The Second Great Depression

How It Will Be Different, How It Will Be The Same

2008-12-03T15:14:00.001-08:00

The other day, helping my brother move out of his house and into a rental, I realized one way in which the next depression will be different from the last:

We will have more things. People with cell phones and X-boxes will still find themselves with "nothing". Though they swim in a sea of goods and utilize technology unimaginable just thirty years ago, they will have no income, no way to pay for all the things that they took for granted. People, for the first time in large groups, will notice that they bleed money that is drunk up by various vampire-like entities, such as credit card corporations and cable companies.

In many cases, money goes to things that we all could agree are not necessary. Those will be the easiset to do without. One doesn't need membership in a gym in order to survive. But what about electric bills, telephone bills, internet bills? Ten years ago, many would have said that the internet was not necessary to survive. But how many people conduct business via the internet? What will your boss say if you don't get his e-mails?

Will people find themselves skipping meals in order to pay their broadband bill? It sounds ridiculous, perhaps, but one has to survive in the economy where one exists.

This depression will be different than the last one, just as the last was different than previous hard times in the country. John Steinbeck has a wonderful passage in The Grapes of Wrath about road trips, the importance of good tires and how a breakdown could simply be the end of life for a poor family seeking work. Yet, fifty years previous to the Great Depression, no one would have thought automobile tires (not yet invented!) as necessary for survival.

This time around, we will not lack for shoes and clothes, as people do in the 1930's newspaper articles I have reproduced here. Clothing abounds in people's garages and closets. But hunger, ever the spectre that terrified our ancestors and which has only recently been pushed out of sight for those in the advanced nations, may reappear to haunt us again.

Even in this land of plenty...

2008-10-21T07:30:00.000-07:00

- From a hearing before the Committee of Labor, 72nd Congress, 1932. Oscar Ameringer speaking.

In the State of Washington I was told that the forest fires raging in that region all summer and fall were caused by unemployed timber workers and bankrupt farmers in an endeavor to earn a few honest dollars as fire fighters. The last thing I saw on the night I left Seattle was numbers of women searching for scraps of food in the refuse piles of the principle market of that city. A number of Montana citizens told me of thousands of bushels of wheat left in the field suncut on account of its low price that hardly paid for the harvesting. In Oregon I saw thousands of bushels of apples rotting in the orchards...At the same time, there are millions of children who, on account of the poverty of their parents, will not eat one apple this winter.

Farm Prices

2008-10-14T22:14:00.000-07:00

Previous to the Crash of 1929, farm prices had been skyrocketing. Similar to our own housing boom, the prices of farms increased rapidly and many people, not just speculators but average people as well, speculated and borrowed money to invest in farm real estate. As with our own housing crisis, farm prices eventually fell, leaving many with second, third and even fourth mortgages.

The lower values came more slowly, though. What really hit the farmer was a double shot of trouble, which also may sound familiar to us: rising prices in labor and goods due to industrial prosperity and a decrease in the price of his crop (since there was suddenly so much available from all the new and prosperous farms.) His living expenses increased and his earnings decreased. Of course, there was a sudden surge in farm foreclosures. The banks didn't want to go into farming and often ended up renting the farms to their previous owners.

Thus a whole generation, having inherited farms that their forefathers had built from the ground up, found themselves reduced to renting and sharecropping for larger financial entities.

-From Gentlemen, the Corn Belt! by Remley J. Glass, July 1933

In the early days of the century Iowa...enjoyed a gradual, conservative increase in the values of farm products and farm real estate.Men who had homesteaded their farms from the government, paying $2.50 or $3.00 per acre, saw the price of land gradually increase to around $100 per acre, and thereby built up comfortable fortunes.

(snip)

The town barber and the small-town merchant bought and sold options until every town square was a real estate exchange. Bankers and lawyers, doctors and ministers...paying a few hundred dollars down and expecting to sell the rights before the following March brought settlement day.

Surviving

2008-10-10T17:58:00.000-07:00

-From the New York Times, June 5, 1932

Two years ago citizens shied at jury duty...But now things are different.

The Hall of Jurors in the Criminal Courts Building is jammed and packed on court days. Absences are infrequent. Why? Jurors get 4$ for every day they serve.

More Bad News

2008-10-09T13:45:00.001-07:00

By TIM PARADIS, AP Business Writer 13 minutes ago

NEW YORK - Stocks plunged in the final minutes of trading Thursday, sending the Dow Jones industrials down more than 675 points, or more than 7 percent, to their lowest level in five years after a major credit ratings agency said it was considering cutting its rating on General Motors Corp. The Standard & Poor's 500 index also fell more than 7 percent.

Similar Yet Dissimilar

2008-10-09T11:00:00.000-07:00

The market crash of 1929 resembled our own times in that there was a fluctuation in stock prices and intervention by banks to try and stop an apparent disaster. Black Thursday (October 24, 1929) saw a terrible and sudden down spiraling of stock prices that stopped with an end of the day rally after an intervention and some hopeful words from the largest banks in the land. The crash was arrested and nervous trading resumed the next day and on the Monday following. But Tragic Tuesday (October 29, 1929) brought another terrible drop in stock prices. At day's end there was a rally which cheered many investors, but it was false hope. Securities would continue to decrease in value for the next three and one-half years. The depression would continue for a total of twelve years, until defense spending in support of Britain brought stock prices and employment back to levels near those of 1929.

In our own time, we have seen terrible fluctuations also, and intervention by the Fed and banks such as JP Morgan/Chase.

However, it does seem that our own troubles are extended more than those of 1929. We have not seen such a fast reduction in stock value. This last week has certainly seen a precipitous drop in all the exchanges' averages. I believe Wall Street is down some 15%. But we have not yet reached the depths to which Wall Street fell in 1929, with many major stocks falling to 5% of their previous value. Also, the government has certainly taken more steps to deter an economic catstrophe than Hoover's government did in 1929.

The question is, will these steps do any good? Are the 'dissimilarities' of our own time going to stop another crash?

The Human Side of Economics

2008-10-08T10:09:00.000-07:00

- From Father Stephen Freeman

I grew up in one of the “Miracle Cities” of the South. In 1964, the Air Force base that had been the foundation of a large part of the economy in the south end of the county was closed. It was not the only base closed that year - it was part of a larger decision. My father’s auto repair business consisted almost entirely of Air Force personnel. Like all civilians in that end of the county, things became very hard. It is a vivid memory for me.

Of course the city fathers correctly predicted a comeback. Twenty-five years later the city was in the midst of a renaissance and an economic boom. Of course, twenty-five years may seem like nothing in the years of a city. For a man in his 40’s, twenty-five years is the rest of his working life. My father never recovered economically from the “general” decision or the “general recovery.”

History Repeats Itself

2008-10-08T09:29:00.000-07:00

History repeats itself but always with interesting variations.

Reading about the Great Depression, I am struck by similarities with our own time. Much of what politicians and pundits were tellling us a few months ago sound like what others said in the months following the inital crash in October, 1929. How many times have they told us that the economy is "fundamentally sound"?

- From the New York Times, October 25, 1929

The most disastrous decline in the biggest and broadest stock market of history rocked the financial district yesterday. In the very midst of the collapse five of the country's most influential bankershurried to the office of J.P. Morgan & Co., and after a brief conference gave out word that they believe the foundations of the market to be sound....

- From Depression Decade by Broadus Mitchell, published 1947.

In the midst of the stock market debacle two months earlier, prominent persons whose word was apt to be taken...had declared their confidence in stocks, not to mention underlying business soundness.

From the AP in Japan

2008-10-08T00:23:00.001-07:00

By TOMOKO A. HOSAKA, Associated Press Writer 1 hour, 16 minutes ago

TOKYO - Asian stock markets tumbled Wednesday, with Japan's Nikkei index sinking nearly 10 percent, as recent steps by the world's major economies to fortify credit markets failed to stem fears that the spreading financial crisis could spawn a global recession.

What's at stake?

2008-10-07T19:47:00.000-07:00

What do I have to lose?

I am a thirty-five year old American man. Up until the Spring of 2007, I was a schoolteacher. I spent my last year of teaching as principal of a small Catholic school in Cottonwood, Arizona. When I resigned I joined my wife full-time in her small housecleaning business. We basically did this so that we would have more time with our kids and a more flexible schedule. Also, the business had more money-making potential than teaching. This summer the business began to suffer and I recently took a job working four nights a week. I am also an aspiring (though frequently tired and lethargic) writer who has self-published a couple books. If you are interested, and you can spare a dime, you might click on the links to my books.

My wife is a Honduran immigrant who recently naturalized. We have four children: a daughter and three boys, ages twelve, eleven, two and one respectively.

We own our own home (by the skin of our teeth) and have two cars, a 2002 and a 1991.

Financial difficulties (children) in the last year caused me to liquidate the small amount of money I had saved for retirement over the course of my career, so we had nothing to lose in recent stock market events. I have a couple grand saved for my kids college funds and haven't contributed in a long time. We have no savings. We spent the last two months without health insurance but recently got approved for a policy that will basically cover disasters. We won't visit doctors for anything less for the time being.

And this sums up our tenuous existence.

What do you have to lose?

Black October

2008-10-07T19:14:00.000-07:00

As I write this, I am hoping it is all for nothing. I hope that things change, the tide turns and a slow steady return to economic prosperity begins tomorrow morning. But I suspect that this is only the beginning of a dark time in America.

Previous to today, I possessed little knowledge about the Great Depression. I believe we spent a day or two on it in high school and, since I majored in English rather than American History, I did not study it at all in college. I knew about the Crash of 1929, the unemployment lines, the bread lines and the Hoovervilles. I knew about the New Deal and the CCC and the WPA and so on. I have read the Grapes of Wrath. But, I wondered, how did it really begin? What did it look like? Feel like? I wanted to know in order to prepare myself and my family for whatever tomorrow may bring.

I checked out a book written in 1960. The title is, of course, The Great Depression. The author wrote it in order to expose the current generation (that of 1960), which had grown up post-Depression, to the suffering of the previous generation. His concern about the purposeful forgetting of the Depression on the part of its survivors is neither here nor there for my purposes. My general interest, though, is the same as the author's. I am interested in the "human side" of the Great Depression and the potential Depression we may experience now in the 21st century.

There are already many blogs and websites sensationalizing this present economic downturn, chronicling the sudden drops in Wall Street, the disastrous decisions made by politicians and corporations, the crashes and bailouts. I care little for these analyses. Understanding Freddie Mac won't help me survive, and as a father of four my primary interest from day to day is survival and almost nothing else.

So I checked out a book at the library (perhaps an odd way to prepare for a 21st century event!). I wanted to read about what actual people suffered and how they adapted to that suffering. The book, which I have only just begun, has already shed some light on the difficulties I may be facing soon. It has also deepened my concern about recent events. In just a cursory glance at the economic events of 1929, the author has mirrored much of what I have heard in the news lately.

But more on that with further posts.