Great Depression History

I like writing about articles way after they come out (sometimes months, even years).  The reason is obvious - I want to see if their predictions and thoughts about where things are going were actually true or not.

There are so many folks out there who present themselves as experts and so many who got it terribly wrong.

This article in the NYT is not one of those articles, but it was printed over a month ago.  And in these markets, that is an eternity.

This article doesn’t shed too much on Great Depression history, but it is telling.  It has to be taken with a grain of salt though, as it is really early in the process.  The article is filled with great statistics of the 1931 and 1937 crashes (both played a huge roll in keeping the Great Depression going).  It shows how terrible 2008 has been (until the bear market rally of December 2008).

It is a quick read and a good source of information.  Read the entire article here.

I recently found an interesting piece on financial tips learned from the Great Depression.  It makes our discussion on Great Depression history all so relevant as we begin 2009.

The next Great Depression is upon us and we need personal financial tools to help us cope with our new, upcoming hobo lifestyles.

READ ENTIRE ARTICLE HERE.

I liked this piece because it touches on all aspects of our personal financial lives.  Here are the 7 main categories which are discussed (and my thoughts on each):

1.  Food: Grow a garden

Love this idea.  You can save thousands of dollars every year by producing a portion of your own food.  Many people will not embark on this because they will ask the question, “What’s the point?  I can’t possibly produce all my own food and it is so much easier to just buy it.”  Well, that was fine when you had massive amounts of disposable income, but times are changing.  The cost is just one consideration.  The other consideration is health.  When you grow your own food, you know exactly what is going into your body.  Good stuff.

2.  Entertainment: Enjoying the simple things

The times of spending $60 on your entire family to go to a movie is what we did when times were good. If we know our Great Depression history, we know that these good times are over.  It is time to find entertainment for us, and our entire families, by looking elsewhere.  Enjoy a sunset.  Enjoy a sunrise.  Play board games. Go for walks.  Go camping.  Go for an incredible hike at a local park.  The opportunities are endless (and most are much better for your waistline than sitting in a move theater for 2 hours eating popcorn and drinking soda.)

3.  Transportation: How many SUV’s does your family need?

With gas prices coming way down, the urgency has swayed somewhat, but higher gasoline prices are coming back.   There is no doubt this will happen.  Also, look at recent reports that show most of us simply have been bit too hard during the $4/gallon gasoline crisis over the summer.  During the Great Depression, we saw people riding more bikes, walking, doing more things that you find today in other societies, but not here in the States.  Public transportation has also carried a negative connotation for a long time.  Taking the bus or subway was for the “working people” and not for a person who could afford a car.  Well, those times are changing and they should.

4.  Housing: Downsize or rent a room

I like the articles take on this as well.   Downsizing is all the rage right now.  Renting a room seems a little crazy, but as humans, we don’t need that much to really get by.  If you are single and have no kids, then you can get by with just renting a room.  It is very cheap, it helps out others to be able to keep their houses with the extra income, and much more.  The thing to remember here is that most of us will have to make a major shift in our thought patterns to get used to this.  We were not brought up with these values (saving and living below our means.)  We were always told to buy as much house as we could afford and then we would grow into it over time.  Also, house values will always go up, so owning our own house (the biggest possible) with as much debt as possible, was the best long-term investment.  Oops…we need to rethink this notion.

5.  Jobs/Entrepreneurship:  Nothing left to lose?

This is my favorite portion of the article.  I am currently unemployed like so many other folks out there.  When you have nothing left to lose, you start getting very creative in how to make money.  It actually can make you much happier in life when you have to scratch and claw for every dollar you earn.  Also, if you are embarking on a new business, when we are facing another Great Depression, it focuses you to watch every penny and do things on the very cheap.  Not always the best route, but when times are tough, it may be the only way.

6.  Credit: Redefining what you can afford and need

Living within your means, or even below your means is the way of the future (and now).  Debt is the death-null during recessions and depressions.  When revenues fall, having debt to pay is worst thing in the world.  So many of us get in over our heads by claiming actual wants as needs.  We “need” to have a new car.  We “need” to have a bigger house.  These are wants, not needs.  When times are tough like they were during the 1930’s, people clearly defined what they needed versus what they wanted.  They made the hard choices and almost never used credit.  This is the new way of life as we embark on hard times today.

7.  Money Management/Budgeting: Simplify your system

Keeping it simple is really the way to go.  I personally have several business entities and complicated systems to keep track of them.  That was the old way of thinking.  The system of maintaining our lives has to be simplified.  It is no longer a valid excuse to say “my life is simply too complicated to know where every penny is being spent.”  When we very well could be heading for another Great Depression, we MUST know where every penny is being spent.

In conclusion, the Great Depression history significance of each of these categories is paramount.  We can learn great lessons from our ancestors who lived through these difficult times.  They knew how to stretch their dollars way beyond how we do today.

Here is an interesting little historical fact that I did not know.  Apparently, back in the day where the Great Depression was in full swing and our good buddy Franklin Roosevelt was leading the country, he had a novel idea to move Thanksgiving up a week to encourage greater holiday spending.

This is from a recent blog post…(The writer of this blog post is the great-grandson of Lew Hahn.)

“Enter Lew Hahn, general manager of the National Retail Dry Goods Association. He suggested that the date of Thanksgiving be moved forward to help boost retail sales. In late October 1939, Roosevelt announced that Thanksgiving would be on November 23 rather than November 30. National outcry ensued, and Thanksgiving was christened with the name Franksgiving (after Roosevelt’s first name). Alf Landon, Roosevelt’s opponent in the preceding election, compared Roosevelt’s actions to Hitler’s:

If the change has any merit at all, more time should have been taken working it out… instead of springing it upon an unprepared country with the omnipotence of a Hitler.”

I just wonder how many politicians actually know this little fact of Great Depression history.  I would bet this is just the kind of thing that might be on the docket next year at this time if we continue down the path we are.

Black Friday is upon us and experts are predicting this to be one of the worst shopping seasons in history. The consumer may have just fallen off a cliff and is not coming back.  Donny Deustch said it best recently, “I think the consumer has stared into the abyss and saw nothing.  Consumption in our country will most likely be dead for quite some time.”

In any event, Franksgiving is a novel idea.  It was typical, however, of our great President, FDR.  He tried tinkering around with our Constitution many times - be it the Supreme Court or Presidential Term Limits.  He was a hoot!!!

READ ENTIRE POST HERE.

For all the folks out there who think another Great Depression is not a possibility, please remind our next President that the idea is absurd because he doesn’t think so.

Christina Romer

In an attempt to put someone with extreme knowledge of the first Great Depression as close to him as possible, President-elect Obama named Christina Romer as head of the White House Counsel of Economic Advisers.

Why is Christina Romer important in the discussion of Great Depression history - because she is widely thought of as the world’s largest expert on the subject.  Her thoughts and writings are so accurate and important, historically, she wrote the Encyclopedia Brittanica entry on the subject.

Everyone else on the Obama economic team unveiled yesterday was expected.  The Romer appointment was a little bit of a surprise to me, but how could you blame him?  I mean, if you are the new President and EVERYONE is talking Great Depression, why not bring the person who knows more about the subject than anyone else?  Exactly…you’d do it in a heartbeat.

There are many things to discuss around this appointment, but suffice to say our new President thinks this is a real possibility and he wants to ensure he has all the facts and the best advice on the subject.  Kudos to our new President!!!

READ ENTIRE ARTICLE HERE.

Here is an extremely shallow and brief article from Huffington Post writer, Daniel Gross.  The article is titled “Why all those Great Depression Analogies Are Wrong.”  I usually like the stuff at HP and Gross’s writings aren’t all that bad, but this article shines light on something that is very bothersome to me.

There are MANY people out there quickly dismissing how bad this is and is going to get - just because it doesn’t look exactly like the Great Depression.

Of course, there are differences.  In some respects, things may be a whole lot better.  In others, a TON worse.  But that is not the point.  We have to remember just how bad this financial crisis could get.  We shouldn’t focus all of our energy on it, but we need to understand where things went wrong and how to avoid them.  We need to know the history.

Remember, Warren Buffett called this a economic Pearl Harbor (this is an excellent interview with Charlie Rose…I encourage everyone to watch it at least once).  You can argue with the Oracle from Omaha, but I never will.  His track record is too good.

The more folks out there who simply dismiss this financial crisis and meltdown as a hiccup to our system, the more people out there will not act with a sense of urgency.

The more that happens, the more and more Daniel Gross will be proved wrong.  We should not scare anyone into inaction with the history and comparisons, but we need to respect it and hustle to attempt to avoid it again.

READ THE ENTIRE ARTICLE HERE.  (Don’t forget to read the comments on this…they are suprisingly good)

Living in a market where real estate has plummeted by nearly 50% in just 18 months, I can tell you all the experts here in town (Las Vegas) have been saying we will be out of this mess and at the bottom in just 6 months.  This has been happening for roughly 18 months running.

The experts, as we have come to learn, are not experts at all.  We had all kinds of experts on Wall Street telling us they could get their investors 30% annualized returns with little or no risk by using fancy financial engineering (aka Credit Default Swaps and Mortgage Backed Securities).  We all have since learned that not only was this impossible, but if we all bought into it en masse (like we did) then the entire financial system we call capitalism could be brought to its knees.

Well, here are the all the “experts” now telling us we could be 18 months away from being out of this current financial meltdown.  Be very cautious when anyone tells us a date or a time frame of when this will all be past us and we will be back to normal from this financial crisis.

In the 1930’s, Hoover and many other leaders told us the same thing.  They were all certain that a 50% drop in the stock market meant an incredible buying opportunity and things would be back to normal in months.  Nobody ever thought it would take years to be clear.

Then the Great Depression took hold.  Great Depression history would tell us to be very careful on how you allocate funds when markets are still in vast turmoil.  If you invested when the stock market was down just 50% from its highs way back then, you would have lost another 35% of your capital and then toil way down there for another 8 years.

APEC leaders have no choice but to produce a headline - they are politicians.  They need this to grab authority and to give us hope.  I like that they did this, but they should really know their history and be very careful in giving people false hope.  Not saying it is false hope, but as consumers of the headlines, we need to take it with a grain of salt.

READ ENTIRE ARTICLE HERE.

One of the best piece of writings on the subject is found here at this site.  I am going to comment on a lot of this information, but for starters, here is a snippet as to what happened to the Stock Market in 1929 that led to The Great Depression.

“The Great Depression began in 1929 when the entire world suffered an enormous drop in output and an unprecedented rise in unemployment. World economic output continued to decline until 1932 when it clinked bottom at 50% of its 1929 level. Unemployment soared, in the United States it peaked at 24.9% in 1933. It remained above 20% for two more years, reluctantly declining to 14.3% by 1937. It then leapt back to 19% before its long-term decline. Since most households had only one income earner the equivalent modern unemployment rates would likely be much higher. Real economic output (real GDP) fell by 29% from 1929 to 1933 and the US stock market lost 89.5% of its value.”

Look at that last statement! That is an incredible statistic.  The financial meltdown we are in the midst of right now has raped the stock market of nearly 45% of its value at its peak last year.  Remember, though, our demise has happened in about 6 months.

It really accelerated on September 15th, 2008, when possibly the worst Treasury Secretary in our history, Hank Paulson, decided to unilaterally let Lehman Brothers fail.  This single item was the atomic blast heard around the financial market world.  It put our market in a tailspin and possibly much worse…

I like this site and will undoubtedly come back to it for quotes and other ideas in explorering this topic.

Here is an amazing article from some folks who lived through The Great Depression.  Their knowledge of its history, its lessons, and its rules - are truly priceless.

This financial crisis could have been avoided.  If Wall Street, regulators and stakeholders who were making key decisions just knew their Great Depression History, then much of this could have been muted at the beginning of this decade.

Some of my favorite quotes from these incredible people are as follows:

“My father said tell me what you’ve got to have and I’ll show you how to get along without it. And he did do that.”

“Eat all the food you had on your plate. You don’t waste food. You don’t destroy your clothing. You use it, you keep it well taken care of and it will last a long time.”

“Someone once said we weren’t just survivors we were thrivers. I think we were. We just appreciated what we had.”

These people survived the first Great Depression.  People will need to change their thinking about consumption and use of goods/assets to survive this current financial meltdown.

READ THE ENTIRE ARTICLE HERE

Many point to the great stock market crash of 1929 as the start of The Great Depression.  It is important to know this history to really understand if this was truly the cause or merely a symptom.

The crash itself was the capstone to the roaring 20’s where people lived “way above their means”.  Times were amazing, debt was at all time highs, businesses gorged on easy pickings, and people were extremely optimistic about pretty much everything - sound familiar?

We are on the doorstep of yet another Great Depression.  We should not make the mistakes.  We should know our history and know what hurt and helped us during this historic event in the world.  It is the only way we will not make the same mistakes and end up in the same place.