This page has been archived and commenting is disabled.
Is the Economy Recovering? The Curious Case of 1920 vs. 1929
By Jeff Harding
The Daily Capitalist
In order to understand the present state of the U.S. economy you have to understand that there are two things happening at once. For the most part they are in conflict with each other, in that one track can negatively impact the other.
Lest I be accused of putting out conflicting information, there is evidence that the economy is recovering in some fashion, but not because of the reasons most economists and politicians think. There are still substantial prevailing winds blowing against the kind of recovery most commentators are hailing as fact. But economies have a tendency to repair themselves. The feds have a more profound impact on this than they understand.
Here are some of the economic data that have come out this week, in no particular order:
| Positive | Negative |
|---|---|
| The Institute for Supply Management's manufacturing index rose 3.1 points to 55.7, the third straight month of growth and the highest level since April 2006. A reading above 50 indicates expansion for the sector. | Current-dollar personal income decreased $15.5 billion (0.5 percent) in the third quarter, in contrast to an increase of $19.1 billion (0.6 percent) in the second. |
| The ISM's employment index rose for the first time in 15 months as manufacturers sought to recall workers or enlist temporary help. | Consumer confidence fell to 47.7 in October, from 53.4 in September. |
| Manufacturing expansion at the pace seen in October would correspond to a 4.5% annualized increase in overall economic growth. | Initial claims for jobless benefits declined by 1,000 to 530,000 in the week ended Oct. 24. |
| Manufacturers' orders for durable goods increased by 1.0% last month to a seasonally adjusted $165.67 billion. | The ADP report showed private-sector jobs in the U.S. fell 203,000 last month. |
| Gross domestic product rose by a higher-than-expected seasonally adjusted 3.5% annual rate July through September. | Real disposable personal income decreased 3.4 percent, in contrast to an increase of 3.8 percent. |
| Consumer spending rose by 3.4% in the third quarter. | Single-family home sales fell by 3.6% to a seasonally adjusted annual rate of 402,000 compared to the prior month. |
| The core inflation rate -- which strips out volatile food and energy prices and is closely watched by the Federal Reserve -- slid to 1.4% from 2.0% in the second quarter. | New home purchases dropped 3.6 percent to a 402,000 annual pace that was lower than the most pessimistic economist’s forecast. |
| Household purchases climbed at a 3.4 percent pace from July through September, the strongest performance in more than two years. | The median price of a new house fell to $204,800, compared with $225,200 at the same time last year. |
| Retailers in August had enough goods on hand to last 1.39 months, the lowest level since records began in 1980. The inventory-to-sales ratio at wholesalers was at an 11-month low, and the reading for manufacturers reached the lowest level in 10 months. | Global trade flows slipped in August after rising for the two previous months. |
| Real nonresidential fixed investment decreased 2.5 percent in the third quarter, compared with a decrease of 9.6 percent in the second. | Business bankruptcy filings jumped in 7% October, reversing two consecutive months of declining commercial filings |
Take your pick. What is real?
The basic questions we need to ask here are:
1. Why do economies recover?
2. Are we recovering?
Q. Why do economies recover?
A. They recover because bad investments made during the bubble are liquidated, valuable capital is no longer being wasted on them, new capital is formed from savings, and profitable enterprises attract new capital to expand. Low real interest rates caused by increased savings encourage borrowing, manufacturers use the capital to make new machines, producers of consumer goods buy them, cash goes through the system, consumers see things are getting better, more consumer goods are produced, and consumers buy them. It has to happen this way or the recovery will fail.
The difficult part of a recovery is ugly. Bankrupt firms need to fail so that valuable capital resources are not wasted on their continuing activities. This means that unemployment rises (10.2% now) and business bankruptcies are high. Trillions of dollars of asset values are wiped out. But if you leave the process alone, recovery will happen quickly.
While not good for those impacted, it's not "bad" as Keynesians would have us believe. If consumers feel the need to save and not spend, how does dropping interest rates to near zero change their preference to hold cash? It doesn't. They're scared, much poorer, and see personal savings as the one thing they can do to protect their financial future. They don't understand the "patriotic" need to spend to come to the aid of the economy. Your fellow citizens aren't stupid.
If you do what our government has done and prop up failing enterprises through zero interest rates, massive stimulus spending, and rack up a huge national debt, then it only drags things out and results in economic stagnation as these zombie companies struggle to recover. This was the result of Japan's very similar interference with the recovery process. Twenty years later their economy is still sluggish (average 0.6% GDP over 10 years) because they followed the Keynesian prescription for recovery.
Unfortunately that is what is happening here. Massive federal injections of money into the system prop up firms that should have failed. With TARP, TALF, FDIC, Fannie, Freddie, federal debt, and all the guarantees, the total is in the trillions. But who's counting?
The standard argument is that we had to do it because these financial and commercial businesses were too big to fail. That's an interesting proposition, because the bailout probably did stem the worst impacts of the financial collapse. But, so what. It's not that a financial collapse didn't happen, it did; we're just arguing over the extent of the fallout to the economy. Some argue that it would have been much worse, with neolithic implications if the feds hadn't stepped in. Maybe, but I can say that all it will do is just cause the pain to last longer, and cause greater economic damage than if they had done, well, nothing. (Do I have to say "Japan" again?)
Q. Are we recovering?
A. Yes. No.
There are two factors driving the numbers quoted above. One is the fiscal and monetary stimulus. But that doesn't create real economic growth. That is, the government can't create wealth by spending someone else's money. Only real capital employed by private enterprise can do that. I've pointed out that the Q3 GDP numbers are mostly the result of federal stimulus (Clunkers and the home purchase tax credit). My opinion is that this activity will die out once the money is spent. Otherwise all the government would have to do to create wealth is take all our money and spend it. But there is another process, and that is the underlying economic recovery that I talked about above. Unlike Japan, except for some mega-corporations, we are letting companies and banks fail. This means that as their obligations are wiped out, new businesses will take their place and compete for capital and customers. This is real and self-sustaining. The question is, is a real recovery taking place? And, the answer is hard to know because of all the stimulus. The stimulus does create economic activity. That is, money is spent on things the government wants, the money goes through the economy, and it gives a little bump in the numbers. But since the government isn't creating wealth when they spend, the economic activity will eventually dry up. Ask yourself: if the government stopped defense spending, would that industry survive? Not likely. The raging debate among many free market economists is: are there sufficient real savings to create economic growth? And that is hard to tell. So, I will guess. Based on a pending bottoming out of the housing market, bad debt will then be wiped off of the books of lenders and holders of MBS. We aren't there yet, but it's starting to find a bottom. Yes, I am aware of the shadow inventory and the problems with CRE. But I think housing is the key to everything since home mortgages are the foundation of the bubble. If Congress passes the new home purchase credit bill, the recovery process will cease and housing will be falsely reflated. Welcome to Bubble No.2. Q. What happened in the crash of 1920 that didn't happen in the crash of 1929? A. First, don't think that it was that different back in the Twenties. It wasn't. More complicated today, sure, but the underlying forces that were at work then are still at work now. The market crashed in October, 1920 (down 33%) and unemployment was almost 12%, yet the 1920-1921 recession lasted only 18 months. The 1929 crash started in September, 1929 and peaked in November, with a stunning 52% loss in the Dow. Yet, the market started to rally in November, but never got off the ground. The market continued to slide until June, 1932 having lost 89% of its peak value. The difference between the two events? In 1920, Warren G. Harding was president (no relation). In 1929 it was Herbert Hoover. In response to his crash, Harding, at least by today's standards, did nothing. Hoover was the consummate interventionist and implemented many policies that trashed the economy and started the Great Depression. Roosevelt nurtured it until he died. The Dow did not recover its 1929 peak until late 1954! Maybe I'm just being simplistic. Maybe I don't understand Keynes. Maybe free market Austrian theory is bunk. Maybe there are sky hooks. Maybe everything will be just fine. On the other hand, maybe Obama, Summers, Geithner, Romer, and Krugman are naive. Maybe they don't have a clue of any economic theory other than Keynes. Maybe they wear rose colored glasses when they examine the history of Japan and the Great Depression. Maybe they believe in sky hooks. Note: Where I have italicized the word "real" that is to distinguish it from the commonly used meaning of inflation adjusted vs. non-inflation adjusted ("nominal"). I mean to use it in the Austrian economics sense, which distinguishes such savings or growth from government induced savings or growth.
WTF?
»
- advertisements -
Jeff, always enjoy your posts. I would posit that its more a case of hubris than naiveté on the part of Geithner, Summers et al. What is that oft-quoted bible verse about Pride goeth before the Fall? I agree completely about the Japanese roadmap. We are following it, but I do think the ending will be different. Americans are not as docile and accepting as are Japanese. We are a country restless energy and if that energy is not channeled properly, look out. Once the pensions are gone, so will the current political class. We are going to have a government that looks as radically different to us as that of the 1930's would have looked to the 1890's.
So much of the perceived prosperity in the last few years had its basis, not in rising real incomes, but in rising debt. When the debt bubble imploded central banks stepped in to take up the slack. The effect was to move the debt burden up the food chain from insolvent home owners, via insolvent banks, coming to rest with insolvent governments.
Whilst governments can easily increase their expenditures and their borrowings, increasing their income is another matter. During the glory years, their income came from a buoyant financial services industry, from indirect taxation on a manic consumer market, on exceptional corporate profits etc etc. But fundamentally this whole model relied on debt. Profits from lending, corporate profits from selling to debt driven consumers, and a sales tax on every item bought and every mortgaged property sold. Now with individuals and corporations deleveraging, there will be far less income for governments, and therefore a reduced ability to service their borrowings.
Sooner or later this must lead to a sovereign debt crisis. That this has not happened to date is testament to the fact that everybody has been in the shit together. However, with certain national central banks now starting to raise rates, it is going to become plainer for all to see who has been swimming without their trunks.
Any bets on likely candidates?
Residential property values have a long way to go to return to the trend line. If "housing is the key to everything since home mortgages are the foundation of the bubble" then we may have more trouble ahead than some think.
http://seekingalpha.com/article/170526-property-values-set-to-fall-43-fr...
This is a good analysis of the US market, about 10-15% to go based on Price/Rent,
http://www.youtube.com/watch?v=BRW1IJ7Un3s
EU real estate has a way to go, Price/Rent ratios are still too high. Ireland ratio bounced due to falling rents, so prices will continue to chase rents down.
http://1.bp.blogspot.com/_Et4TQ-a0gGU/Sg7WE-vBCII/AAAAAAAACEM/FQKqA_G5XO...
Econ ... why don't you start writing the book: "The Greatest Depression, The Rise and Fall of America 2008 to 2033" ... Thank you for your participation here in enlightening us.
Anyone who wishes to pursue this interesting history is directed to the following books:
Murray Rothbard, America's Great Depression
Thomas Wood, Meltdown
Amity Shlaes, The Forgotten Man
Robert Murphy, Politically Incorrect Guide to the Great Depression and the New Deal
And might I suggest another that is detailed on this period. Ron Cherow's House of Morgan. Lot's of late 19th Century info on the runup to the Big One and the large banking trusts. An eerie familiarity throughout.
Here's the deal, folks. The only trouble with using drugs is that sooner or later, no matter what....you have to come down. Don't bother to ask me why. For any number of reasons, that's just the way it always is.
Now, there's no arguing with the notion that if yo could just keep using drugs, even if it meant you'd have to use higher and higher doses, you'd be ok. Just use more drugs-----forever, essentially--and you'll be ok--nothing else will matter. Theoretically........this is absolutely true..........................................however.............................
The Fed can't keep monetizing the debt forever. Sooner than now later there is a crisis of confidence (who knows why? just pick your choice) in the dollar and...............voila............gold and silver are the world's reserve currency!!!!!
I'm not an expert on economic history, but you can't compare the circumstances of 1920 vs. 1929 based on just the fact that they were both stock market "crashes". 1929 was the peak of a giant credit bubble, just as in 2007/2008. The "crash" was the symptom, not the problem. It simply served as one of the triggers that pushed the economy over the already imminent cliff. Even after the market bounced back, there was a massive debt overhang and strong deflationary pressures, just as their are today. Whether Hoover's policies helped or hurt in the long run, that has nothing to do with the lack of recovery.
I agree with the benefits of "creative destruction", but no amount of creative destruction or efficient use of capital can unwind a decade-long credit orgy overnight. Just as a car hitting a concrete wall goes from 100mph to 0mph quickly, the velocity of money slows violently as the "wealth" accumulated evaporates in an instant as the dominoes of debtor default being to fall.
That is not to support Keynes, but rather to say that your specific argument against his theories makes no sense. Creative destruction is really about efficient movement of capital. But the fact is that the credit situation prevents virtually any movement of capital. You cannot say that having no monetary velocity is inherently better than having some, albeit inefficient, monetary velocity.
Anon 123146:
Mr. Anon 123208, right above, has is right. Credit froze during the Depression too, regardless of what Hoover did. That's when Keynes developed his pay-someone-to-dig-a-hole-and-someone-else-to-fill-it theory. But it didn't work then and it's not working now. I tried to point out why that is happening.
You are correct in that it wasn't just based on a stock market bubble. Both crashes were fueled by credit expansions by the Fed. I didn't want to go through the whole explanation here. I did want to show that the way things are handled by the government is the most important factor to an economic recovery. All they can do is thwart it.
I think you are arguing what most Monetarists would say: the Crash and the Depression were caused by Fed credit tightening, and you need to reinflate to prevent a collapse. Unfortunately that hasn't worked either. I loved Uncle Milton, but on this issue he was wrong.
Creative destruction does argue for the reallocation of capital. But nothing is going to be reallocated until you liquidate the bad guys. That's why credit isn't flowing. Nothing the Fed seems to do works. Funny, huh.
And I would say that a lack of money velocity is better than whatever our government would do. Have you looked at bank reserves and Money Base? Shockingly high. All it will do is reinflate and cause more pain. There is a real question whether or not we will reinflate. I'm sure you've heard the deflationary argument, from me and others. But I believe we ultimately will. And the consequences will be very bad.
This is a global balance sheet recession, or depression like 1929.
http://farm4.static.flickr.com/3549/3382546343_997fe867de_o.jpg
Interesting to note that total debt as a percentage of GDP was 300% in 1929 and is 350% now. Govt debt and GSEs are not the entire problem or close to it. The combination of Household , Financial and Corporate far exceed it. That may change when the chart extends out to 2009 as 1.9 trillion in debt was taken on during the fiscal year ending in Sept of 2009.
300% in debt as a percentage of GDP in 1929 vs 350% in 2008 is the key comparison. . They tools they are using to re-inflate the bubble to push the debt debt up higher are tools of national destruction. Asking households to take on record amounts of debt as the govt does the same will not create any organic growth if wages and other income don't rise at a much higher rate than the debt is rising. I've seen no evidence of that. Only that real income is going down. That effects all the debt classes including Govt.
That also suggests since household debt has only gone down 4% that 2008 may have just been a warm up. The real thing hasn't started yet.
Good Chart. Thanks Heatbarrier
Here's a good presentation on "balance sheet recessions' by Richard Koo, Nomura. Take that dynamic to the global economy and then things start looking like 1929.
http://www.scribd.com/doc/13970982/Richard-Koo-Presentation
if the stock market crash was a symptom it was
not a trigger of anything....the new chairman of the fed
after benjamin strong died began tightening
credit and did too good of a job....it caused
the market to crash and made money too scarce
to service massive debt...
to say that hoover's interventions were irrelevant
is pure twaddle....the combination of the fed
and fiscal policy interfered profoundly
with the markets....and fdr's regulatory interference
added salt to the wounds...
the unconstitutional elimination of the gold
standard destroyed international trade - not
smoot hawley - the shibboleth of every communist
crackpot to emerge from a university campus....
the velocity of money is another quack invention
of the keynesian friedmanites...something which
they desperately try to maintain as part of their
wealth confiscation programs...otherwise the
notion is nonsensical....an imbecility with few
peers...
"One is the fiscal and monetary stimulus. But that doesn't create real economic growth. That is, the government can't create wealth by spending someone else's money. Only real capital employed by private enterprise can do that."
That's just pure unadulterated bunk, government can create wealth just as well as private, the question is of power, but there are no power equations in the high temples of economics.
Oh? Pray tell us how.
Hmmm. Name an instance where the government "creates" wealth, please. A government's ability to spend (i.e., produce) is based upon three things: tax revenues, monies borrowed, and inflation of the currency base. None of these things are wealth "creating." They are wealth redistributing. Not quite the same things when we look at the balance sheets at the end of the day.
I would say that the argument here is too simplistic. Goverments and businesses usually go hand-in-glove (I mean, if so many of our politicians are 'bought and paid for', especially by the insurance, real estate, and finance industries, then isn't the government really being run by big business?) The State sector (call it "state capitalism") was and is a primary factor in the development and innovation, and uses R&D, procurement, subsidy, and bailouts to foster innovation (and corruption) in corporations. Take, for example, all the research grants given to Big Pharma to develop their drugs -- you and the rest of us paid for it, so you'd think we'd get a little break on the cost. Moreover, as these policies have mostly been implemented through the Pentagon, especially since WWII, it was the State Capitalism sponsorship that first gave us computers, the Internet , satellites, and most of the rest of the IT revolution, but also civilian aircraft, advanced machine tools, pharmaceuticals, biotechnology, etc. I believe you will agree war, despite its destruction, usually brings about technical advances.
So I think the argument that the State is just some political redistribution bully of all the independent innovation of private companies is just plain wrong. Private corporate management is (mostly) what drove the financial system to the severe current crisis. I know Niall Ferguson still thinks that economic growth "comes from technological innovation and gains in productivity, and these things come from the private sector, not from the state", but he probably wrote those words on a computer and sent them over the Internet. Both of those technologies were, for decades, developed and run in the State sector way before they became available for private profit.
the market in 1929 did rally 50+ percent in 1929 but the actions taken by Hoover did not allow the market to readjust normally. He instead added stimulus but real demand did not increase, so money that was supposed to be used for private market enterprise was instead used to subsidize(plug the holes) in the economy. Then, the market crashed slowly over the next 2 years.
I'm really getting tired of this comparison to 1920, 29-32 on a half assed basis. Back then, things were priced in dollars as they are now. However, back then, the dollar was essentially as good as gold---sure the 'exchange' rate slipped somewhat during that decade, but hte dollar was based on gold. When we look at charts of the dow versus the dollar in 1920, 29, 30, etc, the chart would look very similar to the dow versus gold of the same time. Fast forward to now---the dollar is a piece of shitty paper. Its value is not tied to anything. This can be easily seen in a chart of the dow vs dollar, and a chart of dow vs gold for the present decade. the dow has soared vs the dollar and tanked versus gold. The question that has to be answered is WHICH CHART DO WE USE???????? basis gold, or basis dollar. When comparing to historical charts (listen up EW fools), there is no way you can choose to look at the basis dollar chart---its a figment because of a fiat basis.
So, we need to look at dow basis gold chart. But when u looked at that, the dow has already lost 90% of its value since 2000. that is essentially what the dow lost in the great depression. Looking at that, WE HAVE HAD THE CORRECTION, p1, p2, p3, p4, and p5 are over BASIS GOLD, are you listening Prechter? Its friggin over. When you look at a chart of the dow/gold ratio, you see major peaks in 1929, 1975+-, and 2000, with troughs thereafter in 1932 and 1980 (the start of huge bull runs). Where is the trough for the 2000 peak? 2009! and that trough is very close to the troughs of the preceeding examples. Are we set up for a huge bull run? maybe, but certain not a major crash like EW fools would have us believe---why are they wrong? because they are looking at the wrong chart. Dow basis dollar charts are just a joke because the dollar IS NO basis---it just floats relative to history.
Gold goes to 2000 and we 'lose' another 50% in Dow.
the dow gold at the low in the grt depression was about 2.5, and the ratio was below one at the 1980. On the other hand, the high was in the teens at the 1929 peak and in the 20s near the 1966 peak. In the current cycle, the peak was 46. Clearly, the swings are geeting larger, and there is NO way we have seen a low for this cycle where it never got much below 10. For the ratio to get below 1, which i am sure it will,a LOT more work needs to be done with dow down further and gold up further.
Anon,
ranting is fine, but get your data straight.
The high in dow/gold was 44.79 on 08/25/1999. The low was on 03/06/09 7.08, today's value is 9.14 based on London PM fix and dow close.
That is 80% down as of today. The last top in dow/gold was around 1966; after 1968 or '71 gold went up with the dow staying around 1000 as top.
The dollar got devalued '33 after the bottom in the dow was in on 07/08/32@40.56.
while you correct the dates (which were from memeory) and thank you, i notice you do not dispute the premise. I assume by that that you understand my point, not withstanding the nonsubstantive errors in my original post.
Now, with the "record" corrected, how about commenting on the substance, rather than on that which does not matter?
First, other things being equal, gold will devalue over time as more is pulled out of the ground. So gold is actually weaker today than it was in times past and this Dow/Gold bottom you're talking about wasn't in line with other Dow/Gold bottoms, especially given that gold is weaker.
But, even worse, if you're demanding precision in our thinking about the markets, why are you using the Dow as your proxy for the economy? How many Dow 30 companies were in the Dow 30 in 1929? The Dow is an arbitrary gaggle of stocks by market cap, with some equally arbitrary weighting scheme. There's nothing precise about any of it.
Nonetheless, your point about the ratio between gold and equities is a good one, as far as it goes. but it's certainly no market timing system, as you seem to be suggesting.
FischerBlack,
are you an economist?
"other things equal" is not the case, the CB's try to inflate the money supply quite a bit more then gold gets mined. Other conditions are permanently changing too.
"How many Dow 30 companies were in the Dow 30 in 1929?"
Exactly thirty :-)
The way the index was made reflects the use of paper and pencil some hundred years ago. The price of those companies get simply added together. I would not like to do a weighting by market cap by hand.
That could be done today but it does not change the picture. Check http://stockcharts.com/charts/performance/perf.html?$INDU,$SPX and play with the slider, the trend is the same.
Even more crazy,
try http://stockcharts.com/charts/performance/perf.html?$INDU,$SPX,$TSX,$DAX and put the slider to 350 days; the gains/losses look all the same for four different stock indices that represent quite different markets.
Anyway, I like to get the facts correctly.
Just for fun, you can look at dow/gold in different ways. I fund a long-term chart that supports the thesis of this being the bottom and another one that contradicts that this is the bottom.
Bottom:
http://2.bp.blogspot.com/_N2wseLMIbtE/SgBoh6Jw-3I/AAAAAAAAAVg/E-YU1B2UMU...
no bottom:
http://home.earthlink.net/~intelligentbear/com-dow-au.htm
Wow, these were great finds. Frankly, i think they are both telling basically the same story. If we are not at a major bottom, we are damn close. I come down that we likely are at or near a bottom because of the extraordinary involvement/meddling/intervention by the fed and gov. Thi is unprecedented and I do believe it will cushion the bottom so would not be surprised to not see the market hit other historically oversold benchmarks. Again, does it move up? who the hell knows but I do think the short side is the wrong side from a historical risk/reward perspective and that really was my point. BTW, i'm glad to here you are not an EW fool, makes it much easier to listen to you thoughtfully!
Now, to your points:
how to make sense out of the comparison or data more in general.
To use gold is appealing because it does not change, but the price is likely manipulated. That makes a direct comparison problematic because you have to decide whether gold will be constantly manipulated or whether the manipulation will break down.
Another more short-term possibility id to denominate in a different currency, say Euro or CAD.
In any case the current rally is weaker then the one in 1930 if denominated in either Euro, Canadian $ or gold.
Another possibility is Price/Earnings; in this metric we are closer to a top then a bottom.
For a major bottom in 2009 the stocks look too weak even in USD, P/E is way too high, gold broke the resistance, The Dow/gold low was 7 and the mess is nowhere cleaned up for a fresh start. Reggie Middleton has a lot of analysis to back this point.
If you think this is a major bottom, good luck. I do not buy it.
BTW, I do not believe in Elliot waves at all.
ignore the asswipes who specialize in deck
chair re-arrangement....they aren't worth
the time of day....not even a fuck you....
On the other hand, maybe Obama, Summers, Geithner, Romer, and Krugman are naive. Maybe they don't have a clue of any economic theory other than Keynes. Maybe they wear rose colored glasses when they examine the history of Japan and the Great Depression. Maybe they believe in sky hooks.
Or maybe all they're concerned about is politics (i.e., winning the midterms and reelection in 2012) not economics.
Also, in 1920, the Fed targeted only the Midwestern Farm Banks, due to the Ag Bubble created during WWI. They wanted to take back the liquidity in Farm Land & Farm Banks. They spiked interest rates to 20% (in August maybe). Market imploded shortly thereafter. Only the Farm Banks were targeted with the Interest Rate Spike. When asked by Congress why they did that, the Fed answered: "We would rather not say."
Or, so I'm told anyway...
Sounds like BB in testimony to Congress ... "We will not say" ... who got what and when.
"Yet, the market started to rally in November, but never got off the ground."
DJI Low 11/13/1929 = 195, high 04/21/1930 = 296
That is a rally of 51.8% Not that bad I would say.
Another difference between 1920 and 1929 was a leveraged bubble that burst in the latter case. The leverage killed as it always does. Other people call it balance sheet-recession/depression.
Fraud was common in 1929 as observed by Robert Rhea in his book Dow Theory.
Things are a bit more complicated then you point out.
One rather alarming difference between 1929 and now is that all the burdens, regulatory and otherwise, that were imposed on economic activity by Hoover and FDR were placed on an economy that by current standards would be abhorrently free and therefore far more able to shoulder more burdens. Today we have not only that entire burdensome structure but layers and layers of additional added in the years since, onto which a massive load of stupidity beyond imagination is being dumped. The greatest danger is that TPTB implicitly assume that no matter what they do it won't stop the engine of wealth. Unfortunately if they keep going in this direction they will conclusively demonstrate (to anyone other than themselves anyway) that's not the case.
...and we made our own s#!t back then
Look....let`s simplify this even further....
Govt. re-allocates somebody`s wealth to someone else....
In order for someone to generate wealth....they have to have
a business that generates revenue on a sustainable basis....
For those that are foolish enough to risk the US legal largess bullshit versus working for somebody else ....they need to have more reasons not less reasons to give it a try....
Folks ....here it is....
Change the tax system to a 10% State Consumption tax....and a 5% Fed tax ....no other taxes....
De-fragment the exchanges and make them first come first served fully electronic direct access....all asset classes....absolutely no taxes of any kind....
The banks will be separated from the securities business....
This is ALL THAT NEEDS TO HAPPEN....
Then the US WILL ENTER A NEW GOLDEN ERA ....
To date....the current set of politicos are doing just the opposite....
Everything they suggest negates business valuations....
Healthcare...cap and trade....more taxes....the negative list gets longer and longer.....
I nominate you for T^3's job.
Better yet, please run for office.
right on
One the one hand...on the other hand. Economics alright, all schools.
"Hoover was the consummate interventionist and implemented many policies that trashed the economy and started the Great Depression. " - Perhaps you should look into the Austrian banking crisis of May 1931, that's what turned a global recession into a depression.
Anyone worried about a Depression should be looking closely at the EU, not to the US.
Why is that? Explain.
From where I am sitting (in the EU) things definitely look better than in the States. The banks were forced to write off the bad paper last year so that isn't an issue here any more (unlike in the States).
There are new regulations concerning the kind of paper that caused this mess over here to keep it from happening again (unlike in the States).
Unemployment on the average here is half that of the US with only a couple of exceptionally weak countries marring this.
GDP is up along with jobs, again unlike the in the States. The Euro is getting stronger, but so are exports so the "weak currency=high export" theories are being disproved.
As the US Dollar loses it's cachet as a reserve currency the Euro and Pound are being put into the basket to replace it.
And with the multiplicity of economies here any weaknesses in any single countries economy are offset by the strength of others. This is not something that will happen in the US.
If you really want to compare the US to Europe you should be considering the individual countries as compared with the health of individual US states. When you look at it this way it's pretty obvious that Europe is much farther along in the recovery process. Combined with the new regulations to the financial industry here curbing the reckless behaviour of US investment banks I'd place my bets on Europe over the US coming out of this quicker and staying out of it longer.
Why is that? Explain.
From wher I am sitting (in the EU) things definitely look better than in the States.
The banks were forced to write off the bad paper last year so that isn't an issue here any more (unlike in the States).
There are new regulations concerning the kind of paper that caused this mess over here to keep it from happening again (unlike in the States).
Unemployment on the average here is half that of the Us with only a couple of exceptionally weak countries marring this.
GDP is up along with jobs, again unlike the in the States.
The Euro is getting stronger, but so are exports so the weak currency=high export theories are being disproved.
As the US Dollar loses it's cache as a reserve currency the Euro and Pound are being put into the basket to replace it.
And with the multiplicity of economies here any weaknesses in any single countries economy are offset by the strength of others. This is not something that will happen in the US.
If you want to compare the US to Europe you should be considering the individual countries as compared with the health of individual US states. When you look at it this way it's pretty obvious that Europe is much farther along in the recovery process.
Combined with the new regulations to the financial industry here curbing the reckless behaviour of US investment banks I'd place my bets on Europe over the US coming out of this quicker and staying out of it longer.
Thanks for the background tip. I read several views of the 1931 event and the runs that it precipitated.
This could happen here, especially in our techno age. Consider what would happen if the blogoshere got wind of a 'potential run' on BAC, C, or WFC and it went viral ... bingo run, run, run ... every bank goes broke overnight.
Global panic follows.
Obama calls for 'bank holiday' like FDR, reopens new nationalized bank in 10 days. All banks under the control of US regulators. Obama lives up to Messiah name tag.
Bernanke won't let that scenario to be repeated in the US, see starting 6:30 here,
http://www.youtube.com/watch?v=H9RPChJecBA&feature=PlayList&p=3DBC31BFA7...
But EU banks are more leveraged and larger in terms of GDP, those may be "Too Big To Save", that's the main risk facing the global system,
http://www.ft.com/cms/s/0/61d7e148-8f15-11dd-946c-0000779fd18c.html?ncli...