Should a second Great Depression come, what will happen?

[wasteofo2]

Should a second "Great Depression" come, what will happen?

Let's take a somewhat pessimistic view of how things are going (or realistic, depending on your disposition), and suppose that America in the next 5-15 years experiences a second "Great Depression."

Let's suppose that even a few of these things come to pass:

- China has taken our manufacturing base from us.

- India has taken our engineering/computer base from us.

- The real-estate bubble has popped.

- Foreign currencies continue to rise against the dollar.

- The Federal defecit continues to rise and becomes insurmountable

- Foreigners begin cashing in their treasury bonds.

- The American Stock Market crashes as people want out of everything relating to the dollar.

- Social Security, Medicare, Medicaid, and all other such programs go broke due to the Federal Government not being able to make enough revenue and more people become eligable for said programs.

- Individual households habitually use their credit cards to get themselves into their own personal insurmountable debt.

- Houses are foreclosed upon, and people evicted, as people cannot meet their mortgage payments.

- Military commitments overseas continue to drain our Federal budget.

How would America react to a situation like the Great Depression in the 21st Century? Would we see another FDR like character to come in with crusading governmnet programs to fix it all? Would it lead to WWIII, and possibly get us out by revitalizing our manufacturing potential (assuming we win)? Could a free-trader possibly be elected President and do away with FDR's social safety net to make America more competitive again? Would America erupt into chaos, not to settle down in any predictable manner?

Let's see some interesting narratives...

 

[Smurf]

I would hope (and I do not think it entirely unlikely) that we will see a movement similar to that which took place in Argentina in 2001 when their economy collapsed. With any luck people will begin to realize that the economy is not all-important and that it can be sustained reasonably without a corporate structure. Hopefully the loss of confidence in the government will result in an overthrow, or more likely, an effort to decentralize by merely ignoring the federal and state governments.

A radical decrease in consumerism. Freakishly fat Americans become far less common. Thank god.

The effects on Canada, should the US economy collapse, will hopefully lead them towards a more federalist, internal economy. Brought about by renewed distrust in foreign investment as everyone 'realises' that Trudeau was actually right.

 

[Entropy]

Should a second "Great Depression" come, what will happen?

People will be sad.

 

[russ_watters]

If all of those things happened at once, it would be pretty bad. I'm not surre massive spending is a reliable way to pull out of a depression, though: it really didn't work in the '30s, it required the motivation of winning WWII to pull us out. Absent that, I'm not sure how we could pull out.

Either way, we need to work at keeping out of a depression to avoid the necessity of getting out of one.

 

[Smurf]

Really? neoclassical economics would say that massive spending (by many parties) is the only way to get out of a depression.

 

[GENIERE]

Really? neoclassical economics would say that massive spending (by many parties) is the only way to get out of a depression.

It didn't work for FDR. Unemployment was 24% in 1933 and dropped to 17% just before WW2.

 

[Skyhunter]

It didn't work for FDR. Unemployment was 24% in 1933 and dropped to 17% just before WW2.

I wouldn't characterize a 30% improvement in employment as a failure. Not a complete success, but definitely an improvement.

With the proper investment in infrastructure, the economy will improve. A good example of a smart investment in infrastructure is the "information superhighway" that Al Gore oversaw for the Clinton administration. I wish that we had even a modest investment in alternative, sustainable energy sources. It would aid in solving the inevitable peak oil crisis, create jobs and industries, and generally add to the health of the nations economy.

 

[loseyourname]

It's hard to another "Great" depression happening. Things like the stock market collapse and banks closing are protected against today to keep these things from happening - we no longer have margin buying or uninsured accounts, for instance, two huge contributing factors to the Great Depression. Don't forget that a massive farmland disaster (the Dust Bowl) contributed quite a bit as well, and the agricultural practices that led to that have been done away with, too.

That isn't to say that another depression is impossible, but it's hard to see it being anything like the last one. I would like to think we've learned something - if not to necessarily build the most sustainable economy around, but at least to protect against complete collapse.

 

[Burnsys]

I would hope (and I do not think it entirely unlikely) that we will see a movement similar to that which took place in Argentina in 2001 when their economy collapsed. With any luck people will begin to realize that the economy is not all-important and that it can be sustained reasonably without a corporate structure. Hopefully the loss of confidence in the government will result in an overthrow, or more likely, an effort to decentralize by merely ignoring the federal and state governments.
A radical decrease in consumerism. Freakishly fat Americans become far less common. Thank god.
The effects on Canada, should the US economy collapse, will hopefully lead them towards a more federalist, internal economy. Brought about by renewed distrust in foreign investment as everyone 'realises' that Trudeau was actually right.

Great to know we were an example..

Once the crisis begun in 2001, banking system collapsed, all saving were confiscated (They were foreing private banks with AAA grade) in a couple of months half of people went to the lower class and 30% left unemployed.

And what was the IMF advice to this depresion... Cut the government spending so it can continue to pay the imf and foreing creditors, while keep the people starving...

The good part was the people organizing themselfs, Workers taking factorys in their own hands, new ways of trade without money and masive movilizations against the goverment, the imf and the neoliberal economic model that was in use during the 90'.

 

[Smurf]

Great to know we were an example..
Once the crisis begun in 2001, banking system collapsed, all saving were confiscated (They were foreing private banks with AAA grade) in a couple of months half of people went to the lower class and 30% left unemployed.
And what was the IMF advice to this depresion... Cut the government spending so it can continue to pay the imf and foreing creditors, while keep the people starving...
The good part was the people organizing themselfs, Workers taking factorys in their own hands, new ways of trade without money and masive movilizations against the goverment, the imf and the neoliberal economic model that was in use during the 90'.

Yeah man, it was awsome what you guys did. Just because CNN and BBC never said anything doesn't mean the rest of us weren't watching.

 

[wasteofo2]

If all of those things happened at once, it would be pretty bad.

Almost all of those things are happening now, or are at least on the way to happening.

LYI, I realize we wouldn't have another Great Depression like the original one in terms of the precise problems, but I meant what might happen if we had another one with simmilar results, namely massive unemployment, foreclosures, people unable to pay off debt, blah blah blah. We just got that tough new anti-bankruptcy law too...

 

[loseyourname]

LYI, I realize we wouldn't have another Great Depression like the original one in terms of the precise problems, but I meant what might happen if we had another one with simmilar results, namely massive unemployment, foreclosures, people unable to pay off debt, blah blah blah. We just got that tough new anti-bankruptcy law too...

Well, as I said, I don't think it's necessarily impossible, but the unemployment/foreclosures were largely caused by the stock market and bank collapses, which practically bankrupted many large companies nearly overnight, forcing them to lay people off and making the prospects for getting a new job pretty slim. This particular brand of near-overnight collapse isn't going to happen again. I'd like to think that we have time to reverse any trends that might be moving us in the direct of depression. There would be no excuse this time for having something hit us all at once like a ton of bricks.

 

[coffee na lang dear]

America survived the first one, why should it not survive this one then? :uhh:

 

[deckart]

We need to have more of a "world" mentality when it comes to work and manufacturing. The US cannot compete in the labor market. Noone in the US would work for what 3rd world countries will work for. The key to our competitiveness/success in the world will be based on our capitalistic savy and entrepreneural creativity. The US knows how to have fun and make money doing it. :)

 

[The Smoking Man]

If all of those things happened at once, it would be pretty bad. I'm not surre massive spending is a reliable way to pull out of a depression, though: it really didn't work in the '30s, it required the motivation of winning WWII to pull us out. Absent that, I'm not sure how we could pull out.
Either way, we need to work at keeping out of a depression to avoid the necessity of getting out of one.

He forgot one though ... maybe the most important ...

The world is slated to run out of oil in 2050.

Before that happens, wars will be fought to ensure the supply.

We are seeing the opening forays into this eventuality even now (Unocal ... Iraq?)

 

[russ_watters]

Almost all of those things are happening now, or are at least on the way to happening.

There is a big difference between being "on the way to happening" and being in a depression. Ie, the thing about losing manufacturing jobs to China: yes, we have lost some, but we need to lose a lot before it makes a big difference.

Anyway, I know that's not really germane to your question, since you want to know what would happen if it did go that far, but I have a tough time with hypotheticals that I don't at least consider reasonable possibilities.

Welcome back, TSM.

No, the world is not slated to "run out of oil in 2050". Even if "Peak Oil" is right about hitting the peak in the next few years, commodities don't ever "run out", they just hyperbolically decrease forever. With oil, that decrease will be especially slow, because there are vast, untapped reserves that far exceed the Middle East, just waiting for oil to be valuable enough to make it worth collecting.

If you want to discuss that more, please start your own thread - I don't want to hijack waste's

 

[Polly]

Don't worry about the US 100/per month manufacturing jobs taken by China, worry about the 830,000, 1,700,000 and 3,400,000 high earning jobs in the fields of art & design, architecture, business, computer, legal, life sciences, management, office and sales to be offshored to India, Russia and the Philippines etc by 2005, 2010 and 2015 respectively (Source: Outsourcing American by Ron Hira and Anil Hira, p 45). What to do? Dunno

 

[Anttech]

One of the better aspects of capitalism I guess :-) The bottom line rules, and if you can push that bottom line down by outsources and make some more money for those investors you care about so much, then why not!

 

[alexandra]

I think those conditions would lead to WWIII. According to some theoretical perspectives, when capitalism is in trouble, one of the major ways out is war. War is 'good for the economy'. As Russ pointed out, but with a different interpretation to mine, it took WWII to get out of the 1930s depression. Orwell explains it vividly in '1984': the purpose is not to win the war, but to destroy things so that they must be rebuilt... keep the economy going.

 

[alexandra]

I wish that we had even a modest investment in alternative, sustainable energy sources. It would aid in solving the inevitable peak oil crisis, create jobs and industries, and generally add to the health of the nations economy.

I don't think such investment will happen until after the peak oil crisis occurs because just think of the profits the major oil corporations will make during this crisis. Already one sees their profits soaring (as a result of the Iraq mess, Katrina's effects on oil production, etc).

 

[Burnsys]

may be one of the most important factors will be the incredible high US debt!
wich is now: U$S 8,009,786,208,360.30
And rising...

https://www.physicsforums.com/showpost.php?p=342751&postcount=5


https://www.physicsforums.com/showpost.php?p=436724&postcount=2

 

[Anttech]

Actually you got your figures wrong its:
$ 8 , 0 0 9 , 8 2 2 , 9 9 1 , 4 3 6 . 7 4
hehe:rofl: :rofl:

 

[Burnsys]

Actually you got your figures wrong its:
$ 8 , 0 0 9 , 8 2 2 , 9 9 1 , 4 3 6 . 7 4
hehe:rofl: :rofl:

Damn will it ever stop?

 

[edward]

It's hard to another "Great" depression happening. Things like the stock market collapse and banks closing are protected against today to keep these things from happening - we no longer have margin buying or uninsured accounts

Actually margin buying is still around as are an even worse potential for disaster, the hedge funds. Although no longer directly financed by banks, the firms who loan money for the purchase of margin buying do borrow their money from banks.:grumpy:

Don't forget that a massive farmland disaster (the Dust Bowl) contributed quite a bit as well, and the agricultural practices that led to that have been done away with, too.

Steps to control errosion have been taken. However a prolonged drought as is currently the case in the western states may be just as damaging. Farmers have for a number of years faced financial burdens.

That isn't to say that another depression is impossible, but it's hard to see it being anything like the last one. I would like to think we've learned something - if not to necessarily build the most sustainable economy around, but at least to protect against complete collapse.

Everything that is garanteed, is done so by the federal government. That includes everything from personal bank accounts to home loans to private retirement accounts. The private retirement insurance program is far far in the red due to recent multiple bankruptcy filings by large corpoartions.
In essence everything is garanteed by a government that is historically deeper in debt than it has ever been. Only the wealthy who have moved accounts and business operations out of the country have any degree of protection against complete collapse.

 

[Art]

It's hard to another "Great" depression happening. Things like the stock market collapse and banks closing are protected against today to keep these things from happening - we no longer have margin buying or uninsured accounts, for instance, two huge contributing factors to the Great Depression. Don't forget that a massive farmland disaster (the Dust Bowl) contributed quite a bit as well, and the agricultural practices that led to that have been done away with, too.

Can you explain what you mean by the part of your post which I have highlighted. Stocks lost 80% of their value over a period of 3 years during the Great Depression, the Nasdaq lost 80% of it's value over a period of 3 weeks in 2000.

 

[loseyourname]

Can you explain what you mean by the part of your post which I have highlighted. Stocks lost 80% of their value over a period of 3 years during the Great Depression, the Nasdaq lost 80% of it's value over a period of 3 weeks in 2000.

And yet there was no collapse. That's what I mean. The chain reactions that took place back then are protected against. Investors, in particular, generally diversify their assets. Back in the 20s, people were stupid enough to invest enough in the stock market that, if a stock failed, they went bankrupt. I doubt we'll ever see anything quite like that again.

By the way, what is the Nasdaq incident you're referring to? I'm looking at their records right now. The greatest drop I can find is from 56.563 on 7/14/00 to 17.938 on 12/7/00. That's close to 80%, but it took almost five months.

 

[Art]

And yet there was no collapse. That's what I mean. The chain reactions that took place back then are protected against. Investors, in particular, generally diversify their assets. Back in the 20s, people were stupid enough to invest enough in the stock market that, if a stock failed, they went bankrupt. I doubt we'll ever see anything quite like that again.

I don't disagree with the above but that isn't what I was questioning. This statement is blatantly wrong

Things like the stock market collapse and banks closing are protected against today to keep these things from happening

as is this

we no longer have margin buying

. Maybe you meant something different but I can only analyse what you actually write as somebody said recently

 

[loseyourname]

This statement is blatantly wrong

That statement is correct. A collapse is protected against, as evidenced by the fact that Nasdaq's big loss did not result in a collapse. People lost money, but they were not ruined. Another important thing to note is that Nasdaq is only one, relatively small, exchange. When I use the words "stock market," I'm referring to the entire market.

as is this

However, my statement about margin buying was apparently incorrect. I apologize. Now if only other people would admit when they make false claims.

Maybe you meant something different but I can only analyse what you actually write as somebody said recently

You asked me to explain what I meant and I did. Are you dissatisfied with my explanation? Are you going to explain what you meant about Nasdaq dropping 80% in three weeks? Or better yet, will you admit that you made a false claim? It really isn't that hard to do, and I will not look down on you for it.

 

[Art]

That statement is correct. A collapse is protected against, as evidenced by the fact that Nasdaq's big loss did not result in a collapse. People lost money, but they were not ruined.

Uh? LYN the Nasdaq stock market collapsed so clearly stock markets in general are not protected against collapse. Whether or not that caused personal bankruptcy or not is irrelevant to your claim. Although I would be interested if you could tell us the controls put in place to ensure such a major drop in equities does not lead to personal financial ruin.

However, my statement about margin buying was apparently incorrect. I apologize. Now if only other people would admit when they make false claims.

A pity. You spoilt a perfectly good apology with that little rider on the end.

You asked me to explain what I meant and I did. Are you dissatisfied with my explanation? Are you going to explain what you meant about Nasdaq dropping 80% in three weeks? Or better yet, will you admit that you made a false claim? It really isn't that hard to do, and I will not look down on you for it.

A small exageration to make a point. It actually fell I think 73% over a few months. However as I know you are a stickler for details I am sure you will be interested to know that the high (and low) you cited of 56.563 is wrong by a factor of ~100

 

[loseyourname]

Uh? LYN the Nasdaq stock market collapsed so clearly stock markets in general are not protected against collapse.

A lot of this depends on what we mean by collapse, but I'll just go ahead and cede this since my claim that the entire market is not going to collapse does not depend on it. Okay? Nasdaq collapsed. Small, upstart exchanges like Nasdaq are volatile and consist largely of startups, so they're more succeptible to huge drops like that. The stock market itself is not.

Whether or not that caused personal bankruptcy or not is irrelevant to your claim. Although I would be interested if you could tell us the controls put in place to ensure such a major drop in equities does not lead to personal financial ruin.

I already did. People these days are smart enough to diversify their portfolios. Not only will they not invest everything in stocks, but they certainly won't invest everything in the startups that failed on Nasdaq. I'm sure you can tell, Art, that my argument is that another collapse (this time I mean of the entire economy) like we saw in 1929 is almost certainly not going to happen again. Two reasons I cited are the greater stability of the stock market and the insurance of private bank accounts. I got one detail wrong: margin buying is still allowed. The fall of Nasdaq reflected a collapse of one sector - tech startups. One fledgling sector of the economy can certainly fail - the entire economy, however, will not. By the same token, one small exchange composed mostly of tech startups can drop 75% of its average share value over the span of five months, but we are not going to see the entire stock market do so. If you seriously want to argue my point about the entire market, at least use a better example, like maybe Black Monday from 1987

A pity. You spoilt a perfectly good apology with that little rider on the end.

Analogy to what? If you have something more to say than what you have said, come out with it.

A small exageration to make a point. It actually fell I think 73% over a few months. However as I know you are a stickler for details I am sure you will be interested to know that the high (and low) you cited of 56.563 is wrong by a factor of ~100

No, it isn't. That's the average share value and its from Nasdaq's web site. Even Warren Buffett's stock isn't worth $56,000 a share.

 

[Art]

A lot of this depends on what we mean by collapse, but I'll just go ahead and cede this since my claim that the entire market is not going to collapse does not depend on it. Okay? Nasdaq collapsed. Small, upstart exchanges like Nasdaq are volatile and consist largely of startups, so they're more succeptible to huge drops like that. The stock market itself is not.

So are you saying there are controls in place to protect some exchanges but not others? LYN the fact is no such controls exist for any exchange, period.

I already did. People these days are smart enough to diversify their portfolios. Not only will they not invest everything in stocks, but they certainly won't invest everything in the startups that failed on Nasdaq.

People being smart enough is an entirely different kettle of fish from "controls being put in place to prevent a stock market collapse"

I'm sure you can tell, Art, that my argument is that another collapse (this time I mean of the entire economy) like we saw in 1929 is almost certainly not going to happen again.

I have already said I am not arguing with your conclusion I am simply pointing out that the reasons you cited for reaching this conclusion are wrong.

Two reasons I cited are the greater stability of the stock market and the insurance of private bank accounts.

No what you actually said in relation to the stock markets (as there are many) was they could not collapse due to the controls put in place. I asked you what controls and you replied people are too sensible these days which I read as an admission there are no such controls.

I got one detail wrong: margin buying is still allowed. The fall of Nasdaq reflected a collapse of one sector - tech startups. One fledgling sector of the economy can certainly fail - the entire economy, however, will not. By the same token, one small exchange composed mostly of tech startups can drop 75% of its average share value over the span of five months, but we are not going to see the entire stock market do so. If you seriously want to argue my point about the entire market, at least use a better example, like maybe Black Monday from 1987.

I haven't argued your point about the "entire market" as you have only just made it, so are you saying I should seek a better argument than the non-existant one I didn't make in response to something you didn't say?

Analogy to what? If you have something more to say than what you have said, come out with it.

I think you've made another mistake Lyn. Read what I actually wrote before jumping on the defensive or should that be offensive.

No, it isn't. That's the average share value and its from Nasdaq's web site. Even Warren Buffett's stock isn't worth $56,000 a share.

The Nasdaq is an Index not a share. I suggest you check again as I think you are confusing the index with a tracker bond.

My point is LYN, that the approach I have just taken in disecting your mail to find errors and inconsistancies whilst ignoring the central theme is precisely the approach you often take in analysing other peoples' posts on this forum. As I am sure you are finding, it is irritating and serves no useful purpose other than to obfuscate the central idea you were promoting so perhaps we should all desist from this style of debate.

 

[russ_watters]

So are you saying there are controls in place to protect some exchanges but not others? LYN the fact is no such controls exist for any exchange, period.

I'm not sure exactly what you mean, but there have been changes made in the way the markets operate, including very specific, automatic "controls" (in parentheses because I'm not sure how you are using the word), that activate when a crash seems imminent. For example:

Since then[1987], the markets have put some restrictions in place to make sure the market doesn’t run away again. These are designed to let the market catch its breath and cool off if things seem to be getting out of control. For example:

-The market will halt trading for an hour if the Dow drops 10% before 2 pm.
-Trading will halt for two hours if there is a 20% drop in the Dow before 2 pm.
-If the Dow drops 30%, trading is halted for the day.
-Significant events, such as the tragedy of Sept. 11, 2001 may be cause for not opening the markets at all or closing them early to prevent a panic.

http://stocks.about.com/od/whatmovesthemarket/a/crash102904.htm

I call these "controls" because they interrupt the actual functioning of the market. Things like tighter restrictions on margin buying are, essentially, groundrules for the game. They aren't quite the same as controls, but they still affect the stability of the game.

 

[russ_watters]

And FYI, the Nasdaq peaked at 5,048 in March of 2000, dropped to about 3,500 (30%) in about a month, and 2,657 (47%) by Jan of '01. It bottomed out at about 1,400 (72%) in 2002.

http://www.house.gov/jec/press/2002/nasdaq.pdf

Part of the argument you guys are having is semantics: the difference between "the" market and "a" market. In 1929, the two were synonomous: The NYSE held the vast majority of the money and. "The Market" was the NYSE. Today, the NYSE is still the biggest, but the Nasdaq is another market unto itself and holds a considerable value. So while in 1929, you can say "the market" collapsed and mean both the NYSE and the entire stock market in general, today, "the market" would have to include, at the very least, both the Nasdaq and the NYSE. So it would be correct to say "The Nasdaq collapsed", but it would not be correct to say "The stock market collapsed" in 2000.

 

[Art]

And FYI, the Nasdaq peaked at 4,803 in March of 2000, dropped to about 3,500 (17%) in about a month, and 2,657 (45%) by Jan of '01. It bottomed out at about 1,200 (75%) in 2002.
http://www.house.gov/jec/press/2002/nasdaq.pdf

First of all it was Lyn thought the Nasdaq's all time high was ~56 and secondly your figures are wrong.

The intraday all time high for the Nasdaq occurred Mar 10th 2000 @ 5132.52 and it's all time highest closing figure was the same day @ 5048.62. It's lowest point after that was an intraday low just below 1400 in September 2001. :tongue2:

 

[russ_watters]

Not sure what is up with the page I linked - 5048 it is (no one looks at intraday peaks for that). Numbers fixed to reflect it...

In any case, you said:

...the Nasdaq lost 80% of it's value over a period of 3 weeks in 2000.

Big difference between 80% and 30%.