Tuesday, March 11, 2008

A Downward Spiral?

The Great Depression was not a sudden total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929. Together government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the prior year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the northern summer of 1930.

In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas where commodity prices plunged, and in mining and logging areas where unemployment was high and there were few other jobs. The decline in the American economy was the motor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts to shore up the economies of individual nations through protectionist policies, like the 1930 U.S. Smoot-Hawley Tariff Act and retaliatory tariffs in other countries, helped to strangle global trade. By late in 1930, a steady decline set in which reached bottom by March 1933.

Many of the readers will be thrilled to see a historical connection between the Smoot-Harley Tariff of 1930 and the CAMPAIGN PROMISES of Barack or Hillary...

Maybe the more disturbing view of the Great Depression lies at the feet of Ben Bernake who notes the correlation between the DEBT-DEFLATION of the 1920s and now. It was a cycle where the economy hinged on cheap credit and consumer spending! Unfortunately, many consumers are TAPPED OUT on their credit limit...and will continue to struggle as basic essentials such as gasoline and food tip the scales of BANKRUPTCY. Throw in the DEFLATION seen in housing prices...and the lack-luster dollar, and the writing is on the wall. Should these trends hold true we can anticipate the following:

1. Look for a LARGE layoffs of up to 25%.
2. Drastic cuts in business spending.
3. Non-existent consumer spending.
4. Continued pressure on the housing market.
5. FINANCIAL INSTITUTIONS (which are left standing) will tighten lending standards.
6. Big businesses that proved time and time again that they could not regulate themselves.

Remember the stock market trends moved in a downward cycle for nearly 10 years!

TOD
HIT THE BOOKS AND FIND THE INVESTMENTS THAT REALLY MADE OUT DURING THE GREAT DEPRESSION!

TOD
WILL THE INDIANS WIN THE PENNANT AGAIN?


 

6 comments:

boom and doom said...

Tiger Coach, you are coming over to the dark side with me. 25% layoffs or unemployment? If businesses can't regulate themselves, does this mean government regulation? I don't think that would be a good thing. If it means the best companies will survive, then capitlism will be working. You make good parallels with the late 20's and today. I think we are on that path again. The consequences and pains will be different, but it is not going to be comfortable. Save all the cash you can, make sure you have access to credit (for emergencies) and wait for the coming double digit interest rates to invest in fixed income investments. It's time to hunker down. And yes, the Indians will win the pennant!

Tiger Coach said...

The Great Depression had that...Lord wiling we will not...I was watching the news this evening and noted that a consumer's credit card was maxed out as she was filling up at the pump. Regardless of the economics, I still think we live in the greatest country in the world...However, it is important to get things back on track!

GO TRIBE!

AX said...

Men, if we keep printing money like this, it will make the Depression look like a mere bear blip in American History. If the dollar is valued at half the euro and less than half the pound, how long before the Chinese say enough is enough. They will then flood the market with our own treasuries, debasing our dollar in a vicious cycle. I fear more of the more recent Japanese housing bust recession....BD, TOD? Maybe differentiate by at least making it the tip of the day...

AX said...

http://www.marketwatch.com/news/story/crying-wolf-again/story.aspx?guid=%7B2AA5CAA0%2DB0A6%2D4A88%2DA476%2DFDA8DD33D100%7D#comments

To follow up on what I just said...read this.

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