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2008 - The 2nd great depression since 1929?

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chatty

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IS there a possibility that 2008 is going to be the beginning of the world 2nd great depression since black Tuesday in1929?

The scenario appears to be similar. European banks have lost billion of dollars, England is not doing well, Japan is having recession.
China..-stock market can crash anytime as well. Bad book for the whole banking system.

People just talk about slow growth and recession in 2008. I feel like we probably going to have the 2nd world great depression. High unemployment rate, high inflation, high interest rate.etc.
 
Re: 2008.the 2nd great depression since 1929

Personally, I think the world and economic environment has evolved a LOT since those days.

I cannot see it getting anywhere NEAR as bad!
 
The thing to remember is that economies are chaotic systems (in the physics sense). They are hard to predict. But you can model outcomes based on one or another economic theory.

Is a great depression possible soon? It most certainly it is!

Is it possible that there is no recession in the near future? That is also possible.

The trick for investors is to figure out the probabilities of each, and/or points in between and tailor their affairs for that outlook.

The hard part is separating out the endowment effect on our current investments, from strictly logical modeling. Not easy.

But it certainly is possible, the setup is in place, the poisons are lurking in the mud. Let's hope "they" don't trigger it off by doing something stupid.
 
Re: 2008.the 2nd great depression since 1929

MRC & Co said:
Personally, I think the world and economic environment has evolved a LOT since those days.

I cannot see it getting anywhere NEAR as bad!
Click to expand...

I actually agree. In spite of the spider web of derivatives amplifying the effects of money borrowed into existence by central banks I don't think the system needs to collapse entirely and clean out all of this alchemy just because of a credit crunch situation caused by poor lending practices. Whether we morally agree with it is one thing...whether it can remain and function is something else.

It reminds me of the provoking dialogue in Syriania where a fictional oil tycoon's 2IC says to Jeffrey Wright's character, "Corruption? Corruption is government intrusion into market efficiencies in the form of regulations. That's Milton Friedman. He got a goddamn Nobel Prize. We have laws against it precisely so we can get away with it. Corruption is our protection. Corruption keeps us safe and warm. Corruption is why you and I are prancing around in here instead of fighting over scraps of meat out in the streets. Corruption is why we win."

I'm confident they'll corrupt into effect a recovery before things get too nasty. The trick is not to be one of the weaker hands who get left holding the bag.

ASX.G
 
chatty said:
IS there a possibility that 2008 is going to be the beginning of the world 2nd great depression since black Tuesday in1929?

The scenario appears to be similar. European banks have lost billion of dollars, England is not doing well, Japan is having recession.
China..-stock market can crash anytime as well. Bad book for the whole banking system.

People just talk about slow growth and recession in 2008. I feel like we probably going to have the 2nd world great depression. High unemployment rate, high inflation, high interest rate.etc.
Click to expand...
Now the really big issue I have with the possibility of a 2nd Great Depression, is how can we have a Great Depression if our money is made out of "Thin Air", unless there is manipulation of the Monetary System to create another Great Depression, by the central bankers

According to the Third Part of Zeitgeist the Movie, the Great Depression was manipulated by the Federal Reserve to buy Businesses and competing Banks at penny's on the dollar. Apparently the Federal Reserve withdrew much of the Money out of circulation, which excaserbated the Great Depression, thus making it so vicious. They then they made it illegal to own Gold in the US, thus stealing the real wealth of the people to the central bankers, which was meant to be stored in Fort Knox, but hasn't been independantly audited since the 1950's.

Personally, the questionable events of 9/11(There still isn't any evidence that Bin Laden was behind the Atacks of 9/11, http://www.fbi.gov/wanted/terrorists/terbinladen.htm), plus nearly half of the supposed "Terrorists" were found to still be alive after 9/11, along with Building 7 collapsing like a controlled demolition, plus, plus, plus, followed by the period of insanely easy credit, that has created the biggest credit bubbles the world has ever seen, looks like a set up to me.

The question is, what is the central bankers agenda, or have they really lost control of the monetary system, which I seriously doubt because the money they create doesn't have any real value anyway.
 
Personally I don't think we will get anything like 1929 again. But then again it is how you are prepared for it if it does happen. In 1929 shares dropped by 85% and dividends were reduced by 30%. I can still survive with the 30% dividend drop but my portfolio valuation might give me a heart attack.:eek:
 
Hi all.
I'm going to join the 'no' camp based on these *unique* characteristics of the Great Depression. This is not to say that we are not experiencing a unique turn of events today (eg. explosion of opaque derivatives, unprecedented housing slump) but the fact remains we understood little about macroeconomics and management thereof in the 1930's.

1) Deflation. The central banks of the world today fear deflation probably more than inflation due to the lessons learnt in the 1930's and after watching Japan's battle with deflation. Post 9-11 is hard proof that the US Fed will not permit deflation. Also - we understand much better the economics of monetary policy today. Real interest rates actually rose during the Great Depression - yet are running at close to 0 today (and did so in the post-9/11 recession too). Yet the authorities allowed money supply to contract significantly during the Great Depression. This is a stark contrast to the high money growth rates currently experienced in the world economy.

2) Gold Standard/Floating Exchange Rates. Personally, I would rename (2) as 'Poor/Misguided Policy and Regulation' because money supply had to be backed by gold in that era and at the time, the US Fed "maxed out" the credit it could provide with the gold reserves it had. To cut a long story short, there was a "run" on the Fed's gold reserves due to a flight to quality from back deposits. At one stage, they made holding gold privately a federal offence to try and stop the run of the Fed's gold and hence the money supply. This meant they couldn't 'print money' as Big Ben does today, which, in face of the huge falls in demand (= excess capacity) and prices experienced in the 1930's is a totally appropriate policy. So the 1930's saw a massive self-fulfilling contraction in money supply whereas today the authorities are freely able to 'drop money from helicopters' if they so wish - preventing the decay of deflation.
While the Great Depression was the result of too much credit and asset price bubbles in the late 1920's (partially due to a lack of understanding of macroeconomics and policy), a similar situation to our current one, the unwinding of those imbalances was met by deflation - which makes it harder to pay back debt. Today, food/commodity price inflation is a given in the developed world (due to China/India/climate change etc etc) and monetary inflation is inevitable - meaning the medium-term pressure on the debtors to repay loans is lower.

Governments also raised tariffs (by about double in the US) to protect local production = sharp contraction of world trade. Remember that back then, Adam Smith's absolute advantage and later, competitive advantage were not accepted economic theory. Exchange rates were fixed/linked to gold in the Great Depression as well which reduced flexibility and the ability to absorb shocks. Remember that floating exchange rates are an automatic stabiliser against external shocks/internal demand shocks and the gold standard was a very rigid system that could not respond to the pricking of asset bubbles or the development of deflation.

Lack of faith in deposits on a widespread level caused the breakdown of the so-called 'money multiplier model' (MMM) which in layman's terms is "credit creation". It's a circle of credit creation where the central bank can tweak the relatively small "money base" (eg. reduce reserve requirments or buy back bonds from banks) which encourages banks to make loans, which are the deposited at other banks, which make more loans, more deposits, more loans etc etc until the initial change is "multipled" many times over. But due to lack of faith in deposits, consumers hoarded hard cash (plus, remember, due to deflation, the purchasing power of cash was increasing, so there was an incentive to hold cash.....very much unlike today!) so the deposit base never grew when loans were made and the money multiplier model quickly collapsed.
Despite the worrying problems in the banking sector today, there is fundamental reasons to believe the MMM model will not collapse due to:
- a much better understanding of monetary policy and macroeconomics
- inherent inflation caused by commodity/food prices coupled with the impending outbreak of inflation due to the surging money supply (printing of money by the Fed). With a reasonable level of faith in consumer deposits, the mere existence on inflation would make it totally irrational to hoard hard cash.
- Federal deposit insurance (only started in 1934) and the reluctance to let a large bank/insurer fail ('implicit' guarantees in the banking system a la LTCM and Northern Rock)
The only event that could precipitate a collapse of the MMM could be the failure of a large American/European bank (which policy-makers would not allow to happen) and consequent loss of faith in deposits AND, importantly, deflation.

Anyway, I wrote way more than I intended. I write not to understate the current problems and risks in the economy but to highlight the significant differences in the structure of the economy and understanding of economics itself between 1929 and 2008. While certainty not impossible, I think a repeat of the Great Depression will not happen and especially not in the current enviornment.
 
brendan87 said:
the US Fed will not permit deflation.
Click to expand...
The Fed may not be able to stop it. Ultimately deflation is caused by an excess of supply over demand, and there's a limit to how much lowering interest rates and increasing the money supply can bolster demand in the face of oversupply, falling corporate profits, and high asset prices. There will come a point where no one wants to use any of the extra money and cheaper credit that's available because there's nothing worth using it for, at least not within that economy. That's the problem Japan has faced.

money supply had to be backed by gold in that era
Click to expand...
According to Richard Duncan in his book The Dollar Crisis, the gold standard was dropped during WWI to help fund the war machine. That allowed the money supply to expand significantly, and after the war there was a much-increased credit base that fuelled the Roaring '20s. Gradually though the US accumulated a lot of gold as other countries did start to pay for their deficits with the US, and the Fed started tightening the money supply to try and reduce the liquidity. Apparently this did manage to reduce the credit base somewhat, but it was already too late. The combination of oversupply, falling corporate profits, and high asset prices mentioned above took their toll, and no amount of policy reversal by the Fed could save it.

GP
 
I'll just add some simple comments..

I notice increasingly these sorts of comments being thrown around by alarmists who are probably looking to profit from gold, and benefiting from shorting the market with all the gloom and doom scenarios. Because of the current situation, people are more likely to listen to what would have been simply laughed at a few years ago. So you do have to be a bit careful, however I would agree that on some indicators they could have merit. It's silly to completely ignore any such negative news, simply as you might not want to hear it.

The world has experienced similar financial crisis back in the 70's, early 80's, late 80's, and late 90's without serious depressions (waits for somebody to throw in Japan) - however people do have a short memory, and each time economies, and world economies have recovered. Maybe "this time it's different", but you can equally say "maybe it's not" with some valid reasons.

I do think the US may be in store for a large recession as it (arguably) may lose it's place in world power - and such changes are usually accompanied by times of great hardship (take Britain and the end of the British Empire), but that may be offset by other world economies as they grow to take the place.. and we have quite a few there. These things also take years and years, maybe even decades - so the process may be a drawn out one.
 
Second Depression ?

Nothings impossible is it :eek:

A realestate crash in the US or UK a year ago or so was probably deemed impossible.

Australian banks needing 50pc gains to reach their formers highs would of a year ago been labled Impossible.

Et cetera Et cetera Et cetera

He who expects the unexpected is best positioned to survive or indeed thrive from the unexpected ;)
 
wayneL said:
The thing to remember is that economies are chaotic systems (in the physics sense). They are hard to predict. But you can model outcomes based on one or another economic theory.

Is a great depression possible soon? It most certainly it is!

Is it possible that there is no recession in the near future? That is also possible.

The trick for investors is to figure out the probabilities of each, and/or points in between and tailor their affairs for that outlook.

The hard part is separating out the endowment effect on our current investments, from strictly logical modeling. Not easy.

But it certainly is possible, the setup is in place, the poisons are lurking in the mud. Let's hope "they" don't trigger it off by doing something stupid.
Click to expand...

Agreed,...

The world economy is so dynamic and the infomation age has brought faster movement of capital, so in one respect it has brought stability but on the other hand money can be ripped out from under certain areas much faster.
 
GreatPig said:
Gold would probably drop in a deflationary depression as well.

GP
Click to expand...

Could you qualify that statement by setting out a reason.

My be an obvious answer but to those of us who may be a bit slow this could be an important point.
 
GreatPig, you're right about the gold standard being abandoned in WW1 - but it was only Britain that abandoned it in 1914. Subsequently, it was taken up again in 1925.

However the US maintained a gold standard (the rate changed many times) of convertability for US dollars until alot later, 1975 infact.

It was also in 1914 that the US adopted a gold standard to back the other side of the Fed's balance sheet (not just the currency they issued) - under a provision in the Federal Reserve Act which passed on 23/12/1913. It mandated that the US Fed holds gold to the value fo 40% of its outstanding loans. This is the equivalent of a 'reserve ratio'/'required reserve ratio'/capital ratio in modern banking and was designed in order to provide a disincentive for the US Fed to increase money supply too quickly and stoke inflation. I'm sorry for not fully explaining what I meant about a gold standard, as there are different types and meanings.
 
People keep saying the FED is creating money out of thin air but thats hogwash. Gold , shells, silver, diamonds and money all relate directly back to work. Work in the power sense it either buys you man "work" power or it buys you electric power, steam power etc. The fed isn't printing thin air its printing massive amounts of IOU's for work. The problem is they don't export energy by way of oil etc and the human work force can't repay the IOU's alone.

China has another problem it has too much supply of work force by way of human work. So what can it do either accept these US IOU's or have half its population sitting there doing nothing relising that the country really isn't that great and getting revolutionary thoughts :p:

The thing is though one barrel of oil = 18000 man hours of work. The US controls over half the worlds oil. It doesn't matter that china has a massive amount of cheap labour the US has even bigger amounts of even cheaper labour. The US will come out of this and I bet they start taking control of more oil resources around the world. They are pushing China out of Africa, they are working on Venezula, Iran's oil is looking mighty tasty.

He who controls the oil controls the world it's as simple as that. The US is going nowhere and I wouldn't be surprised if this whole thing was somewhat planned by the administration. It could be seen as economic war against rising powers Russia and China. They will have to re-evaluate the Yuan, and now Kosovo is independant the divid and conquer stratagy looks to be going the US way. They know the only way to take down Russia and China is from the inside out.
 
explod said:
Could you qualify that statement by setting out a reason
Click to expand...
Because gold is seen as "real" money, and demand increases when it looks like the purchasing power of the currency is falling - ie. inflation.

During deflation, asset prices are getting cheaper relative to the currency, so the value of cash is not falling (although the currency can fall relative to other currencies due to floating exchange rates, but that would lead to inflation again in that country if it imported a lot). As gold may already be another over-priced asset, it could fall as well.

Possibly a simplistic view, but that's my thoughts anyway.

GP
 
The USA stock markets boomed through the 1920's because it was the only
game that was worth investing in...

Money from all over the world poured in to buy Stocks
and They had their "New Age" Stocks as well .... Radio etc

How many coutries ever got out of recession caused by the fall out and carnage from WW1 ? If I remember the statistics right .. Australia was in a sort of recession all throught the 1920's..

The effects of WW1 and the 1920's Made everything revolve around the USA

NOW IT is not just about the USA anymore

Speculative funds flow to all sorts of other destinations
and USA stock markets are not in Bubbles..



Let’s address the China factor. In 1921,
the U.S. and British stock markets registered
important corrective lows. The U.S.
market made an eight year hyperbolic run
into the 1929 blow off while Britain only
managed to reach its previous high (posted
in 1900) as the industrial baton was being
passed to the U.S.

Similarly, as the U.S.
passes the industrial baton to China, it
is more likely that if any stock market
extends hyperbolically into the 9th or 10th
year of the decade, it will be China. The
“new economy” index as represented by the
Nasdaq, probably at best may double top.
The S&P as of April, 2007 is approaching its
old highs, but may struggle to move much
beyond, if this British comparison holds up.

The Dow industrials have been leading the
market higher for good reason. Emerging
market growth, especially China is pushing
to build its infra-structure and has been
demanding the capital goods of our industrial
companies. This is pulling our markets
higher. It’s not about the U.S. anymore.

By Jim Forte, CMT
Click to expand...

That said The USA will not go away
They will be a large factor
and they are so profit driven
That unlike Japan They will do what ever it takes
to move forward...

And a multi engined world economy
will provide plenty of opportunities ( It is not even just about China ! )


motorway
 

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