Monday, December 01, 2008

This Just In...

The main reason I enjoy reading Robert Reich so much is that he’s brilliant but he speaks plainly. He seems to have a rare ability to get to the heart of complicated matters and explain them in way that I can understand.

Others, including myself, have been dancing around the issue. We’ve all been afraid to say the “D” word -- even as we watch the economy continue it’s slide. Everyone keeps creeping closer and closer to saying we’re in one -- a Depression -- but no one is willing to say it. Until now.

The Great Crash of 2008

”If this isn't a Great Crash I don't know how to define one. Stocks were down another 7 percent today. Since the peak of last year, major stock indexes have dropped 47 percent. We're in range of the Great Crash of 1929.“

I suspect it will be a whole lot easier to write about aviation in the near future. There won’t be much. And just a word of warning in case I haven’t made it plain before. Depressions don’t come about overnight. Despite history’s focus on “The Crash”, it’s actually a long slide.

The Great Depression

”The Great Depression was not a sudden, total collapse. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929. Together, government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the previous year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.

In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas, where commodity prices plunged, and in mining and logging areas, where unemployment was high and there were few other jobs. The decline in the American economy was the factor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts to shore up the economies of individual nations through protectionist policies, such as the 1930 U.S. Smoot-Hawley Tariff Act and retaliatory tariffs in other countries, exacerbated the collapse in global trade. By late in 1930, a steady decline set in which reached bottom by March 1933. “

We’ll see how much we’ve really learned from history.

Don Brown
December 1, 2008

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