Is This the Next Great Depression?

We keep hearing this is the worst economic crisis since the Great Depression.  People are starting to believe it and that is very dangerous because it can become a self-fulfilling prophecy.

There is a big difference between a recession and a depression, between a crisis and a catastrophe.  For someone who has lost his job or watched his life savings take a massive hit, arguing over the differences might seem like semantics or splitting hairs.  But it’s not.  It’s critically important that we understand the difference.

During the Great Depression one of out four families were expending every effort they could muster, every waking minute of the day, from the very young to the very old, just to feed their families.  They weren’t worried about their 401k balances or owing more on their houses than they are worth at the moment.  They were worried about survival.  We had families in the United States boiling roots to make soup.  There was no work. Anywhere.  The government made public service announcements on the radio exhorting people in rural towns to stay there, not to leave and go look for a job because there were no jobs. 

Franklin Roosevelt promised a “chicken in every pot” and was re-elected twice because Americans were scrambling to subsist and were looking for hope.  FDR had “fireside chats” every week to encourage Americans and stimulate hope and optimism.  It’s time for our country’s leadership to start doing the same rather than inciting fear and uncertainty.  We don’t need anymore “firesale chats”.

We are in a recession.  It’s reminscent of the 1970’s, not the 1930’s.  No two recessions are exactly the same and this one has some striking pecularities from past recessions.  For one, the financial markets don’t know what the rules are.  Some companies are going to go bankrupt and others are going to be bailed out at taxpayer expense.  Some people that acted prudently and responsibly are going to absorb and fund the mistakes of others that were not.  Under normal market conditions, it understands the ground rules of how that process would work itself out.  Now it’s a completely political process rather than simply economic because some companies are going to be chosen to survive by a bureaucrat and others are not.

The stock market will come back with a vengeance once it knows what the rules are.  Volatility works both ways and we are very likely to see some upside.  We are still in the midst of an economic hurricane and visibility remains poor. When we get clarity from the Treasury Department and from President Obama we will see a market rebound.  The market is a forward-looking indicator and it will start moving up long before the economic statistics (which are backward-looking) catch up to it.

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1 Comment

Filed under + Economics, Politics and Financial Planning

One response to “Is This the Next Great Depression?

  1. I agree with this assessment. Fear is being leveraged to furher agendas. Fear is contrary to the teachings of Jesus — many, many times he said: “fear not”

    Thanks for your level headedness,
    Jeff

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