Another Great Depression?

[sundial]

Is America headed for another Great Depression?

With unemployment on the rise, jobs going overseas, higher costs of living, and now banks closing the doors, it makes one wonder if we're hearing whispers from a falling nation.

[KnottedYet]

Yup, cycles of crash and burn are inevitable for every empire. My great-Aunt lived through the big depression and she stockpiled stuff until the day she died. She didn't trust cycles of prosperity and depression one bit. She knew it wasn't stable.

I'm doing my best to start stockpiling bikes....

[NbyNW]

IMHO, I don't think it's going to be as bad as the Great Depression, but everyone would be wise to look at ways to economize their life/spending habits. We are in for a bumpy ride.

A lot of banking regulations were put into place after the Great Depression to hopefully prevent anything that widespread from ever happening again. We may be seeing those safeguards put to the test in the coming months/years.

The worst thing people can do right now is panic.

[Tuckervill]

The best thing people can do right now is pay down their debt as much as possible.

Karen

[Mr. Bloom]

We've had good times for so long, a little bump is a big deal when we've forgotten what difficult is...

When things are good, the media says "this time things are different and they'll always be good"...then pop!

So, when things are bad, the media says "this time things are different and they can't get better"...but they do.

I'll share a portion of a PM I sent to sundial in response to a question she asked regarding bank failures:

Are the banks safe? There are many ways to measure this and many answers to your question...but on a whole, YES...the industry is safe and sound. There are 10,000 banks in America, so far about three or four have failed this year. There will be more...let's say there are 50 more failures...we're still talking about a 99.5% survival rate. The media hypes the .5%, but doesn't celebrate the 99.5%.

Prior to IndyMac's failure last week, the largest failure in some time was in sundials backyard. IndyMac's failure last week was really triggered by some irresponsible politics...but that's a different story.

From a banking perspective, this is EXACTLY how it was in the last real downturn we saw in 1989 to 1991...and I suspect that we'll see it again before I retire in 15 years.

Am I discouraged? I'm CAUTIOUS, but not discouraged.

I don't know where "bottom" is, but I know that we're closer today than two years ago...and after the bottom, things get better.

[OakLeaf]

A lot of banking regulations were put into place after the Great Depression to hopefully prevent anything that widespread from ever happening again. We may be seeing those safeguards put to the test in the coming months/years.

The worst thing people can do right now is panic.

I don't want to start a panic, but most of those regulations were repealed beginning in the mid-1970s and continuing at an accelerating pace through the present...

[smilingcat]

We've had good times for so long, a little bump is a big deal when we've forgotten what difficult is...

When things are good, the media says "this time things are different and they'll always be good"...then pop!

So, when things are bad, the media says "this time things are different and they can't get better"...but they do.

I'll share a portion of a PM I sent to sundial in response to a question she asked regarding bank failures:

Are the banks safe? There are many ways to measure this and many answers to your question...but on a whole, YES...the industry is safe and sound. There are 10,000 banks in America, so far about three or four have failed this year. There will be more...let's say there are 50 more failures...we're still talking about a 99.5% survival rate. The media hypes the .5%, but doesn't celebrate the 99.5%.

Prior to IndyMac's failure last week, the largest failure in some time was in sundials backyard. IndyMac's failure last week was really triggered by some irresponsible politics...but that's a different story.

From a banking perspective, this is EXACTLY how it was in the last real downturn we saw in 1989 to 1991...and I suspect that we'll see it again before I retire in 15 years.

Am I discouraged? I'm CAUTIOUS, but not discouraged.

I don't know where "bottom" is, but I know that we're closer today than two years ago...and after the bottom, things get better.

Dear Mr. Silver,

The 99.5% is the rate of failure in terms of number of banks. It isn't the same when one looks from a perspective of total capitalization etc. $$ instead of number of banks. I'm thinking in terms of 700 S&L in the 90's with Keating 5... Lincoln Savings with $160+ billion loss. and we the tax payer paid out how much?? That's a lot of programs it could have funded.

Anyway, Indy Mac is not a small bank nor is it a large bank. Those who had their money there, hopefully will get their money back or access in REASONABLE amount of time. This is provided Feds can find a buyer with a help from Leman Bros. The run on indy bank amounted to just $1.3billion.

Now of the 10,000 banks if few small one fails its one thing. But someone like Wachovia or WaMu (PLEASE NOTE THIS IN BIG BIG BOLD LETTER, I'M NOT SAYING THEY ARE IN BAD SHAPE. I HAVE NO IDEA WHERE THEY STAND FINANCIALLY) or Citi Group. If any of the big names falter then we would have some problems. Silver lining is that one of the big ones Wells Fargo posted better than expected performance. One of the reasons the market bounced this past week.

And their are the two behemouth 700pound gorillas. Fannie and Freddie... The two will pose major major problems with Feds. Indy is just a small mosquito bite compared to the two. numbers I heard are combined total cost of in excess of $1 trillion ($1000 billion) . And oh our GNP is what?? oh around $11-12 trillion.

Feds have gone or will be going?? to the capitol for authorization to help the two out. This is euphormism for "just print more money". This invariably leads to very strong inflationary pressure. and more pressure on the international market for devaluation of the $$. But if they don't bail out Fannie and Freddie, some other things can happen. And its not good.

to others here, I think Mr. Silver and I may disagree where the bottom is. Well no one has a crystal ball. So he infact may not disagree with me. just matter of symantics. Anyway getting back to market/economy worries. It doesn't hurt to be thrifty. It helps to be saving for the rainy day because you never will have green light through your life. There will always be bumps and bruises.

Do I know where the market is heading? absolutely not. As a proof, I was thinking about GM about week and half ago, it dipped to around $8.90/share, divident at that share price was in excess of 10% (heck of lot better than 3% savings rate) today monday morning, it should get close to $14.00/share. And I didn't. I'm just too chicken. thats nearly 50% gain. But GM board cancelled divident payouts. so its 0% . It was necessary though.

So if you are worried, you are not the only one. About 70% of the population are looking glass 3/4 empty. Things will eventually get better so have hope, be cautious and be thrifty.

smilingcat

[NbyNW]

I don't want to start a panic, but most of those regulations were repealed beginning in the mid-1970s and continuing at an accelerating pace through the present...

Wow, so nothing happened between 1933 and 1968? huh.
I'm not sure if this timeline's focus on more recent events means that consumer protections are disappearing faster than in the past.

[Mr. Bloom]

to others here, I think Mr. Silver and I may disagree where the bottom is. Well no one has a crystal ball. So he infact may not disagree with me. just matter of symantics. Anyway getting back to market/economy worries. It doesn't hurt to be thrifty. It helps to be saving for the rainy day because you never will have green light through your life. There will always be bumps and bruises.

smilingcat says this well...

[mimitabby]

Wow, so nothing happened between 1933 and 1968? huh.
I'm not sure if this timeline's focus on more recent events means that consumer protections are disappearing faster than in the past.

yes, that is correct. The banks were very stable for those years. (that was while the people who remembered the mess were still in power!)

[Crankin]

Well, why do people put more than the insured $100 K in a bank account?? I want to say the Dr. Phil line, "What were you thinking?" I mean, who would invest all of that money in an account getting 3% interest? Then they get mad when their savings over the $100K amount may be in jeopardy! I am not one who is super well versed in all things financial, but that message is clearly on the all of the doors and windows of all banks. It seems to me, the more people stand in line and yank their money out, the worse things will get.
I remember thinking the same thing with the Lincoln Thrift debacle. At the time, I lived in Phx and these were on every corner. But it was clear that they were not traditional banks and the accounts weren't insured. Sure, the Keating 5 were real sleazeballs, but again, who would put their money in an institution like that? It was bad enough that I bought my first house from Mr. Keating (Continental Homes), but at least the city of Chandler changed the name of Keating Drive after the scandal.
It wouldn't hurt for everyone to look at their finances and see where things can be tightened up. But I guess I am one of the few who sees the glass as half full. This is a cycle that has happened at least 3 times since I graduated from college.

[GLC1968]

The worst thing people can do right now is panic.

The best thing people can do right now is pay down their debt as much as possible.

True, on both counts.

The difference between now and the 1930's though is that today's economy is so extremely oil dependent. In addition, our world population is larger and our food supply is very centralized and also oil dependent. Personally, I think things have the potential to be MUCH worse than they were in the first Great Depression. Will it happen? Hard to say. Back then, most people knew how to do things by hand and how to grow their own food. Our nation still had many small and family farmers and our city populations were much less dense. Today, not so much. Financial problems and unemployment aside, I think that food is going to get ridiculously expensive and sparse in the very near future. As it is, people are already starting to have to choose between gas in the car and food on the table. What happens when they have to figure 'heat in the house' into that equation?

Yep, count me in the 'worried' group.

[BleeckerSt_Girl]

Things actually have the potential for being much worse this time around.

[Blueberry]

GLC-

Are you guys moved? Have you ridden into work yet? Just curious as to how it's going

CA

[GLC1968]

CA - I just posted about it in the commuting forum! We moved on Saturday. My first commute is tomorrow!