Back in November of 2007, I contemplated writing a book based on my life after the election and the state of America as well. The title was to be called "The Second Great American Depression", based on both how I felt emotionally and the great economic downturn that I saw coming.On Monday, September 29th, that title may have come true.
For the past year, whenever American's saw massive job loss, rising prices for the essentials, and an overall economic situation that wasn't just a simple downturn but, in fact, a very dramatic change, I started chanting "Second Great Depression". In turn, I was told I was an idiot who didn't understand the factors of the original Great Depression.
They were wrong, I do, and your either closed-minded or naive not to see ANY parallels right now.
What were these factors? The specific economic events that took place during the Great Depression have been studied thoroughly: a deflation in asset and commodity prices, dramatic drops in demand and credit, and disruption of trade, ultimately resulting in widespread poverty and unemployment. - Source: Wiki
In turn, most economists can't agree what, really, the relation was to each other and the main cause. So for that reason alone it's foolish to say that because of lack of direct parallels that this couldn't be another Great Depression, or at least the start of one.
So before we go into what, exactly, is causing people to think there is a problem now, let's look at each factor and see the parallel:
A Deflation in Asset and Commodity Prices
Right now, we're seeing a deflation in assets. The faltering housing market and the drop of the price of gas are testament to that. The fact that people owe more on their homes than they're worth is the clearest indicator of that. The dramatic drops in the price of stocks is another indicator, not to mention that, yes, the price of oil is dropping.
Meanwhile, commodities such as food are on the rise due to inflation and many people are finding it harder and harder to buy food. While the cost of food may have dropped during the Great Depression, so did the ability to buy it. Although, at the time of this posting, the cost of food IS dropping. A lot. Well, in England.
We're seeing a close parallel here. During the Great Depression, millions lost their homes. In turn, we're seeing the highest rate of foreclosures since the Great Depression. We're seeing millions lose their retirement savings because of this stock market crisis.
Dramatic Drop in Demand and Credit
We've seen the former happen for nearly a year and now we're seeing the later. Demand for goods has dropped steadily for over a year now, which in turn has led to a rather dramatic drop overall in a short amount of time. Demand for toys have dropped, so has the demand for cars. In fact, the demand for new cars is about the lowest in years, with 700 dealerships possibly about to go out of business.
At the same time, we're seeing Credit Card companies lower credit limits. Banks are unable to borrow money from each other, which is why so many banks are going under.
Disruption in trade, resulting in unemployment
Right now, we're not seeing that. We're seeing a rise in unemployment, the highest in 5 years. The current unemployment rate is 6.1%
I kept the overall points brief since, in essence, they ignore a lot of things that happened during the depression. We still have a lot of things worth mentioning since there is a lot going on.
First, let's discuss the money in the banks. During the Great Depression, there were runs on the banks. This was because, at the time, accounts did not have an FDIC guarantee like there is today. But today, economists are worried about runs on the banks in America because they think most American's are worried that their money won't be there. The reality is that, while loans are insured fro now up to $250,000, it doesn't mean that the banks can't freeze their assets and, in turn, make it next to impossible to get your money out of the bank. One possibility is that there could be a freeze on ATM withdraws, another fear is that credit card companies could freeze their credit and cut everyone off.
The safety of our money isn't 100%, and everyone knows that. It's safe to say that most comments about "Bank runs" don't mention the possibility of a freeze so not to promote fear and bank runs because of it. At the same time, the FDIC can, and has, run out of money.
We're not seeing breadlines, we're not seeing Hooverville's, and we're not seeing an unemployment rate of 25%. But we are seeing people lose their homes at a record pace, we are seeing the value of money worldwide plummet, we are seeing a rising unemployment race. We are seeing our stocks tumble dramatically; they're the lowest in in 5 years, and most importantly, the Dow Jones Industrial has PLUNGED over 5000 points in the last year alone!
Are we about to see the Second Great American Depression? Maybe. The first Great Depression was actually The Long Depression (1873–1896), but was later renamed the Long Depression after the Great Depression of the 1930's happened. It's possible that we are going to go into a long-term economic crisis, and this is going to last about 4 months. The election is going to make things better for a little bit, but I doubt that after whoever gets elected take office that things are going to get better. We're facing the edge of a cliff, and we need someone to lead us away from it.
The Second Great American Depression? Not yet.
