The Not-So-Great-Depression.
There's been a lot of talk lately about the Great Depression of the early 1930's. You know the one? The one that happened right after the stock market crash of 1929. The talk about the Great Depression today is that well, today's today feels a lot like the yesterday of the 1930's. Ben Bernanke, our new Federal Reserve Chairman, is actually an authority on the Great Depression. According to this article from the Wall Street Journal, Bernanke started his career in 1983 by becoming a Great Depression buff.
Here's a quote:
"Mr. Bernanke's fascination with the economic earthquake never abated. "I am a Great Depression buff, the way some people are Civil War buffs," he wrote in 2000. "The issues raised by the Depression, and its lessons, are still relevant today."
Alan Greenspan, our previous Fed Reserve Chairman and predecessor to Bernanke, as reported in the French International News, commented on Friday that our current economic crisis might turn out to be the worst since World War II.
Here's a Greenspan quote:
"The crisis will leave many casualties," he said, his remarks coming after Bear Stearns, the fifth largest US investment house collapsed Friday and was taken over by JPMorgan Chase for a fraction of its value of only a week ago."
Up until this point in time, no one has been speaking like this. At least no one in authority. We've been told that the subprime mess was only 3% and that employment was strong at 4%. But you and I know better. We feel it. We see it each and every day. Life today is feeling like it did back in the days of the Great Depression and after World War II. Even though I wasn't alive back then, I've read and seen enough video to know what it looked and felt like. If the USA's top two Federal Reserve Chairmen are recounting days long gone by, you and I now both know we're in deep doo doo.
OK. OK. OK. I've accepted it. I've positioned myself to endure what's going to happen. As the months proceed money is going to get tighter and scarcer. Many economists are advising parents who have growing children to go out and buy clothes for them now, in increasing sizes because come next year or the next, the parents will not have the money to buy their kids clothes. Other economists are advising to stockpile canned foods and other goods. Financial experts are touting 'keep the change' literally in jars at home because paper money is going to be worthless. I've personally repositioned my cash holdings, made severe budget cuts, eliminated all debt and have batten downed all the hatches. Now, it's just a game of endurance.
Our government took on a lot of debt with our tax money by buying up those worthless Bear Stearns mortgage-backed securities. If Bear Stearns can't pay out on those loans, guess whose going down? You, me and Uncle Sam. There is tremendous global pressure that Euros will become the new monetary standard rather than the dollar. What do you think will be the standing of America when the switch happens? We will no longer be the world's super power. Much like Great Briton, Rome and France, America will drop a few pegs down the universal ladder. You can wait for the demise or you can start to prepare now. American's need to learn from their European brothers and sisters and live more like them.
From what I can foresee with our economy, we will have a few tough years ahead of us. Folks will be adjusting their lives off the credit card merry-go-round. Just like our European neighbors, we can expect to pay 55% to 60% of our income in taxes and be left with 40% for discretionary spending. That means we will be driving smaller, more fuel efficient cars, living in smaller homes and apartments, eating smaller (but healthier) meals and finally, finally, finally living within our means. We probably will have Universal Health Care and capitalism will be a thing of the past. The wild, heady days of a corrupt Wall Street will only be visible in books or videos for another generation to view. It might not be such a bad thing after all.
And so it goes.
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11 comments:
Interesting.
This doesn't look the same to me at all, but maybe I'm not looking in the right places.
I'm also wondering where all these smaller homes and apartments that people are going to move into are coming from when builders still only want to build big, expensive places.
If you've been to Europe, many single family homes have been split to accommodate 4 or more families. Think 'Dr. Zhivago'. Already in NYC single parents with one child in a 3 bedroom apartment are being asked to voluntarily leave in order to make room for larger families.
Construction companies are always on the ready to accommodate sales. If big places don't sell and smaller homes or apts. do, the construction companies will restructure to meet the demands.
Expect to see big but gradual changes appear right in front of your eyes.
Maybe you and I feel this way, but many others do not. They think it's a scam by the government and wall street.
They feel that it's because Americans are overspending and irresponsible. They say it's in my head that money feels tighter. That our wages feel stagnant.
On a message board people are not complaining about rising costs, they are saying it's because we are in debt. Maybe so, but I don't think it's a debt thing only.
There are many people without much debt, only a mortgage, who feel a major crunch. I am one of them. I don't understand what's going on, because it's not like we're not working hard, living below our means, etc. But we're still treading water.
We are still looking out for our jobs. We are still feverishly trying to make a living. And yet I'm supposed to be believe this is solely due to a credit crunch?
I can't believe that. I refuse to. There are so many factors at play it's not just our spending habits.
I am conscious of all my spending. And yet I am told it's because of the average debt. Honestly from my readers and talking with the average joe, it's not the CC debt. It's the fact they have less money than 5 or 10 years ago.
It's the fact that health insurance, college, food prices, etc have skyrocketed and they haven't managed to keep up income wise. I know many hardworking people who are terrified of losing their jobs and didn't overbuy homes. They are average and yet they struggle.
So really where are all of these people in tons of debt? Why can't it be that many of us are trying our best, not doing badly, but barely staying afloat?
LAL-I've been debt free for 7+ years now, I have been through the 70's recession, the stock market crash of 1987, the recession of the 1990's, 9/11 and the dot com disaster of 2000-2001. I HAVE NEVER SEEN ANYTHING LIKE THIS. EVER! I noticed last August 2007 that I was having trouble paying my bills, putting gas in the car and buying food! It got worse and worse each month and I have no debt, no mortgage, credit cards or car loans and half a mill in the bank!
My investments and wages were not keeping pace with the rising costs of gas, food, energy, insurance premiums, property taxes, clothes prices and the list goes on and on and on. I can't travel to Europe or anyplace for that matter. I can't get in my car and drive anywhere without thinking first on how much it is going to cost me.
I keep cutting back and cutting back. How much can DH and I work? He's exhausted. We insulated our attic to save on energy, I cook from scratch, we don't go out, we do everything ourselves and still, it's a struggle.
I don't know what the answer is anymore. I used to. Now it's a survival thing.
People who used credit to fill in the gaps will surely feel this whopper when the credit lines dry up. Wait and see. You and I are going to be looking better and better. You just have to keep holding on. That's the answer for today.
I just hate people blaming debt and saying it's all debt. I'm not in major debt, got a mortgage and student loans, but heck I'm trying hard to be financially wise.
And yet they keep saying it's my fault? Where? How what should I be doing? I already live below my means, I already try to save, and yet their only answer is everyone else's debt is affect me.
EVERYONE IRL I know, is struggling and cutting costs. They certainly aren't living large and high off the hog. So where's these people who are? I hear more and more about people hammered by medical bills, rising prices, lower wages, unemployment.
And what? I'm not unhappy, we've still got jobs so I'm sitting pretty and KNOW IT. But I don't think it's the consumer.
My mother literally starved during the Great Depression. She fainted from hunger outside a church. The minister & family took her in and fed her for two weeks until she could get her strength back and go look for a job. She got a job working in a restaurant where the help were permitted to eat the food diners had left on their plates. That's where she met my father, who had ruined his toenails and distorted his toes permanently wearing the only pair of shoes he could find, which were too small for him. They were kids. My mother's parents were dead and my father's parents were too poor to help him out. He had lived on his own from age 14.
There was no governement aid of any sort for the poor, and people died of poverty.
We have no idea of how it was if we did not go through it. My mother said it was much much worse than the war, because during the war people could go into the military or get pretty good jobs.
LAL-Debt does have a lot to do with this. Where are you reading these posts that blame debt? Our whole economy has been based on debt. Where are these 'sex & the city' gals who bought $500 shoes and $1500 handbags? Nobody paid cash for anything.
Hattie: that's a sad story. Let's hope and pray it won't be that bad ever again here. The Gov't is trying their best to stop the spiral. Let's hope it pays off. Literally.
LAL (and to anyone else) the NY Times just wrote an article this morning explaining what is going on AND that practically no one really knows or understands what is going on. So, your feelings are not alone. Here's the link. Hope it helps explain some things:
http://www.nytimes.com/2008/03/19/business/19leonhardt.html?pagewanted=1&_r=1&hp
Nope it's a message board that says this. No one wants to admit that people not in debt are struggling. They seem to think being debt free is the answer. No it's not. There is so much more at play even without debt we're all in trouble.
We are all having hard times. And in the majority of areas of the country, you can appreciate this Cinzea, there wasn't a housing crash. I have heard from many on message boards like savingadvice, the homes in their areas didn't appreciate like the crazy coasts. Most of the people who went up in flames were in coasts, las vegas, arizona, etc. Specific areas, but everyone else had much slower appreciation. And mostly in CA were there crazy loans.
So the housing didn't hit in many places, it just HIT hard in specific locations. I've seen numbers that 99% of subprimes are located with 1% of markets. Problem is? They are imploding. But go to pennsylvania, washington state, indiana, utah, new mexico, the housing prices went up but not skyrocketing. So those people are still wondering why it's going up say 3% when supposedly it's supposed to be down 30%? Because it never went up like CA 4x in 5 years.
I have friends in SD who've told us the market has crashed about 50% and friends who bought in un-hot Florida (tampa) and say it's going up slowly. And friends in washington who've seen modest 10% appreciation since 2000.
But the thing is when major markets start to fall 50%, even if they make up a small fraction of population, it affects us all big time.
LAL, I attribute the high prices in everything to the higher prices in gas, which in turn I think are due to gas becoming more scarce. The easy-to-get-to reserves are drying up, and more expensive processes are required. This leads to an increase in price for everything that involves transportation, and that's pretty much everything.
I only attribute the plummeting stock market, plummeting interest rates (except for mortgages), and increased difficulty in getting loans to the subprime mortgage problems.
Debbie-I feel you are correct. It all starts with oil, then biofuels and then shortages on food (and higher costs) because of higher gas prices. I thought the war in Iraq was supposed to bring down the cost of gas? Guess not.
LAL-people who are debt free or have reduced debts will fare better in this economy than those who are deep in debt. Both parties, however, will feel pain. Also, people who have cash in a bank will fare better and be able to pay the higher prices. But, for how long? No one can keep paying forever and ever. That's the oncoming problem.
Come spring, I'm planting a vegetable garden. There is no doubt that my food pantry & refrigerator aren't as well stocked as they were last year. I'm eating more vegetarian meals, beans, rice and tuna. I'm even thinking of buying Ramen noodles this weekend. I also started baking my own bread (after paying $6 for a loaf!). Every week the flour price goes up and up and up. How long can I keep doing this?
My beachhouse appreciated 25% in 2 years (yes, even in this down market). My inland, mountain home, however, appreciated 75% in 6 years. But I can't eat my houses nor can I drive them to work. If I had invested the money, I would never have gotten such great returns either.
We just have to keep being creative and find ways to make everything work out.
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