Marketoracle.co.uk: "The Great Depression 2008 - It can't happen to us....can it?"
Rolf Martens
comments":
Tuesday, 12 February 2008 (NWBC 346) Marketoracle.co.uk: "The Great Depression
2008 - It can't happen to us....can it?"
2008-02-12, 04:02 GMT:
Concerning this, see also my "UNITE! (etc) Infos" #275en, "Will the world
economy crash? (1)", (15.03.2007) and #305en, "Will the world economy crash?
(2) - An article in the Boston Globe", (28.01.2008) and, for German-readers,
#307de, "Ex-Marxist H. Dicke zur Finanzkrise (lesenswert)" (02.02.2008; with an
intro note in English). Here is, reproduced, the recent article at
"Marketoracle",
[http://www.marketoracle.co.uk/Article3656.html]
[QUOTE:]
"The Great Depression 2008 - It can't happen to us....can it?”
Feb 09, 2008 - 02:28 AM
By: Andy_Sutton
Webster's defines complacency as “1.satisfaction or contentment 2. smug
self-satisfaction” There is probably not a better word to describe the current
state of perception with regard to economic and financial malady. I had an
interesting conversation the other night about exactly this topic and the
individual I was speaking with had an overriding belief that we cannot suffer
economically simply because the current generation is not prepared to deal with
it. While I certainly agree with the latter assertion, the former continues to
baffle me. I am certainly not prepared to deal with a lengthy hospital stay as
the result of a horrific car crash, but that alone doesn't cloak me in immunity
from having an accident. The reasoning is so broken and flawed, yet it is often
all we get in terms of a perception of what is going on.
This disconnect begets a discussion of why exactly it is that society has
chosen to believe itself to be immune from bad things. It is odd in itself that
when you talk to individuals, they seem to be acutely aware of many of the
challenges facing us, but when you put all the individuals together and create
a society, we act as though the party will indeed last forever. We are
certainly dealing with a situation in which the intelligence of the whole is by
far less than the sum of all its parts. Here's a little bit of déjà vu for you,
compliments of Wikipedia:
“ In the 1920s, Americans consumers and businesses relied on cheap credit, the
former to purchase consumer goods such as automobiles and furniture and the
later for capital investment to increase production. This fueled strong
short-term growth but created consumer and commercial debt. People and
businesses who were deeply in debt when price deflation occurred or demand for
their product decreased often risked default. Many drastically cut current
spending to keep up time payments, thus lowering demand for new products.
Businesses began to fail as construction work and factory orders plunged.”
Sound familiar anyone? See any price deflation going on? The Wilshire 5000 has
only lost about 2.5 TRILLION dollars in value in the last two months or so.
What about the loss in home equity? Another trillion or two? Who knows, but I
think you get the point. We are seeing almost to the final utterance the same
play we saw unfold in 1929. Were those folks any more prepared for the Great
Depression than we are today? I'd argue that while they were perhaps a bit
better equipped to provide for their own sustenance that American society in
the 1920's was as complacent as we are today. When the realization of history's
coup de grace hits, we will be caught as unaware as our ancestors were back in
1929.
Here are some other examples of what Alan Greenspan likes to call ‘irrational
exuberance' in the 1920's:
"We will not have any more crashes in our time."
John Maynard Keynes in 1927 (The authenticity of this one is a little suspect)
DOW ~ 175
"There will be no interruption of our permanent prosperity."
Myron E. Forbes, President, Pierce Arrow Motor Car Co., January 12, 1928 – DOW
~ 200
"There may be a recession in stock prices, but not anything in the nature of a
crash." - Irving Fisher, leading U.S. economist, New York Times, Sept. 5, 1929
– DOW ~ 375
"All safe deposit boxes in banks or financial institutions have been sealed...
and may only be opened in the presence of an agent of the I.R.S." - President
F.D. Roosevelt, 1933 – DOW ~ 65
Tuesday morning we received news that according to the Institute of Supply
Management, the service portion of our economy underwent a significant
contraction during the month of December. This is alarming given the fact that
December is normally one of the busiest times of the year. Even still, a trip
past the local mall provides a busy scene. People are streaming in and out,
carrying boxes and bags of imported trinkets to their imported cars. They will
then use imported gasoline to drive to their home, the mortgage of which is
likely to be owned by a foreign investor. Yet the average American citizen sees
nothing wrong with this picture. Or could it be that they don't even see the
picture at all? The media has certainly been playing the role of absentee
informant in recent years, choosing to focus on such insipid topics as Britney
Spears' latest rehab stint rather than the important business at hand.
Here now, are some quotes from this generation's 1929..in 2007 and 2008:
“It is encouraging that inflation expectations appear to be contained,” Fed
Chairman Ben S. Bernanke – Testimony to Congress – March 28 th , 2007 – DOW ~
12,500, Headline CPI-U ~ 2.8% Y/Y
"As I think you know, I believe very strongly that a strong dollar is in our
nation's interest, and I'm a big believer in currencies being set in a
competitive, open marketplace," - Henry Paulson – Secretary of the Treasury –
USDX ~ 81.50
““We are making history. What has passed the Congress in record time is a gift
to the middle class and those who aspire to it in our country.” House Speaker
Nancy Pelosi on the $168 Billion tax ‘rebate' while the middle class is
spending their Wal-Mart Christmas gift cards on food and other necessities.
They're making history all right. Too bad it will end up being the WRONG kind.
How can we ever hope to focus the population on the urgency of our current
predicament when our leaders are willing to make it worse by handing our
freebies, bailing out those who willingly make poor investment choices and
telling us everything can be ‘free' if we'll only pull their lever on election
day?
Or am I putting the cart in front of the horse? Perhaps a contrarian opinion
might be that our leaders are giving the public exactly what it wants. In
either case, I am quite certain that our state of unpreparedness will not
constitute a free pass from the negative effects of a recession or a retraction
of any of the financial excesses we've enjoyed over the past few decades.
By Andy Sutton
http://www.my2centsonline.com
Andy Sutton holds a MBA with Honors in Economics from Moravian College and is a
member of Omicron Delta Epsilon International Honor Society in Economics. His
firm, Sutton & Associates, LLC currently provides financial planning services
to a growing book of clients using a conservative approach aimed at
accumulating high quality, income producing assets while providing protection
against a falling dollar. For more information visit www.suttonfinance.net
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