Are we at the beginning of another Great Depression?

Question

Are we at the beginning of another Great Depression?

Answer 1

That depends.  Economic decisions made by Congress in the next year or so will tell the tale.  At present, the prospects are not at all favorable; if the Democrats are in power, we are in deep sh-t.

Answer 2

I would say the odds it is the case are high. Mind you that the stock market crash did not cause the Great Depression but it is the other way round. I think that there are many ghosts that came to haunt us at the same time.

Back then, it is a monetary policy that was blamed. Today, and since few decades ago, the Fed, along other central banks, have been following an inflationary policy through an expansion of money supply and credit. As you know, these kind of policy should increase inflation. However, because of special conditions the past decades (globalization, delocalization of production, technology, increased productivity ...) this inflationary forces have been masked by cheap manufactured and imported products from China and other emerging countries. Now, all this has changed. China and other emerging countries are now joining the middle class and becoming affluent consumers, demanding higher wages and competing for scarce commodity and energy products. Add to that stable or decreasing oil production, and chronicle droughts and floods. Before, when the US entered a recession, it drove prices down around the globe, since Americans, as the main world consumers, slowed their demand. Not anymore. China now is fueling and exporting inflation everywhere (that's not a blame). So even if the US goes now into a recession, prices may still be high squeezing consumers and companies.

This kind of lousy monetary policy and low interest rates (lower than rate of inflation) flooded the market with excess liquidity and cheap money more than needed for the real economy. As a result, this excess liquidity went to chase high risk investments and create bubbles. It started with the Tech bubble.  After the bubble exploded, Greenspan again drove interest rates to 1% (technically banks where paid to borrow money) for a long time, just to 'avert' a deep recession at that time. The policy indeed just delayed the hard landing. He did, but he just fueled another bubble this time in housing. Because the US government was advertising for a house-ownership policy and because banks had access to plenty of cheap money, they became more risk taking, and were motivated to engage in reckless and risky investments and speculations in subprime mortgages (but also in other residential and commercial mortgages, auto loans, ...) coupled with new structured finance products and derivatives financed at ridiculous and dangerous leverages.

The Fed increase rates after that, but that was not the catalyst for mortgage and credit crisis (as long as the yield-curve had a positive slope). The biggest problem was the level of both private and public debt. Consumers were crippled by high credit and mortgages, have been consuming much more than they were earning or producing with virtually 0 saving. To make things worse, the government is currently running huge deficits to the world, with even more astounding future obligations. The government is still borrowing money to finance expensive wars, subsidize farmers to produce corn for energy or idle their lands, bail out banks and mortgages ... with virtually nothing spent on infrastructure, competitive education ... Worse, it was diverting money from future claims we made to retiring baby-boomers in the form of SS and Medicare. Soon enough, the government will not have enough money to pay retiring people or pay their interests on debts. It will have less revenue as baby-boomers will leave the labor force which will shrink accordingly with people with more debt, which means much less tax revenues to finance any government expenditure.

Need more? The Fed now is trapped. Since October, the Fed has been aggressively slashing rates to save banks. This again fuels more inflation as excess liquidity fled from equity markets and housing into a new bubble; commodities. As a result, and because commodities are based raw materials for virtually all other products, it drove prices for everything, everywhere. Inflation also drive interest rates (and mortgage rates) higher driving more people to be underwater in the mortgages. House prices are still dropping as a result, squeezing banks. Banks have been generating profits thanks to cheap money, high leverages and use of derivatives and structured finance products. These products spread the risks into every inch in the economy and increased the likelihood of systematic collapse. The Fed also swapped half of its balance sheet against worthless ABS/MBS paper (so now 50 cents of a dollar is backed by your neighbor’s mortgage or student loan …). If the Fed increases rates, it will send equities lower, send mortgage rates higher, and negatively impact banks … If they decrease rates, it will fuel more inflation, increase mortgage rates, and send the dollar lower. Both scenarios make consumers squeezed. Companies are now eating higher input prices without the ability to pass the higher prices to consumers. That will result in tighter earnings and more firings.

What standing between us and a total collapse of the economy is another triggering event. Need more? I can go on and on, but I think you got the picture.

Answer 3

thats what i asked the other day... how ironic. probably but not as bad as the last one

Answer 4

with those gas prices, we sure as h**l are or better be.

Answer 5

A recession is when your "neighbor" is laid-off.

A depression is when "you" get laid off.

No. We are not at the "beginning." <}:-{(

Answer 6

no

Answer 7

yes.

of course we are. Look to the economies of the world (i'm italian) and the only one that is now good is russian economy because they have a lot of gas to sell.

The other economies are all in troubles because (and for me it's the first reason) the tecnological progress is eating a lot of jobs and it is completely without control. So we are going in a depression harder than 1929's.

But don't worry too much becuase when the depression will arrive the world's governments will have to find a new economic model for the world and a new era of growth will begin and maybe the economy in the world will be fairer and we will not see more homeless or starving people. i hope so and i believe so

Answer 8

no.

we are at the beginning of the Great Greed.

the reason this economy is at risk is because everyone is getting greedy. the ones that set prices for food or clothing want more profit and we are suffering. whens the last time you gave a homelss person a dollar or two? i kno the last time i did, and it was a long time ago. u might tell urself its because you dont have enuf money to do that but its because of greed.

   the reason many empires fell in the past is because the emperor got greedy and began to benefit himself from the $ that was supposed to go to the people. thas whats happening now.

   ppl are getting greedy w/ their money. u kno all them celebreties who get paid unbelievable money? many of them keep all that $ 2 themselves. the same thing with ppl who win the jackpot.

   i think if ppl stopped being so greedy this economy would snap bac in2 place.

Answer 9

sure we are..... maybe not a great one but a little one.

We have more out going than incoming.

We are subsidizing farmers not to grow crops so we can reserve the land for corn (which in the long run won't solve anything), because we aren't growing as much crops the price of food and grain goes up.

If grain goes up the farmers struggle to feed their animals and the price of meat goes up.

That affects the restaurant industries. People slow down on eating out because it's too expensive (inconjunction with gas to get there), restaurants start to close, suppliers hike prices to compensate for the lack of businesses........blah blah blah so see where this is going.

Check out the currency exchange market. the dollars is sucking dust right now.

Answer 10

I have wondered that myself.  However, there are a lot more variables now than back in 1929, when the markets bottomed out.  For starters, this thing is heavily driven by high oil/gasoline prices and the government cronies which are perpetuating it- so perhaps a change of leadership could at least halt the downslide.   Giving more spending power to the lower and middle classes would help greatly- as would making the rich fat cats pay their fair share.  Plus, there are government aid programs(like food stamps and low income rent subsidies)which could keep at least some spending going.  This is not to say we should become complacent, however.  If things do not change, they could get worse.

Answer 11

No............alot of things have to happen to become another great depression....I wouldnt even technically call us in a depression...the closest sector that i would say is truly in a depression is the housing market..............

believe it or not, we learnef from the 1920's and have built in many fail safes to protect against that

So no we are not at the begining but the economy sure isnt peachy kean

Answer 12

I don't think so, not at the national level.  We have studied and learned from our experience, and our political leaders presumably will have the will and the foresight to enact ever more intensive interventions before it goes that far.

World wide effect is a different story.  We don't have the ability to affect the world economy as easily as we once might have.  If a new and devastating phenomena were to come to pass, we may not be able to analyze it and effectively combat it on a global scale, because it would take the coordination of a lot of different players with different and normally competing interests.  we could conceivably run out of time to organize a coordinated response.

But nationally, I think we will react in time.

Answer 13

I think we are. The way the economy is going, it seems like it could happen again. So always be prepared.

Answer 14

no, the freat depression was spurred on by more than the economy. That, and our economy is in much better shape now than it was then. The stock market crash was a big reason for the depression, but the market is now designed to close before it ever crashes - I dont think the US will ever have another depression like that!