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The situation is very similar today to what it was in 1929. Then and now the Fed did not have enough cash to bail out the banks. Derevitives, (hybrid debt mostly U.S. mortgages)worldwide today amount to more than 75 trillion dollars. The GDP of every country in the world combined is about 45 trillion. And then as now the banks did not want to forclose on people. My father took over his parents loan in 1930 when they could not pay it and from his account, the banks would bend over backwards to accomidate anyone who would try to make payments. They did not want the property, there was no market for it, and they would only recoup pennies on the dollar at auction. Depressions all have certin common traits, their cause is too much debt caused by over confidence in the "strong economy" and peoples belief that they will be able to make the payments on the huge debts. Sound familiar?
A key difference now is that the Feds have shown they will print tons of worth less money to cover themselves and at least their friends in the banks. While that does make the money go worthless, it covers everything on paper, at least. Our international creditors will just be handed piles of meaningless money, there is not much they can do until they get smart enough to require that we pay our bills in a stable currency like the Euro -- then we will be totally screwed -- at least on the international realm.
But in the meanwhile, normal folks just keep taking the inflation based pay cut, while our top end has secured their wealth in international currencies and holdings.
Watching the Feds (and especially after visiting with them) I suspect a Post-Soviet Russia model or Post WW1 Germany outcome for US -- short story on hyperinflation --
Our international creditors will just be handed piles of meaningless money, there is not much they can do until they get smart enough to require that we pay our bills in a stable currency like the Euro -- then we will be totally screwed -- at least on the international realm.
This is already happening, The Saudis for the first time have refused to drop their interest rates in lockstep with the Fed which is causing oil to increase its rate of inverse corealation with the dollar, oil has now passed $82 dpb. The chineese are begining to hold more Euros in relation to Dollars. As our foregin debt holders look at our debt level grow, and our leaders and banks play shell games, they are loosing confidence and hedging for the losses they see ahead. When you combine the $3000 per second war costs with the Freddie Mac/Fannie May banker bail out, and then add in the inevitable lower tax reciepts due to higher unemployment and lower capitol gains you get a very ugly debt picture, over $300,000 per U.S household, and growing expenditially. What you are witnessing America being dismanteled, sold off, mortgaged, and basicly being set up for a merger into the third world.
How about the Dollar today The peso is making ground and the canadian is at the same price.
Cnbc is talking about : Is american going to pull there money out of the bank due to banks are having trouble with credit and mortgages?
The last Depression was created by a LOT more than just credit problems. The most elemental cause of the Great Depression was WWI and the toll it took on the European economy, which we then got sucked into when we tried to prop up Britain's economy. We also know a lot more about managing credit markets (managing monetary policy) and the role of fiscal policy in economies than we did 75 years ago. To say we're entering into another Great Depression is paranoid ChickenLittleism.
Quote:
Originally Posted by Joe107
Problem with the Depression is the Fed didn't step in. The fed has learned their lesson and seems to have a decent amount of control over inflation and the economy. Saying America is near a great depression is laughable
I don't know about anywhere else but people where I live are not drawing there money out of the banks. Alos with unemployement were its at we are not near to a depression. In the great depression 90% of people were out of work and the foreclosure rate was much higher.In fact so fa5 this is not as bad as the 70's recession especailly with inflation.
I don't know about anywhere else but people where I live are not drawing there money out of the banks. Alos with unemployement were its at we are not near to a depression. In the great depression 90% of people were out of work and the foreclosure rate was much higher.In fact so fa5 this is not as bad as the 70's recession especailly with inflation.
It took 2 to 3 yrs. for the Great depression to be seen as the Great depression. We are statistically only in the first yr. of the Mega Depression.
This one will make the 20's look like the 90's.
The advantage of the 1st Depression is that people had integrity, and morality. We have very little of either in this day and age, which will cause social unrest like this country hasn't seen.... ever.
The advantage of the 1st Depression is that people had integrity, and morality. We have very little of either in this day and age, which will cause social unrest like this country hasn't seen.... ever.
Great observation! The people in the 1st Depression were so classy, despite all their financial problems. Today, all we see is people behaving like animals, which is why I'm scared and rightly so. I'm glad to know I'm not the only one seeing this.
I don't know about anywhere else but people where I live are not drawing there money out of the banks. Alos with unemployement were its at we are not near to a depression. In the great depression 90% of people were out of work and the foreclosure rate was much higher.In fact so fa5 this is not as bad as the 70's recession especailly with inflation.
I live in a certain Celtic country with higher GDP per capita than the US and we're contracting harder and faster than in the eighties (where we were in a depression, albeit not a great one). We're looking at 18%+ unemployment by the years end assuming the trend of losses slows down enough and even the mainstream consensus is no recovery for about 3 years.
England, but its fairly acknowledged depression is almost guaranteed their. Spain too. Japan contracted at a 10% annualised rate last quarter, and this one's already worse. Iceland is knee deep in food queus already. China is bleeding tens of millions of jobs.
This is the first global credit contraction since Bretton Woods, bubbles that make the mortgage one look like a picnic; namely derivatives, credit cards and bonds are only BEGINNING to deleverage, and the IMF are acknowledging that advanced economies have begun a depression.
I'm sorry, but the deleveraging/bursting of these bubbles is unlikely going to be a normal "bad recession":
Remember 1929 and 1930 were considered first two years of the depression, despite lowish unemployment etc. (though things really deteriorated in latter half of 1930)
Also, I don't believe US Monetary Supply doubled over a couple of months even in 1970s. When liquidity starts flowing in a short term 1930 like confidence boost, you might see a little inflation...
Also unemployment is calculated differently. You're at 15.4% seasonally unadjusted underemployment (includes part time and discouraged workers) on the U-6, 13.8% adjusted, and that doesn't include the long term unemploymed that Clinton knocked off the workforce entirely.
Also check out the averages of 14 modern financial/banking crises. Where do YOU think this one compares?
Reinhardt & Rogoff (forthcoming in the American Economic Review, May 2009) analyse the effects of 14 'severe' banking/financial crises (including the Great Depression, Finland, Japan, Sweden in the early 1990s, etc.) on the economies of the countries affected.
They find on average that there is a cumulative fall of 36% in the house prices and that it takes 5 years for the minimum to be reached.
They find unemployment rises by an average of 7% and doesn't reach a maximum until 5 years after the crisis begins.
They find that equity prices fall by an average of 56% and that it takes approx. 3 years for this to occur.
They also find on average that GDP per person declines by 9.3% and that this occurs over a two year period.
They analysed financial crises that took place in localised countries, not on a global scale. It is really impossible to say what effect a globalised financial crisis will have, and how close to "average" the results are likely to be
Also some great insight from THE pioneer of fractal geometry, and a protege, for a scientific view on the subject and the current previously unmatched level of complexity in our modern day over-rigid (despite all the neoliberal economics) world economy:
I apologise for not being so good at posting links on this site.
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