Comparing The 1930s To 2008

The end of 2007 and throughout 2008 has proved a disastrous 'flattening' experience for millions, as banks, stocks and real estate crashed. Assets are being sold off in an attempt to reduce debt on balance sheets. Numerous tales have been reported of hundreds of millions of dollars being wiped out.  People all over the world sit with bated breath waiting for the 'axe' to fall on them.

Colin Twigg of IG Markets, reports. "The economy is headed for a liquidity trap. Interest rates will be lowered to such a rate they will fail to attract investors. When banks are forced to liquidate assets, call in loans, it could set off a downward spiral, with echoes of the 1930's".

The other alternative would be for nations to print more money. However, this could bring about the same result as Zimbabwe with its 100,000 p.a. rate of inflation.

Many people are questioning: "Are there things that are the same between the 1930’s and 2008?" The down-turn in the early 1930's took three years, while the financial melt-down in 2008 has taken only one year.

In the 1930's:

·         1929 investors had a currency that was backed by gold

·         Preceded by  a housing boom, plus cheap credit

·         Financial system less sophisticated – records with pen and paper

·         In 1929 millions were left ignorant because communication was snail mail.

·         Communications were changed through 'Indian whispers'

·         Information was difficult to get

·         Relatively US Federal bank was new and made regular mistakes

·         The government and big spending programs were distrusted by the voters

·         People caused runs on the banks as they panicked and withdrew money

·         Some say the government of the 1930's was more capable of handling a financial melt down

·         No safety net had been devised

·         The people were industrious and hard working, growing their own vegetables etc.

90% of jobs were rural

·         Credit was difficult to gain for most people

·         There was a surplus in  trade as people were more able to create trade items

·         National borrowing on a large scale was unheard of

·         People lived more locally and went without  or made do

·         40% of the nation’s wealth in America was owned by 1% of the population

·         The richest 0.1% controlled 11.5% of income in the US

In 2008:

·         In 2008 the dollars are backed by IOUs from the world’s biggest debtor, the US

·         A  housing boom and cheap credit preceded the melt down

·         Today we have sophisticated financial models which we believed in implicitly – until they failed

·         2008's communication is global, immediate interaction, measured in milliseconds

·         Information is instantly transferred and more easily checked for accuracy

·         Information pours around the globe daily

·         In 2008 the Fed patrols financial markets, dousing flare-ups with highly flammable material

·         Today the government is the big spender saying it is 'rescuing' the economy

·         Large groups of people have a choice of losing their money by selling their shares or waiting in hope of a better future

·         Many people questions the ability of the governments of the world to meet the melt down

·         The say there is a safety net in place (?)

·         In 2008 only supermarkets 'grow' vegetables for the vast majority of the populace

·         In 2008 there is a more urban population

·         There is huge public and private indebtedness

·         We see a massive trade indebtedness with little or no ability to create trade items

·         Millions of dollars are borrowed every day by most nations

·         2008 has a global village which is highly consumer orientated

·         In 2008 the wealth is more widely spread so the top 1% have less impact on the nation

·         The richest 0.1% controls 11.6% of income in the US.

While the financial melt-down in 2008 has been much steeper than the four year plunge of the 1930's, will we recover any quicker in 2009? We continue to borrow simply to pay back on what we have already borrowed. The 'house of cards' of 2008 is hundreds of times bigger than it was in the 1930's.

 
"Comparing 1929 to 2008 is a bit like comparing a Model T to a 2008 Chevy,” said Sung Won Sohn, an economist at California State University Channel Islands. “They’re both cars, but that doesn’t mean they’re both the same.”