Thoughts and Views on the Economy & the Great Depression

Like everyone, I’ve been giving lots of thought to the economy and implications on myself and other people.  At the same time, I’ve been reading up on the Great Depression and what lessons we can learn from the period of 1929-1939.  Despite a 900+ point increase today in the Dow Jones (DJIA), the next months and several years are going to be turbulent at best, life changing at worst.

Some thoughts:

It took 25 years for the US Stock Market to reach the same DJIA level of 1929 – it took until 1954 to reach the same levels.  No one can state for sure, why the depression mostly ended around 1939.  It could have been the public works administration (WPA) that built a lot of infrastructure in the US during this period or more likely, the start of WWII, which spurred a lot of post-war building.  What is clear is that the goverment had a lot of blame for the period of 1929-1933 when protectionist trade policies, no safety nets for workers, no bank guarantees, gold standard ties, unreasonable boom times and stocks which were largely unregulated as well as trade imbalances.

There are massive articles you can find on the Internet and some of the lessons are very interesting.  But the lack of government intervention was clear, even though people are criticizing the amount of US and other world governments today into the economic mess we are in.  Plus, the incoming FDR refused to work with the outgoing Herbert Hoover between November 1932 and February 1933 further exacerbating the crisis.  (Can you imagine Obama and W working hand in hand later this year – I think not!).

So discounting the discussion of capitalism and nationalism, what are some of the impacts and possibiities we could see?  Here are some rambling, random thoughts:

1. A terrorist attach on US soil like 9/11 which took place in the middle of the Tech Bubble Meltdown, would be merely catastrophic and would paralalyze the world and American markets in a way that no one could imagine.

2. The amount of actual FDIC insurance on hand to cover all of the deposits in US banks is roughly 1000:1. That means essentially that if there were stories of people pulling out their cash from banks (think “It’s a Wonderful Life” from 1939) not only would there not be enough money to take out (it’s in the houses that are under loans) but the FDIC could not cover either.

3. Americans do have a short memory. After the gas shortages of the 1970′s, Americans went to small cars, but not many years later did SUV’s and Hummers rule the streets.  When this is all said and done, Americans will go back to $100 hamburgers and $100,000 Mercs.

4. The gym I go to is more full than ever now. I think people are both trying to get their money’s worth from their membership, but also also putting physical excercise at the forefront as a way of coping with the massive stress they are feeling.

5. People will give up their Starbuck’s runs more often, think twice about eating out at a fancy diner and 100′s of other things that help drive the economy – further causing a downward spiral.

6. Communications will not be as affected however. People will still have cellphones and use internet services, even more than today.  Telco’s will put together more low end plans and find ways to get more money from consumers and drop costs.

7. I have no evidence of this, but I bet alcohol sales and prescription and illicit drug sales are up.

8. People will need to laugh more and attendance at funny movies, plays and the like will increase. People will stop looking at CNBC, the Wall Street Journal and their 401(k) statement and watch inane TV shows that are empty sugar to their sweet-tooth.

All in all, we’re all in for a roller coaster ride for a long time. Worrying won’t help, but being prepared for the worst will.  People made lots of money during the depression (ask JP Morgan) and those who are into personal services and creating value for the companies they work for will prosper – and everyone who keeps their head during the tough times.  While we don’t need an Alfred E Neuman “What Me Worry” approach, all we can do is to perservere, work hard at our jobs, watch our money, at take care of the friends we have – who will be there through thick and thin.

No one really knows how this will work out, and those that say they do are always wrong.  Even the lessons from yesteryear have some meaning, but are not totally relevant in the Web/Mobile 2.0 world we live in.

Talk to you from the other side!