Tag Archives: The Great Depression

The Plight Of The Wealthy During Depressions

As seen in the September 15 post (“September 13 Gallup Poll On Upper-Income Americans’ Economic Confidence“) lately there appears to be a significant lessening of economic confidence among “upper-income” Americans; and, as seen in the poll, “This is the first month since the financial crisis of late 2008 and early 2009 that upper-income Americans are more pessimistic about the future direction of the U.S. economy than other Americans.”

One question that may arise is how the wealthy and ultra-wealthy will be ultimately impacted in severe economic weakness, i.e. conditions most will label a Depression.  Of course, in the last 100 years or so, The Great Depression is the only episode of such an environment in the United States.  While to my knowledge there is no definitive study of loss of wealth among the most affluent during The Great Depression, it appears as if many of the wealthiest Americans during the period experienced a pronounced reduction in wealth.  Some, including the most wealthy and influential of the day, “lost everything.”  One documentary of the period that illustrated this facet was “The Crash of 1929” that I highlighted in the July 8 post.

This current economic and investment environment is one in which large percentages of wealth can be quickly lost.  I base this statement on many factors, one being the existence of many asset bubbles, which I have written of extensively.

 

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1164.97 as this post is written

The Crash of 1929 And Its Aftermath

For a variety of reasons I believe that an understanding of the Great Depression and its causes are important.  The stock market Crash of 1929 and the events leading up to it are particularly noteworthy.

Along those lines, I have always found the American Experience documentary titled “The Crash of 1929” to be of great interest.  Although it is less than an hour long, it does a great job of not only explaining various aspects of what happened in 1929, but also provides a tangible “feel” of the “atmosphere” surrounding the period.

There is much that is noteworthy in the documentary.

The Crash of 1929 serves as a reminder of how devastating epic “crashes” – and their aftermaths – can be.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1353.22 as this post is written

A Look Back – Bernanke’s “Lessons from History” Speech

One year ago, Ben Bernanke presented a speech titled “Economic Policy: Lessons from History.”

I view this speech as highly noteworthy – epochal, even – especially in relation to the efforts made to “bring the economy back” from the depths of the Financial Crisis.

Here are some excerpts that I find particularly relevant:

“I draw four relevant lessons from the financial collapse of the 1930s; I will first list these lessons, then briefly elaborate. First, economic prosperity depends on financial stability; second, policymakers must respond forcefully, creatively, and decisively to severe financial crises; third, crises that are international in scope require an international response; and fourth, unfortunately, history is never a perfect guide.”

also:

“In the current episode, in contrast to the 1930s, policymakers around the world worked assiduously to stabilize the financial system. As a result, although the economic consequences of the financial crisis have been painfully severe, the world was spared an even worse cataclysm that could have rivaled or surpassed the Great Depression.”

also:

“That lesson brings me to the second one–policymakers must respond forcefully, creatively, and decisively to severe financial crises.”

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my comments: In June of 2009, I wrote a four-part “Depression” series.  One part, posted June 22, was titled “Are We Avoiding a Depression?” In that post I discuss  the issue from a logical perspective.  It addresses many of the points Ben Bernanke spoke of in his aforementioned speech.

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The Special Note summarizes my overall thoughts about our economic situation

SPX at 1333.51 as this post is written

The Indelible Mark Of The Great Depression

On February 14 I wrote a post highlighting Milton Friedman’s “Free to Choose” television series of 1980.

From time to time I plan on commenting on various material contained therein as much of it is highly relevant to issues we are currently encountering.

In Volume 9 there are a couple of comments made, at roughly the 40:36 mark and 42:40 mark, by Congressman Clarence J. Brown and moderator Robert McKenzie, respectively.  In essence, they are commenting upon how the experience of The Great Depression has had a great psychological impact upon the country, and as such drives many of our economic fears and actions.  This commentary is especially notable as the series was filmed in 1980.

This mindfulness of The Great Depression seems highly elevated in current times as well.  This is seen in numerous ways.

For example, Ben Bernanke’s background includes being considered a foremost scholar of The Great Depression.

Furthermore, during and after “The Financial Crisis” there were innumerable mentions and comparisons to The Great Depression, many by policy makers.  I have highlighted many of these instances in past posts.

A Special Note concerning our economic situation is found here

SPX at 1273.72 as this post is written

Trends In Economic Theory

The January 17-January 23 Bloomberg BusinessWeek issue had an article titled “Back to the Economic Future.” The article notes “John Maynard Keynes and Fredrich Hayek, who battled over the Depression, are getting a fresh look as the Long Slump lingers on.”  It discusses the current state of the (macro)economic profession and theoretical trends within the industry.  I think the article is worthwhile, as it highlights several important issues.  However, I don’t agree with some of its points.

I found this comment to be especially noteworthy:

“The newfound interest in the likes of Keynes and Hayek makes sense, too—their ideas were shaped by the Great Depression, which is the last time things were worse than they are now (for the U.S., anyway).”

Ever since the onset of the “Financial Crisis” there have been many prominent people who have indicated that they believe our current economic situation similar to that of  The Great Depression.  I have written of these comparisons on numerous occasions.  As I said in the July 13, 2009 post, “…although our current period of economic weakness does have similarities to that of The Great Depression, there are notable differences as well.  To believe that both situations are very similar, and by acting accordingly, imperils our economic situation.”

A Special Note concerning our economic situation is found here

SPX at 1283.35 as this post is written

Geithner Interview: 1930s Comparison

On Friday, September 10 Timothy Geithner was interviewed by The Wall Street Journal.

During this interview, he said:

“[The] typical error most countries make coming out of a financial crisis is they shift too quickly to premature restraint. You saw that in the United States in the 30s, you saw that in Japan in the 90s. It is very important for us to avoid that mistake. If the government does nothing going forward, then the impact of policy in Washington will shift from supporting economic growth to hurting economic growth.”

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My comment:

I find this comment noteworthy as it is yet another reference to the 1930s.  Ever since the onset of the “Financial Crisis” there has been a continual flow of comparisons of our current economic situation to that of  The Great Depression.

I have written about these comparisons on numerous occasions.  As I said in the July 13, 2009 post, “…although our current period of economic weakness does have similarities to that of The Great Depression, there are notable differences as well.  To believe that both situations are very similar, and by acting accordingly, imperils our economic situation.”

A Special Note concerning our economic situation is found here

SPX at 1121.1 as this post is written

The Continual Comparisons To The Great Depression

On Friday, The Wall Street Journal had an article titled “Why This Isn’t Like 1938 – At Least Not Yet.”

Ever since the onset of the “Financial Crisis” there has been a continual flow of comparisons of our current economic situation to that of  The Great Depression.

Last year I wrote about these comparisons on numerous occasions.  I summarized these posts in a July 13, 2009 post.  As I said in that post, “…although our current period of economic weakness does have similarities to that of The Great Depression, there are notable differences as well.  To believe that both situations are very similar, and by acting accordingly, imperils our economic situation.”

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SPX at 1076.39 as this post is written

Debunking A Popular Phrase

One of the phrases that I have heard innumerable times is that our current period of economic weakness “isn’t as bad as The Great Depression because during The Great Depression unemployment was at 25%.”

While I have commented repeatedly on this blog that I don’t believe we should be equating our current economic condition to that of The Great Depression, I would like to comment on the phrase above.

As one can see on the chart found in this The Economist article:

http://www.economist.com/businessfinance/displaystory.cfm?story_id=13856176

the unemployment rate during The Great Depression peaked at 25%.  Also of note is the steady yet unrelenting climb in the rate leading to this peak.

Another issue that would need to be factored into any discussion of the two periods’ unemployment rates is that of comparibility.  While I haven’t seen any well-documented analysis of the methods used during each period, the prevailing wisdom appears to be that our current unemployment rate is understated vs. that used during The Great Depression. 

As I have stated previously on this blog, (on the “Why Aren’t Companies Hiring?” series that started on July 24) “The unemployment issue currently facing the country is severe and complex.”  It is important that we keep it in proper historical context.

SPX at 1005.73 as this post is written

Another Mention of The Great Depression

On July 26th Ben Bernanke said, “”I was not going to be the Federal Reserve chairman who presided over the second Great Depression.”  The quote and associated details can be found here:

I found the quote interesting primarily as it once again underscores the popularity (or should I say fixation) that many people, including prominent economists, have in comparing (and associating the characteristics of) our current period of economic weakness with that of The Great Depression.  As I wrote in my July 13th post, I think that viewing the two periods similarly is not only incorrect but perilous.

SPX at 987.48 as this post is written

Comparing The Great Depression To Our Current Economic Situation

In previous posts I have spoken of the comparisons between our current period of economic weakness and that of The Great Depression.  Those posts were on June 22 and June 15, and can be found at these links:

https://www.economicgreenfield.com/2009/06/22/are-we-avoiding-a-depression/

https://www.economicgreenfield.com/2009/06/15/great-depression-stock-charts-vs-our-current-period/

I would like to reiterate my view, seen in the above links, that although our current period of economic weakness does have similarities to that of The Great Depression, there are notable differences as well.  To believe that both situations are very similar, and by acting accordingly, imperils our economic situation. 

The reason I feel as if I need to reiterate these views is twofold.  First, people in general seem fixated on the comparison.  Second, two of perhaps the most influential economists of today (Paul Krugman and Christina Romer) recently had articles, found in the below links, in which they discuss our current situation in context of The Great Depression:

“That ’30’s Show” by Paul Krugman

http://www.nytimes.com/2009/07/03/opinion/03krugman.html?_r=1

“The Lessons of 1937” by Christina Romer

http://www.economist.com/businessfinance/displaystory.cfm?story_id=13856176

SPX at 879.34 as this post is written

 

Copyright 2009 by Ted Kavadas