On the 1929-1932 meltdown:
(John Kenneth Galbraith) :
Anyone with much of a brain could have seen that the housing bubble of the Double-Zero Decade was already ridden with corruption. Business Week had an article showing how dishonest the rating of mortgaged-backed assets were due to a ratings scandal well underway in 2005. Things peaked in late 2007, did not go down catastrophically for about a year, but suddenly went really bad, really fast. The classic head-and-shoulders warning appeared just before the Crash of 2008, and then came the nearly-vertical drop as in the autumn of 1929.
About a year and a half after the 1929 crash, the stock markets continued their tailspin. A year and a half after the skid of 2007 the market valuations started to rise.
Obama did what was practically mandated: he backed the banks. The bank runs that caused further erosion of the American economy in 1931 and 1932 did not happen. Businesses did not see their balances going to zero, and workers did not see their paychecks bouncing. The banks that survived the year-and-a-half meltdown became profitable again, and business failures became scarce.
By 1932, 'Old Money' had lost all political power behind it. In 2010, 'Old Money' became as powerful as ever. The Presidential elections of Obama and FDR are out of phase with respect to economic downturns by about two years -- but if the meltdown of 1929-1932 created a climate in which Big Business had lost almost all political influence, politics of the 2010s would reassert the power of Big Business.
The big difference between the 1930s and the 2010s is that in the 1930s people saw business shares as a bad investment and were more likely to start new businesses than buy securities. In the 2010s share valuations rose rapidly, and people were less prone to start new small businesses.
We may be seeing another 2007 -- or 1929.. Take you pick. It has never been easier to make money just by owning assets in America.
The failure of retail giant Sears demonstrates that the recovery has been mostly the super-rich bleeding the middle class. When the middle-class assets are gone, the crash will be severe. Consumer purchases will drop. High rentals will be difficult to collect, and this will cause property values to plummet. Should there be a recession, it might morph into a genuine depression. We have the worst President that we could have during a market crash, a headstrong ideologue committed to the idea that prosperity depends upon German productivity on Indian wages. He will offer tax cuts on shrinking income as a salve. He will be more adept at casting blame than at finding solutions. He will probably tighten up on relief and cut Social Security as a solution.
Donald Trump is not a well-read man, and if he ever read anything by Galbraith he did so in prep school and has forgotten it. He may not be a moron, but he is certainly a mediocrity.
(John Kenneth Galbraith) :
Quote:"A common feature of all these earlier troubles
[previous panics] was that having happened they were over. The
worst was reasonably recognizable as such. The singular feature
of the great crash of 1929 was that the worst continued to
worsen. What looked one day like the end proved on the next day to
have been only the beginning. Nothing could have been more
ingeniously designed to maximize the suffering, and also to insure
that as few as possible escaped the common misfortune.
The fortunate speculator who had funds to answer the first margin
call presently got another and equally urgent one, and if he met
that there would still be another. In the end all the money he
had was extracted from him and lost. The man with the smart
money, who was safely out of the market when the first crash came,
naturally went back in to pick up bargains. ... The bargains then
suffered a ruinous fall. Even the man who waited out all of
October and all of November, who saw the volume of trading return
to normal and saw Wall Street become as placid as a produce
market, and who then bought common stocks would see their value
drop to a third or fourth of the purchase price in the next
twenty-four months. ... The ruthlessness of [the stock market was]
remarkable." (p. 108-109)
I look also at the more recent stock market slide of the fourth quarter of 2007 to the first quarter of 2009, and see the same level of destruction in a year and a half.
![[Image: a4a8e8ac61df8c9c6a9874fd0aec534c.png]](https://www.advisorperspectives.com/images/content_image/data/a4/a4a8e8ac61df8c9c6a9874fd0aec534c.png)
Anyone with much of a brain could have seen that the housing bubble of the Double-Zero Decade was already ridden with corruption. Business Week had an article showing how dishonest the rating of mortgaged-backed assets were due to a ratings scandal well underway in 2005. Things peaked in late 2007, did not go down catastrophically for about a year, but suddenly went really bad, really fast. The classic head-and-shoulders warning appeared just before the Crash of 2008, and then came the nearly-vertical drop as in the autumn of 1929.
About a year and a half after the 1929 crash, the stock markets continued their tailspin. A year and a half after the skid of 2007 the market valuations started to rise.
Obama did what was practically mandated: he backed the banks. The bank runs that caused further erosion of the American economy in 1931 and 1932 did not happen. Businesses did not see their balances going to zero, and workers did not see their paychecks bouncing. The banks that survived the year-and-a-half meltdown became profitable again, and business failures became scarce.
By 1932, 'Old Money' had lost all political power behind it. In 2010, 'Old Money' became as powerful as ever. The Presidential elections of Obama and FDR are out of phase with respect to economic downturns by about two years -- but if the meltdown of 1929-1932 created a climate in which Big Business had lost almost all political influence, politics of the 2010s would reassert the power of Big Business.
The big difference between the 1930s and the 2010s is that in the 1930s people saw business shares as a bad investment and were more likely to start new businesses than buy securities. In the 2010s share valuations rose rapidly, and people were less prone to start new small businesses.
We may be seeing another 2007 -- or 1929.. Take you pick. It has never been easier to make money just by owning assets in America.
The failure of retail giant Sears demonstrates that the recovery has been mostly the super-rich bleeding the middle class. When the middle-class assets are gone, the crash will be severe. Consumer purchases will drop. High rentals will be difficult to collect, and this will cause property values to plummet. Should there be a recession, it might morph into a genuine depression. We have the worst President that we could have during a market crash, a headstrong ideologue committed to the idea that prosperity depends upon German productivity on Indian wages. He will offer tax cuts on shrinking income as a salve. He will be more adept at casting blame than at finding solutions. He will probably tighten up on relief and cut Social Security as a solution.
Donald Trump is not a well-read man, and if he ever read anything by Galbraith he did so in prep school and has forgotten it. He may not be a moron, but he is certainly a mediocrity.
The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated Communist but instead the people for whom the distinction between fact and fiction, true and false, no longer exists -- Hannah Arendt.
