Do you think there could be a second Great Depression?

[PrettySquareGal]

This commentary was written before the stock market decline yesterday:

http://www.marketoracle.co.uk/Article383.html

After Greenspan's comments yesterday and the stock market "readjusting" to correct itself, and reading about the high number of adjustable rate mortgages set to redjust into the higher rates this year (with higher numbers of foreclosures, etc), I am concerned. I'm not an economist, though.

I'd like to hear what others think- do you think our economy is strong, or might we see history repeat itself?

(Oh, and please, I don't intend for this to be a political discussion. Bartenders please delete if it is, and I apologize in advance.)

 

[Elaina]

It's nothing I didn't say several years ago, although I am not an economist, either.

An old man I have coffee with asked me the same thing, since he lived through the Depression. The outcome, says I, is that the GD was ended by a huge war. Wars are no longer fought the same way, young men have no desire to fight for their country, and the draft isn't, anymore. There will be a long, hard road to get out, or we'll wind up being a third world country. Unless folks don't quit spending what they don't have (a real econ term here "Champagne tastes on a beer budget") and stop using credit to get by, yes indeedy, BOOM! is going to happen.

Because I DO believe this is going to happen, I will have my house paid for this time next year, I can cook for my family of 3 on $25 a month if I absolutely have to, I can sew, and to be really honest, I CAN live without electricity, gas or a car. (I've got gas heat, stove and my hobbies don't require anything but sunlight if it comes down to it.) And I don't think I've used my one and only credit card in the last year or so. So...if I have to I can survive on $400 a month, still have a house over my head, feed my kid and make sure he's clothed. I don't now, but I can.

 

[Stinchcomb]

I don’t think another depression is on it’s way. I believe the housing bubble is nearing a bursting stage, here in the U.S. anyway. I believe this is part of the up’s and down’s of the housing market. Fortunately this latest up has lasted a long time and is getting ready to come back down. I think there are a lot of foreclosures due in part to the fact there are much more section 8 type housing and the government is making it easier for people to get into a new home. Which is fantastic, but people need to be educated about what they are actually getting themselves into before buying a home. It’s a lot more than just that monthly payment. In my area it would appear that some of the people have purchased more home than they can afford and up keep, which leads to foreclosures. When the housing market slows down, these people will have a house they can’t afford and yet can’t sell.

My family and I are in our 30 year home with a fixed rate. I hope that when I’m ready to retire and sell this giant, the market will be on a up swing. This home is part of my retirement.

I had to save, save, save while living in apartments until I had enough for a down payment on a P.O.S. house. I lived there for 3 years while fixing it up. I sold that house and cleared enough for a down payment for my first nice beginner house. I lived there for about 4 years while improving it. I sold it and made enough to finally put enough down for my first HOME, where I am at today.

I could keep going, but it would get too political.

 

[Zemke Fan]

I'm far from an expert in these areas...

But I must say that the speculative feeding-frenzy in the housing market during the last few years has had me concerned from the beginning. Fortunately, for me, I avoided the craziness all together and I am waiting to time my re-entry to the lowest point in the cycle. I believe that massive price decreases in property values are inevitable and that major defaults and bankruptcies will occur. When you factor in the effects of the Bankruptcy "Reform" legislation, most folks will find that they will be required to work themselves out of their obligations over a 60-month period. In short, I'm fearful that it will be a helluva mess. Compound all of that with an Avian flu pandemic and holy-moley.

 

[Rooster]

I don't know , and won't worry about it, although it wouldn't be something I'd look forward to. We'll have the house paid off in 6 months:eusa_clap . At that point we won't owe anybody any thing.
We do have plans to move from the city to the boonies just in case of a social collapse. I'd hate to live in our present location if all hell broke loose. We ought to be moved in a couple years.

 

[LizzieMaine]

Where I grew up, the saying was always "When *isn't* there a depression?" The year I graduated from high school, I stepped into a regional workforce where unemployment was over 20 percent -- maybe there won't be another *national* depression, but there's always going to be pockets of it.

 

[Paisley]

According to what I have read, there are now a lot of banking controls in place that didn't exist in the 20s and 30s. For example, I don't think banks were FDIC insured. (Remember the scene in It's a Wonderful Life when Potter was offering something like 50 cents on the dollar for Bailey Building and Loan accounts, right after he called Bailey Co.'s loans? It wouldn't happen today.) There was also a lot of protectionism during the Depression, besides government control of various markets, plus monopolies. Those things make the market inefficient, and many of those things don't loom so large today.

 

[Vladimir Berkov]

In terms of things which make the market inefficient we have far more of those things today than in the late 20s.

The odds of another "great" depression anytime soon are unlikely though. The Great Depression in America was tied to a worldwide depression that had already been going on for years, and was in turn tied to the Great War. It will take more than just the slowing down or even recession in the US economy to trigger another depression along the lines of the 1930s one.

 

[52Styleline]

Federal Deposit Insurance Corporation, and it's counterparts in the Credit Union and Savings Bank spheres are designed to fend off the problems that caused the banks to fail in the 30's. The problem is, the savings insurance is only backed by the good faith of the Govt. and if there were to be a massive run on bank deposits, I'm not sure the insurance programs could stand the strain.

In my opinion, the safeguards for savings, stock market, and unemployment that were put in place during the 30's in reaction to the problems of the depression were fine for that era. But now that the population has reached such an insane level (hasn't anyone heard of birth control ) I doubt that these safeguards could stand up to a massive economic disaster.

There have been small regional depressions in the Pacific NorthWET because of the death of the timber economy. Many of those unemployed when logging operations and mills closed have never found jobs again, and the small towns which depended on timber are dying. This despite the safety nets...

Yes, I think there very well could be another great depression. And since,unlike the last one, the majority of the population no longer live on farms and produce their own food, this one could be even worse.

 

[jamespowers]

There will never be another depression on the level of the Great Depression. The programs mentioned and several restrictions on setting up pyramid companies that are not really backed by anything but paper make it improbable. That does not mean that individuals cannot create a depression for themselves or that regional recessions could not be possible.
The housing market really depends on where you are. Out here in the East Bay of California, the housing market is still going up and up. Not at the same rate as previously but it is still going up and no end is in sight due to housing demands that never cease. You have to live somewhere. [huh]
Depressions in other countries would not likely hurt us in our position as we are a debtor nation as opposed to a creditor nation as we were in the 30s. It might even benefit us. Not that I am wishing for that to happen.
Government insurance and the like could handle the strain of anything that happened but the problem would be the effect on our buying power for the same amount of money. An increased money supply---esentially printed to meet demand would likely cause high inflation. People would have money but it wouldn't buy them as much as it did before. That is still better than having nothing at all though.
Having unemployment at the 25% level again is not likely to happen. There would be a bunch of WPA type programs brought up again but that would be giving the government a backhoe in the place of a shovel when you think about our national debt. Lately we have been leveling off but a bunch of make work programs could throw that away and it takes quite a while for a nation to get out of debt because of the politics of it all. We did it after WWII though I would not want the type of taxation it took then to do it.
I would not worry about food either. Land the size of Texas could feed the entire world if necessary. We could make do with feeding the US on much less with modern agricultural practices without creating a dustbowl that would destroy farming communities for decades to come.
In short, I think we could handle it if it came down to it but it likely won't. We have so much more than they did then that makes everything from deliveries to communication much faster. Those things also make it possible to head off a depression. The problem I see is the inability of some people to work together in bad times. Some would be totally incapable to deal with the situation. Something that was not a problem to a great extent before. The other problem I see is the distance from the family that was not so much the case before. That is distance in miles and in actual relationship to each other. It is troubling. Would families pull together and settle their differences or remain petty? I suppose food and a roof over your head just might change your perspective of Aunt Emma eh?

Regards,

J

 

[Marc Chevalier]

The other problem I see is the distance from the family that was not so much the case before. That is distance in miles and in actual relationship to each other. It is troubling. Would families pull together and settle their differences or remain petty?

Makes me wonder if immigrant Asian, Armenian and Hispanic families would better survive a depression than other less 'clannish' groups?

.

 

[jamespowers]

Makes me wonder if immigrant Asian, Armenian and Hispanic families would better survive a depression than other less 'clannish' groups?

They would survive for sure. They are used to living with whatever comes their way. Some provencial families could learn something from them when the chips are down.

 

[Fletch]

As Lizzie said upthread about her region, so say I in regard to my lines of work. There is always substantial unemployment in freelance editorial, design, and especially music. A lot of it is the churn of people moving between jobs, but I don't know anyone in these fields who isn't idle at least some of the time, and money is seldom less than tight.

 

[Paisley]

They [clannish groups] would survive for sure. They are used to living with whatever comes their way. Some provencial families could learn something from them when the chips are down.

This is one reason I live in a small house.

 

[Steve]

The dollar is beyond inflated, and America has outsourced itself to death. If a hiccup in China can cause the DOW to drop 400 points in a matter of hours, economic hard times, (that is, harder than they have been,) are not beyond possibility. Personally, I wouldn't be surprised if jealous foreign countries didn't use the amount of stock they hold as leverage for a war of economies.

 

[Paisley]

The problem I see is the inability of some people to work together in bad times. Some would be totally incapable to deal with the situation. Something that was not a problem to a great extent before.

"Life is hard, and there are those who cannot adjust themselves to it." So said an observer in the wealthy city of Babylon some 5000 years ago. Hard times can strengthen a person's resolve and can make people get along and work together. (Consider the weeks and months after 9/11.)

 

[Fletch]

There would also be a lot of wrangling, some of it very ugly I'm sure, about what exactly it means to "deal with the situation." If push came to shove, I believe some people would prefer we became a Latin American-style plutocracy rather than return to the social-welfare net of the New Deal.

 

[Marc Chevalier]

If push came to shove, I believe some people would prefer we became a Latin American-style plutocracy rather than return to the social-welfare net of the New Deal.

A thoughtful point. Depressions, hyperinflation, and the resulting social strife can push a nation toward either extreme, Right as well as Left.

.

 

[PrettySquareGal]

I think it might be more like this:

http://www.scifilm.org/tv/tz/twilightzone3-3.html

 

[staggerwing]

Corporate America sends it's high paying middle class jobs overseas and replaces tham with sub-minimum wage Walmart jobs.

American Government borrows money from China and squanders trillions of borrowed dollars on needless wars.

Corporate America with the assistance of the American Government import millions of illegal aliens putting additional downward pressure on wages.

American consumers buy houses they can't afford using gimmicks like interest-only loans.

American consumers are encouraged to take on more and more debt.

More and more Americans are being priced out of higher education.

Tick....Tick....Tick....

No, there isn't going to be another "Great Depression." When the house of cards comes crashing down, I fear the result will be far, far worse.

Note: The forgoing ins not a banned political rant, because by now it's clear that it doesn't matter what political party is in power. It is merely a set of facts that I encourage each and everyone to draw their own conclusion from. I know I have.