People forget that the Wall Street crash of 1929 was actually the last gasp after a 2 year decline. The market lost 87% of it’s value from the high of 452 to the bottom of 58. If the Dow loses 87% of it’s value from the August 2007 high of 14,300, we will bottom at around 1,859. THAT is really possible. It is actually more LIKELY than a turn-around. The reason it’s more likely is because the numbers are WAY BIGGER than they were by comparison in 1929 numbers. Our bankers and businessmen, with the help of the Bush administration and congress, have REALLY DONE IT this time. But, this time, we don’t have a Hoover in office that has maintained a balanced budget, enabling the next FDR to go out and run up deficits for a “New Deal” spending program. Nope. This time, the deficits are already staggering, the government is running out of bullets, and the next president has been in office a week.
For anyone who has any lingering hope that the “bail-out” will actually help, remember, Paulson’s plan to buy bank shares was tried in 1929 by the titans of Wall Street themselves and they were quickly overwhelmed, just as Paulson’s plan to buy shares has been overwhelmed. Investors who have seen the writing on the wall and recognize all the similarities between this economic disaster and the conditions leading to the Great Depression are doing just what traders did in ‘29. When the titans of Wall Street began buying, traders began selling, essentially saying, “Great, someone is willing to take this junk off my hands.”
So many people are looking for precedents in the hope of understanding what is happening.
I have no doubt that in every bear market some commentators have brought up the 1929 Great Depression in the hopes of understanding what was happening. The seriousness of the current situation leads many to do this again.
But today, to lock on to the fact that in 1929 the market dropped 87% and then to extrapolate this to the current market is just an intellectual exercise. There is no way this can serve as road map for things to come. If it was that simple, none of us would be sitting on huge losses today. Though history repeats itself, markets really do their own thing, especially when we are in uncharted territory.
All of these government stimulus efforts and bail-outs have been tried before. They don’t address the fundamentals, so they just won’t work. People can’t borrow if they don’t have a job. People won’t have jobs if no one is willing to invest in businesses. Just as happened in the 1930s, no one trusts the economic climate or the government enough to invest in business. I’m not just talking about investing in stocks of the global mega S&P 500 corporations. Small, local corporations and limited partnerships account for the vast majority of the jobs in the U.S.
The government is desperately trying to keep the biggest corporations and banks in business at the expense of most of the businesses in the U.S. There will be no bang for the taxpayer's buck. Many of the large corporations have become too expensive to operate, not too big to fail. These companies will not fair well in a second Great Depression. Many of them will not survive.
Instead of letting mega banks and corporations file bankruptcy and be broken up into more manageable size companies where some jobs would survive and creditors would benefit, the government is pouring all it’s resources into trying to keep the biggest, most expensive corporations in the U.S. operating with borrowed federal funds. This policy is doomed to failure. FDR did not save us, he set the U.S. economy on the road to failure.
The big three automakers are losing 2.5 billion dollars a month. How long will $50 or even $75 billion last them before they tank? Does anyone really believe the automakers will be selling hundreds of thousands of cars and trucks again in 30 months? They just can’t be saved in their present form.
This mess will get worse before it gets better because of Washington's belief that “bigger is better”. The federal government is trying to rescue the biggest corporations while ignoring the small business that actually make up most of the business economy and provide consumers with employment. The bigger the corporation, the more money it takes to pull it out of the hole and meanwhile, the consumer is not spending money to purchase the products produced by theese corporate giants. It’s a losing proposition. Bailing out these banks and mega-corporations only delays the inevitable suffering that has to take place.
The U.S. is likely to spend more than a decade in this depression. This depression could last as long as 25 or more years if the federal government continues on the path of nationalization and socialism.
Manufacturing for WWII war materials pulled the U.S. out of the Great Depression. Even if we have another world war, we won’t likely be putting our nation to work building war machines because we have already spent ourselves into unimaginable deficits.
The Feds cannot print enough money to save the day. The nation is putting blind faith into Obama, hoping things will change. Hope is not a plan! We’re going into the worst depression that any living person has ever seen. Be prepared. Make a plan that includes preserving capital. This could be worse than the Great Depression of 1929.