Oct 26 2008
Hasn’t it only happened once before?
I rarely get to see my godson, who also is my nephew, and he was visiting his grandfather the other day when I came over,too. We began to talk about what we believed would be the future financial picture,but my godson only saw it in the terms that he could understand.
“It’s just a correction,” he said. “It’ll bounce back.”
“It took until ‘58 for the market to bounce back after the depression,” The Old Man said to his grandson.
Stunned, my nephew said, ‘But it’s not like this happens every day, right? I mean, it’s only happened once before, during the Depression, right?”
“And in 1867,” I added, “And in the 1890’s,.”
He was shocked that this was not only the second economic crisis in the history of our nation. It doesn’t matter what or why, these events happen periodically, and how bad they get is all due to how the Fed and others respond. In this case, the government learned from its mistakes during the Depression when Hoover stood around and did NOTHING! Now they are rushing in to try to stave off a huge Depression, and it might just work and keep us in a recession. If we had done nothing, as so many free marketers had suggested, then a Depression would have been iinevitable. Bernanke, an avid scholar of the Depression knew this, and that’s why he’s acting today.
The thing about economic downturns is that they are all unique. For example, during the Depression, 25% of the workforce, mostly men, were unemployed. Today it is not likely that that number will get that high. For one thing, there are so many jobs in this nation that go unfilled that many employers seek for workers in Mexico or other countries. If people get hard up enough to take the laborer jobs, the meat cutting, potatoe chip packing, produce picking jobs that have often gone to foreign workers, then unemployment becomes an underemployment issue. At any rate, this recession does not have a serious unemployment problem-yet. That could change soon, though.
Is this financial crisis the worst our country has ever seen? Not today. The time after the Civil War was pretty terrible, especially down in the South. Inflation was as bad as we had ever seen it before.
Since we have seen hard times before, and since inflation may look more on the horizon, what then could the problems be? Deflation would be a good start. The commodity bull market has suddenly halted, and gold has been in a free fall. Will this continue? Many financial gurus do not believe so, even though the charts sure look as though any upward movement is pretty dead. The downward spiral of oil has suddenly made companies shut off their explorations.
It’s unlikely that Saudia Arabia is going to allow their last precious drops to go for anything less than a premium. They have already decided to cut production, and even though Americans are using less fuel, sooner or later the cuts in production will drive the price back up. That, in turn, will spark inflation.
In the meantime, watch this cycle of deflation. Unlike inflation, which seems to always be around, deflation is unusual. Consider that you are truly living in a historic time. That ought to make your day!
