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Depression - the parallel universe?

Discussion in 'General Real Estate and Real Estate Finance' started by Terrel L. Shields, May 18, 2009.

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  1. Terrel L. Shields

    Terrel L. Shields Elite Member
    Gold Supporting Member

    135
    May 2, 2002
    Professional Status:
    Certified General Appraiser
    State:
    Arkansas
    Is the current economic crisis Great Depression II or as many pooh-pooh it, something much less? I have been reading Kindleberger's 1986 book on the GD called The World in Depression 1929 - 1939. It is a good read and the parallels to our current crisis couldn't be more crisp.
    Yes, there were differences. We were on the Gold Standard and GD knocked us off it as currency differentials caused runs upon gold alternating with dumping of gold onto markets. Both 29 and 07 were preceded by depressions in commodities in the U. S. - agricultural in the 20's; metals and oil in the late 90's and early 2000's.
    Prior to Black Friday, stocks made a fabulous run up from 1927-29. Sound familiar? In both cases, there was no support except speculation and "newbie" investors rushing into things they didn't understand. Meanwhile, Germany who owed reparations to Britain and France who in turn owed the U. S. from war debts, wanted to pay in produce, not gold; after going through a raging inflation in the early 20's after WWI. An international liquidation of dollars in 1931 sent the economy spiraling down.
    And it was from 1929 until mid-1932 that prices on the stock exchange finally reached nadir. Meanwhile, 3 separate bear market rallies occurred. Recovery was very slow. Roosevelt attempted to reduce surplus commodities by killing herds of cattle & swine purchased by the government and likewise destroyed grains.
    Arguments over the reparations issue was a factor in GD I. And international issues which preceded the depression had a tremendous impact upon it. After 1933, when everyone thought things were about to get better the market came up but went flat with some stimulus coming from issuing bonds to WWI vets. They promptly cashed them in. Roosevelt, whose veto was overridden by congress, disapproved of the bonds and urged bond holders to save them. They didn't and the economy spurted, only to crash the following year under new Social Security taxes. By 1938, the economy was floundering again, and the final recovery from depression only occurred with massive construction projects that involved arming Europe in advance of WWII.
    Through it all, the Open Market Committee was meeting regularly. International finance ministers were regularly conferring to plan strategy. The last "recovery" program was initiated in the spring of 1938 and Keynesian economics was finally embraced by Roosevelt. Only then did the economy improve.
    But was it because of Keynes philosophy? Or, a reaction to rearmament? The Ethiopian War of 1935, Germany remilitarized the Rhine in 1936, China's invasion by Japan in 1937, and the occupation of Czechoslovakia and Poland in 1939 was a boon to American metal, ship, and weapons plants and certainly kick-started Keynesian policy.
    So where are we in this? Is this crisis completely "different?" Was it driven by speculation, then deflation (home prices) and high commodities sent the economy in a tailspin while the Talking Heads (included Great Depression expert Ben Bernanke - who is even referenced by Kindleberger in this book) argued for "no contagion"?
    Or are we after the fall and before the bottom? Will we see a W shaped recovery, like GDI, or a U shape? If Obama proceeds with taxation policy bantered about, then I see an almost certain lower stock market, a slow recovery and then a relapse into a weak market period before we come out of this. It took the depression 10 years to get over with. I can easily see this one going 8 or more years too. After all housing prices peaked in Aug 2006; Stock prices peaked in 2007 and the recession wasn't "official" until late 2007; and the stock market did not capitulate until Sept and Oct of 2008...
     
  2. Alison Swain

    Alison Swain Senior Member

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    Sep 13, 2005
    Professional Status:
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    State:
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    I don't know if it's Great Depression II but it's definitely pooh-pooh! :new_all_coholic:
     
  3. Randolph Kinney

    Randolph Kinney Elite Member
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    32
    Apr 7, 2005
    Professional Status:
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    I believe the best case scenario that can be hoped for is the Japan lost decade. Quantitative easing didn't fix the banking problem in Japan when they tried that. The bad assets remained on the books.

    The burdens that are being heaped on this economy will stagger it.

    Right now, the market is way ahead of itself. It looks like one of those rallies of the 1930s.

    I wonder if California will default on its bonds? It's either that or checks will be bouncing issued by the state. :shrug:
     
  4. Workbox

    Workbox Elite Member

    1
    Mar 2, 2005
    Professional Status:
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    State:
    Colorado
    Really guys, don't we go though this every 100 years? Human nature is so predictable and historically repetitive.

    But I agree, it is so eerily similar to the past GD. My gut tells me to Hunker Down, but the logic tries to calculate the risk. My last episode, I lost, I should have listen to my gut. The second time around I listened to my gut and did well. Now, it means a complete life and mind altering change, not only for me, but the whole family.

    The Parallels are way too similar, and the government is artificially trying to control it. There is so much you can control when it comes to human nature and reactions. It's like having a new suit or dress every day, but never changing your underwear. Something has to give.
     
  5. Terrel L. Shields

    Terrel L. Shields Elite Member
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    135
    May 2, 2002
    Professional Status:
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    State:
    Arkansas
    If the state of California goes bankrupt, the consequences for the nation is enormous. But I don't think the other 49 states are going to willingly give CA a bye and bail them out. They have always been in the forefront of environmental kookiness, have never been really willing to face the fact they have the highest cost structure in the nation and their regressive tax system is hammering the small businessman. Their holier than thou attitude about auto emissions, "green", etc. is now coming back to bite them.
    Yep, and I see this being very slow to recover. If unemployment persists, those who lose jobs who are near or over 62 will be forced to retire to preserve their benefits and to have something to live on. That only puts more pressure on the system as the hope is that baby boomers will delay retiring so that SS will survive.

    For many of us, we simply will have to work until we drop. It is not a pleasant thought for me as I would prefer to retire. I work to eat not eat to work. I don't think I can tire of fishing.
     
  6. Randolph Kinney

    Randolph Kinney Elite Member
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    32
    Apr 7, 2005
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    California
    California and the new administration in DC have something in common; massive spending, massive taxation and invasive regulation.

    In order to stop the bleed of people and businesses leaving California, the federal government has to adopt similar regulations to match California, impose same on all states, and it will have to impose a national sales tax and income tax while abolishing state taxation. The federal government then rebates revenues back to the states, equalizing all states where there is no difference in taxation and regulation. Therefore businesses and people will not have the incentive to move. Problem solved.

    Of course, the administration could opt for a czar to oversee California like the Chrysler bailout plan. Maybe Mexico would like to buy California? Bondholders could be stiffed just like Chrysler and let the state unions take over ownership of the state?
     
  7. Lloyd Bonafide

    Lloyd Bonafide Senior Member

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    Jan 15, 2006
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    I hope so, because declaring bankruptcy is the only way to get out of the pension and union contracts that are crippling the state.

    I can't wait to vote tomorrow. Let me see, I'm trying to remember how to vote on Props A thru F.

    Oh yeah, it's: No - No - No - No - No - No

    I'm loading up the whole family to go vote tomorrow night. Even my two daughters in their 20's are going with us. I'll have to buy them all dinner, but it's worth it, to send Arnold back to the drawing board.
     
  8. Cigar

    Cigar Junior Member

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    Aug 9, 2007
    Professional Status:
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    State:
    California
    Lloyd:

    It's: No - No - No - No - No - Yes.

    1F prevents pay raises in any years there is no budget; also, if you have any local bond issues be sure to vote no.

    There is no way we can pay the health care and pensions of these pension hoards (the site won't take the word I put there), the sooner we bankrupt the state the better.
     
  9. Lloyd Bonafide

    Lloyd Bonafide Senior Member

    0
    Jan 15, 2006
    Professional Status:
    Certified Residential Appraiser
    State:
    California
    It sounds like 1F will probably pass, which would be OK, but there are even a lot of conservatives saying "No" on F. Their reasoning being that if the legislature knows they won't get a pay increase if the budget is not balanced, they may be more willing to pass more tax and fee increases, just so they can get paid more.

    As long as the first five fail, though, I'll be happy.
     
  10. Mary Tiernan

    Mary Tiernan Senior Member

    0
    Dec 16, 2003
    Professional Status:
    Retired Appraiser
    State:
    Michigan
    So, in your original post you mentioned the rebuilding of Europe which helped us to climb out of the depression in the 30s.

    So, I guess my question is what will be the catalyst that will help us climb out of this slump?

    We are watching the auto companies die, and, whether you believe it or not, this will continue to wreak havoc on our economy as the parts suppliers close. This country was overbuilt with housing stock and comercial space, not gonna look to construction starts to shore it up. Computers and cell phones have, generally, reached a stand still as far as the public's need for technology.

    So, what will be the catalyst that will help to cure this economic slump?
     
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