

I don't know but Matt D isn't far off. America is going trough a terrible nationwide recession, the market is down down down. Down 215 today, down last week, the week before. awful, very upsetting.

We're seeing stocks fall despite generally good economic news. Today's big Dow drop occurred even though a well-regarded index of industrial production showed a strong increase. Investors seemed more concerned about the resignation of Tyco's CEO after he got implicated in a tax-avoidance scheme and about a tech-stock downgrade from some can't-beat-the-dartboards "expert" analysts. It's all very perplexing, but hopefully we're seeing the sort of bottoming process that sets the stage for a rally.
"Let me think about it" = the coward's way of saying "no"
 
Rai
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RE: Will There Be Another Great Depression?

Tue Jun 04, 2002 12:13 pm

Don't forget Dick Cheney's terror warnings. They don't help the stock market much either.
 
Matt D
Topic Author
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RE: Will There Be Another Great Depression?

Tue Jun 04, 2002 9:15 pm

I guess there are a few things that I just don't understand.

First, if the economy is/has been so good, why have personal debt and bankruptcies skyrocketed?

Why do I hear so many radio and TV spots for various credit and loan services to "start fresh", "settle with the creditors for pennies on the dollar", etc.

I mean if there was no market for these services, then I wouldn't be seeing their ads as much.

Second, the very nature of our system is that it has peaks and valleys.

I remember during the "dot com" boom, in middle 1999 that there were some CEO's of some of these dotcoms that actually believed that stocks ONLY went up; they could NEVER go down. This attitude has subsided somewhat since then, but there are a lot of people that still believe that. As a result, they are stymied when the Market does take a dip.
 
prosa
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RE: Will There Be Another Great Depression?

Tue Jun 04, 2002 10:29 pm

I guess there are a few things that I just don't understand.
First, if the economy is/has been so good, why have personal debt and bankruptcies skyrocketed?
Why do I hear so many radio and TV spots for various credit and loan services to "start fresh", "settle with the creditors for pennies on the dollar", etc.


Bankruptcies tend to be a lagging indicator. In other words, the number of bankruptcy filings frequently rises just as the economy is recovering. This may seem counter-intuitive, but really isn't. People who lose their jobs during recessions often can keep their creditors at bay for a while. Eventually, however, their unemployment compensation, savings and other resources run out, their creditors lose patience, and bankruptcy becomes the only option. The time lag between job loss and exhaustion of resources means that people who lose their jobs during the depths of a recession may very well end up in bankruptcy after the economy's in recovery; even if they're back to work by then (not always true, as employment is also a lagging indicator), they may be too deep in the hole to avoid having to file. Along the same line, there's some reason to believe that creditors are more understanding when the economy's in bad shape. Once the recovery takes hold, people may find it more difficult to work out payment plans and therefore may wind up in bankruptcy.
There also are a couple of non-economic factors that may contribute to the rise in personal bankruptcies. One of the biggest causes of bankruptcies, possibly even bigger than job loss, is divorce. While the national divorce rate may not be increasing much anymore, it hasn't fallen. Another somewhat surprising reason is the fact that bankruptcy often helps one's credit rating. Credit card issuers and other lenders may pontificate on all the losses they endure because of bankruptcies, and have spend millions in lobbying Congress to make it more difficult to file, but in practical fact they look less harshly on credit card and loan applicants who've filed for bankruptcy then they do on applicants who've defaulted on loans.



"Let me think about it" = the coward's way of saying "no"
 
Guest

RE: Will There Be Another Great Depression?

Tue Jun 04, 2002 10:52 pm

Someone mentioned the Fed. Dude there is only so much the fed can do and they've done it. interest rates are extraordainrily low, the price of money is so cheap these days.

Yeah. That was me. And you have a point there. There is only so much that the Fed can do. Fortunately, it has been enough to keep us out of a depression. I'm not an economic expert - I've only had a few undergraduate classes. However, when a Phd. in economics (especially that one) gets up mid-semester and says that the Fed was set up to keep us out of a depression and is working, I tend to believe it.

but the market keeps falling, the deals business has completely dried up and companies are laying off or falling into disaster, anderson, enron, dynergy, el passo, tyco/cit.

Right, everything is going to hell. Get your money out of the market as soon as you can!! Please excuse the sarcasm, but I have little use for the 'doom and gloom' perspective.

There are many companies that aren't "falling into disaster." People still have jobs. People still get jobs. We don't live in bubble (or on one). Life goes on.

its very depressing out there.

Then perhaps you need to consult a good therapist. I'm going to continue living my life.

'Speed
 
nonrevman
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RE: Will There Be Another Great Depression?

Wed Jun 05, 2002 3:25 am

I dont know about another Great Depression but am compelled to agree with Matt D that things are not looking so good. Think about what is in the news lately. Terror warnings, layoffs, companies going out of business, and a stock market in decline. Meanwhile, the cost of everything around here seems to be going up. Interest rates are so low that they cannot go much lower. Supposedly, low interest rates are supposed to stimulate the economy, but I cannot see this. It is difficult to see how we are going to get out of this anytime soon.
 
donder10
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RE: Will There Be Another Great Depression?

Wed Jun 05, 2002 3:35 am

The way some people on here are talking you'd think the US ecomomy had been in recession like Argentina.The US economy just grew at 5.6% in the 1st quarter although most of that was from inventory restocking and increased defence spending.For the economy to pick up again,private investment needs to pick up drastically.With profits having crashed(causing the stock market to fall?)it won't happen for a while.Low interest rates are intended to stimulate invesment in one sense.The economy can't grow at 5% a year it appears after all.
 
heavymetal
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RE: Will There Be Another Great Depression?

Wed Jun 05, 2002 4:40 am

Have you ever been to Cleveland? I don't think it ever left!

And you're where? THAT's the pot calling the kettle.......uhhhhhh......

Most of the models put together by the Pentagon that are being delivered to leaders in both India and Pakistan as we speak indicate a major nuclear exchange by these two powers would result in a global economic depression.

Aside from 30 million dead, the economies of both nations...holding over a seventh of the world's population, much of it in precarious existence as is....would dissolve. The law of the jungle would literally return to over a billion people, and no part of the Earth would exist unscathed from the consequences.

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