Some people point out that we may be in another economic depression. This is misleading because when I look around, people are still buying clothes, groceries, and new computers. People are still taking vacations and commuting to work. No one has committed suicide due to bankruptcy. In general, people are still going about doing their business, as if they’re oblivious to the economic crisis currently happening right now.
What is the difference between then and now, anyway? During the 1930’s Great Depression era:
- Government was slow to act, not recognizing dire issues
- No bank deposit insurance
- No unemployment insurance
- Stocks had zero value after crash (90% destruction)
- 45% Mortgage Default
- Unsophisticated information systems
- Global investment had minor power in recovery
- Little financial controls or governance procedures
Now, the situation is way different:
- Governments are acting fast, recognizing impacts
- Have deposit insurance
- Have unemployment insurance
- Real estate has value and need for homes will remain
- Government will underwrite primary homes (foreclosure today at 3%)
- Sophisticated data and communication systems
- Global investment can play a large role
- Significantly improved powers of intervention
So, we’re better equipped and well prepared now. There are safeguards, and the US Government plays a bigger role keeping this crisis in check. The economic crisis we’re experiencing right now doesn’t feel like the 1930’s. It’s more like the 1970’s, where we feel the pinch and the situation is still tolerable.
Photo Credit: Tony the Misfit
Tags: economy, government, protection, recession
Building IT
Jot It Down
… or a) the ripples of this crisis haven’t reached us yet, and b) denial is a powerful thing.
Hey Olivier,
The crisis is here, in Southern California, where I live. There were many small banks, insurance companies, and mortgage companies have folded, laid off hundreds of people. House prices have fallen by at least 25%. I’m not denying we are in a recession. It’s not any worse than that.
Hi Rudy, it’s amazing the number of small banks we have here and it’ll be interesting to see how they fair in the current “economic crisis”. Banks are still being built, and there are hundreds of small and large banks within just a five mile radius from my house.
People are shopping for Christmas gifts at a high rate of speed right now, and using their credit cards to make various other purchases as if there is no crisis at all. People are losing their jobs (there were almost 500 teachers laid off in Dallas this week), but the spending habits of many people haven’t changed one bit.
Lin´s last blog post..What Your Clothes Say About You Men
Hi Lin,
With the high gas price and the crisis, people are changing their spending habit, but by just a little bit. Just last night we went to a local (big) mall and they started closing at 7pm on Saturday (instead of 9pm), because people are just not shopping late anymore. Of course, with Christmas coming around, I predict that will change to midnight, after Thanksgiving.
That’s interesting Rudy, I haven’t heard that before. I wonder if even a small part of it is that perhaps more people are buying online and not actually walking into stores. I don’t know myself, but personally speaking, I’ve been doing 99% of all shopping online for the last few years. The only shopping I don’t do online is grocery shopping, but all gifts for whatever occasion are all done online so I wonder if more people are doing that as well. I dunno, we’ll see how things play out starting the day after Thanksgiving.
Lin´s last blog post..What Your Clothes Say About You Men
The way there has been a plethora of bankruptcies, may be we are headed towards a n economic depression.
@Lin:
People still like to go the mall. My wife is one of them. She likes to go and try them in the store, and compare/buy from online. I still see people buying from mall stores, too. Old habits hard to break, I guess.
@mariano:
Be Positive. The market will (and has to) recover. It’s not going to stay down for too long.
I think how we react to this, our attitudes, are important. I know that I’ve been talking to people where I work the same way I’ve been writing about this on my blog and elsewhere. Many people say to me “stop denying that we’re in a lot of trouble” and my response is “so what are you doing about it?”
A few folks have said, “well, I’ve got a lot of money saved” – well, that’s great – if things ever did get as bad as some of the alarmists say, money will be useless – make sure you know how to do something useful.
But I don’t believe it’s the end of the world. We’ll get out of this – together – with hard work. Normal, hard working people got us to where we are – and it is those same people who will fix this. Not “banking superstars”.
Brett Legree´s last blog post..john who?
hey Rudy,
Where is that picture from? It looks like a set of bronze statues on display at a museum? I like it.
In my humble opinion, we are already in a recession, but that’s not a bad thing (it had to happen eventually). I just hope it doesn’t get a lot worse, and that government in its attempt to “help” doesn’t make things worse. Economic cycles are a natural part of the economy, and it seems that every generation or two has to relearn the lesson that if something sounds too good to be true, it probably is.
~ Steve (aka trade show displays)
PS. When I read your “about” page in the past, the part about you being Canadian stuck in my head. I missed the part about you being here in so cal (me too), and didn’t realize that until I read your comment above.
Good post Rudy, interesting read
Farzan´s last blog post..REVIEW: W.
Hey Brett,
Exactly. What are we going to do about it? There’s plenty for us to do. It may be counter-intuitive, but the best way to get out of this recession is to actually spend more! Continue to invest, continue to buy what we need, and continue to contribute to the local economy.
Hey Steve,
According to the Flickr site, the picture was taken at FDR Memorial Site, Washington DC.
We’ll see more bubbles in the near future. People always find ways to make a quick buck, at everyone else’s expense.
hi Rudy,
Thanks for your answer on the picture being from the FDR Memorial. I’ve been to Washington DC twice, but it was a long, long time ago, before the FDR memorial went in. I loved seen all the memorials (the Lincoln memorial is amazing), and would love to go back. Now I have a reason!
I agree that there will be more bubbles… and booms… and busts… unless government finds a way to outlaw greed, fear, bad judgement, mistakes, and human nature in general, which I doubt.
~ Steve (aka trade show displays)
Does history repeat itself?
Marriner S. Eccles, was the Chairman of the Federal Reserve from 1934 1948
In his 1951 memoir Beckoning Frontiers, Eccles detailed what he believed caused the Great Depression.
Our current situation is eerily similar.
Eccles wrote:
“As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nations economic machinery.
Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.
Hey John,
Thanks for the quote. That is an eerie similarity. Whenever there are people gaming the system, some will lose. It happened before, and it will happen again.
If there wasn’t a saying, there should be one: ill gotten gains are the start of all sorts of pain.
The biggest impact of crisis is on southern california. The banks are not so working and this will make a big change in a US economic condition.
Great article with good concepts, information and advice!