Another Great Depression  2007 – 20??

 

A Tale of Two Depressions  “This is an update of the authors’ 6 April 2009 column comparing today’s global crisis to the Great Depression. World industrial production, trade, and stock markets are diving faster now than during 1929-30. Fortunately, the policy response to date is much better. The update shows that trade and stock markets have shown some improvement without reversing the overall conclusion — today’s crisis is at least as bad as the Great Depression.”  By Barry Eichengreen|Kevin H. O’Rourke| 6/04/09 |Author’s Website

 The Worst Is Yet to Come: If You’re Not Petrified, You’re Not Paying Attention  VIDEO AND ARTICLE: “Davidowitz, who is nothing if not opinionated (and colorful), paints a very grim picture: “The worst is yet to come with consumers and banks,” he says. “This country is going into a 10-year decline. Living standards will never be the same.”  Yahoo Finance   5/15/09

Global Depression II Avoided, But NO Cause for Celebration, Yet  “So the contraction in demand in G3 economies looks set to continue for some time. Unemployment is where the damage is being done. The US continues to shed jobs at well over half a million a month. US jobless numbers, at 8.5%, are at a 25 year high, and now exceed the stubbornly high levels of continental Europe. The UK is looking at over 10%, and the highly understated Japan figure 4.4%.  This is dismal; given official unemployment data are consistently underestimated. Add in the ’under-employed” and those who choose not to bother working because prospects are so poor, and the US and UK will end up in the high teens, with the EU and Japan not too far behind. This is close to the 20% plus levels experienced in Asia’s financial crisis but not at the 25% jobless during the Great Depression.  Seeking Alpha  5/07/09

In time and space were in the same place: 1929

"In time and space we're in the same place: 1929"

What Cooked the World Economy? — it wasn’t you overdue mortgage   “What did cause the crisis was the writing of credit derivatives. In theory, they were insurance policies for investors; in practice, they became a guarantee of global financial collapse.  As insurance, they were poised to pay off fabulously when these weak bundled securities failed.  And who was waiting to collect?  Well, every gambler is looking for a sure bet.  Most never find it.  But the hedge funds and their ilk did.   The Village Voice   1/28/09

Dow Jones decline rate mimics Great Depression  “In the here and now, the Dow has dropped 52.5 percent since its high of 14,279.96 on Oct. 11, 2007, to its low point of 6,779.62 during intraday trading on Monday. (Update 1:16 p.m. PST: At Monday’s close it was 6,763.29, a drop of nearly 300 points from the previous close.)  And in taking a similar period of a year and five months in the late 1920s, it’s a case of deja vu.  The rate of decline is mimicking that of the Dow during the Great Depression. Back on September 3, 1929, the Dow hit a high mark of 381.17.  And over a similar length of time, it fell 54.7 percent to 172.36 on January 2, 1931.    CNET News  3/2/09

Bear Market

Market Peak

Date of Peak

 

Market Bottom

Date of Bottom

 

Value Lost

 

Duration

1929 Crash

381

9/3/1929

 

41

7/8/1932

 

-89%

714 days

1968-1970

985

12/3/1968

 

631

5/26/1970

 

-36%

368 days

1973 -1974

1,052

1/11/1973

 

578

12/6/1974

 

-45%

482 days

2001-2002

11,338

5/21/2001

 

7,286

10/9/2002

 

-36%

347 days

NASDAQ

5,049

3/10/2000

 

1,114

10/9/2002

 

-78%

648 days

Current

14,165

10/9/2007

 

7,366

2/20/2009

 

-48%

344 days

Could the Dow Reach 4000?  While the current bear market has erased 48%, in line with the declines seen in most bear markets, the duration of 344 days is the shortest on record. If you follow the belief that this bear market is unwinding 60 years of excess spending, we should expect the Dow to lose at least 70% from peak to trough and the bear market to last in excess of 600 days. Combining these data points, the market may not bottom until the Dow approaches 4,000 sometime in the next 9 to 12 months.”  Seeking Alpha  2/24/09

European Depression?  “The implications are obvious. Berlin is not going to rescue Ireland, Spain, Greece and Portugal as the collapse of their credit bubbles leads to rising defaults, or rescue Italy by accepting plans for EU “union bonds” should the debt markets take fright at the rocketing trajectory of Italy’s public debt (hitting 112pc of GDP next year, just revised up from 101pc -big change), or rescue Austria from its Habsburg adventurism. So we watch and wait as the lethal brush fires move closer. If one spark jumps across the Eurozone line, we will have global systemic crisis within days. Are the firemen ready?”  Investor Insight.com  2/23/09

IMF Chief Says Nations in ‘Depression’  “International Monetary Fund chief Dominique Strauss-Kahn said the world’s advanced economies — the U.S., Western Europe and Japan — are ‘already in depression,’ and that the IMF could slash its global growth forecasts further. The ‘worst cannot be ruled out,’ he said.    Wall Street Journal  2/09/09

More and more debt forces economy downward

 Going Up  Chart: Public Debt as an expression of Gross Domestic Product for the United States and Britian

Ghost Towns; Ghost Malls   “By 2011, at least 15% of the existing retail base will have gone to retail heaven. With the amount of vacant stores likely to reach in excess of 200,000 and vacancy rates for new malls already at 28%, there will be no need for new construction for many years.”    Minyanville 1/20/09

 Global Economic Tremors  “(1) The Debt Crisis: It’s far too big to control. Based on Fed Flow of Funds figures, “there are now $52 trillion in interest-bearing debts in the US.” According to US Government Accountability Office estimates, add another $60 trillion in contingency debts and obligations – for Social Security, Medicare, Medicaid, and other pensions. In addition, the Bank of International Settlements (BIS) earlier cited a staggering global debt total, including derivatives, of $1 quadrillion, or 1000 trillion. In a separate report, it says $596 trillion, but even this number is unimaginable and unmanageable.”  Atlantic Free Press  11/14/08 

Paul Craig Roberts, the Father of Reaganomics
Paul Craig Roberts, the “Father of Reaganomics”

America’s economic crisis is beyond the reach of traditional solutions  “  “By most accounts the US economy is in serious trouble. Robert Reich, an adviser to President-elect Obama, calls it a ‘mini-depression,”’that designation might be optimistic. The Russian economist, Mikhail Khazin says that the ‘U.S. will soon face a second ‘Great Depression’.’ It is possible that even Khazin is optimistic.”  Online Journal  11/14/08

30 US states in recession, 19 at risk: Moody’s  “States with shrunken GDPs were concentrated in the eastern half of the United States — the Midwest, the southeast and the northeast — and the West (California, the largest state economy; Oregon; and Hawaii).  At-risk states were located in the center of the country and in the northeast, including New York state.  Moody’s said the only state that showed growth was Alaska, whose economy is dominated by the oil and gas industry.”   Agence France Press  11/4/08

United States Heading for Economic Depression and Dollar Collapse  “The US headed for a depression AND a currency collapse. Americans will see their wealth wiped out as stocks and home values plunge, their cost of living soar as food and oil prices spike up, and their taxes increase as the government struggles to fund itself. To understand where the US is heading, we need to step back and take a look at the deep problems afflicting the US economy:  Problem #1: Dependence on Foreign Debt; Problem #2: Massive derivative bubble; Problem #3: 55 trillion CDS market; Problem #4: Structurally unbalanced economy ; Problem #5: Bankrupt consumer; Financial Apocalypse.”   Market Oracle  11/3/08

Hoover and Roosevelt

Five Myths about the Great Depression: Herbert Hoover was no proponent of laissez-faire  “Franklin Roosevelt didn’t reverse course upon moving into the White House in 1933; he went further down the path that Hoover had blazed over the previous four years. That was the path to disaster… the Hoover and Roosevelt administrations — in disregarding market signals at every turn — were jointly responsible for turning a panic into the worst depression of modern times. As late as 1938, after almost a decade of governmental “pump priming,” almost one out of five workers remained unemployed. What the government gave with one hand, through increased spending, it took away with the other, through increased taxation. But that was not an even trade-off. As the root cause of a great deal of mismanagement and inefficiency, government was responsible for a lost decade of economic growth.”  Wall Street Journal  11/04/08

“Helicopter Ben”

Labor Unions Prolonged the Depression  “As Amity Shlaes observed in her recent history of the Great Depression, “The Forgotten Man,” within a few months after the Wagner Act was upheld, industrial production began to plummet and “the jobs started to disappear, with unemployment moving back to 1931 levels,” even as the number of workers under union control was “growing astoundingly Given the reality of unions in the workplace, the law meant that efficiency and profitability were compromised, by forcing employers to equally reward their most productive and least productive employees. Therefore subsequent wage increases for some workers led to widespread job losses.”

Fed to Provide Up to $540 Billion to Aid Money Funds  “The problem was much worse than we thought,’ Jim Bianco, president of Chicago-based Bianco Research LLC, said in a Bloomberg Television interview. Policy makers are trying to prevent ‘Depression II’ by stemming the financial industry’s contraction, he said. ‘”  Bloomberg   10/21/08

The Crash, 1929 by Kenneth Gilbraith (page 11) “Early in 1928 the nature of the boom changed.  The mass escape into make believe, so much a part of the true speculative orgy, started in earnest.  It was still necessary to reassure those who required some tie, however tenuous, to reality… However, the time had come, as in all periods of speculation, when men sought not to be persuaded of the reality of things but to find excuses for escaping into the new world of fantasy.”  Google Books

US manufacturing production plummets  “US industrial production ­suffered its sharpest drop in 34 years in September, data showed on Thursday, adding to evidence of a rapid deterioration in the economy… ‘Inflation is not a problem any more,” said Brian Bethune, an economist at Global Insight. “Now we are trying to combat a recession.'”  Financial Times  10/16/08

Waking up to financial crisis — finally Here are some data points. On Monday, the state said its latest monthly revenue was down (see accompanying chart). For the Aug. 11-Sept. 10 period, the value of the average real-estate transaction in Washington was 25 percent below a year earlier. Tax collections from car dealers — a measure of car sales — were off 18 percent. Sales of building materials and furniture were down. Restaurants suddenly seem less busy. Ron Sims announced layoffs at King County government.”  Seattle Times  10/15/08

Worries Grow Over Commercial Real Estate  “Sales volume in commercial real estate is down over 70% from last year, RCA says. A growing number of properties changing hands are distressed, if not in default… Sales prices of commercial real estate, according to some estimates, are off 12% from their peak… Office vacancies nationwide will hit 14.4% by second-quarter 2009 vs. 12.9% in mid-2008, the National Association of Realtors expects.”  Investors Business Daily 10/13/08

conomists getting gloomier about outlook,
Rising unemployment, consumer spending drop spell deeper trouble ahead
  “In their official forecast released Monday, members of the National Association of Business Economists said they expect U.S. economic growth will come to a virtual halt in the fourth quarter. Two-thirds say the U.S economy is in recession or will be by the end of the year — up from a little over half of those surveyed in May.”  MSNBC  10/6/08

Cramer: Preventing Great Depression II ” I think there’s a way to make the [Bailout] legislation do something (even though I don’t think it will send the stock market higher). I think it could: 1.) Limit the Dow to a fall to 8,400, rather than one to 5,000, and 2.) Keep the coming depression — no, it won’t be a mere recession — shorter than the Great Depression.   The Street  10/05/08

1929 and all that – How today’s financial crisis resembles the one that happened three-quarters of a century ago, and how it does not: “EASY credit, some say, was one problem. It was amplified by newfangled, flighty financial techniques, notably buying assets with borrowed money and watching leverage work its arithmetical magic. And underneath it all was a breezy, unthinking optimism, that prices could only ever go up. This was a perfect recipe for a runaway boom—and for a ruinous bust.  Substitute “houses” for “assets” in the paragraph above, and you might be reading a rough description of the blowing-up and bursting of America’s property bubble. Insert “shares”, and you might be back in the late 1920s.”  Economist  10/2/08

Job Losses Pushing U.S. Economy Into `Significant’ Recession  “Labor Department figures showed yesterday that payrolls fell by 159,000 in September, the biggest reduction in five years. While the unemployment rate held at 6.1 percent, that’s up from 5 percent as recently as April. Some economists, including Goldman Sachs Group Inc.’s Jan Hatzius, said it rise as high as 8 percent as the credit crunch hammers consumers and companies.”  Bloomberg  10/4/08



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