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XMFSinchiruna (26.56)

It's Different This Time Around!



August 19, 2009 – Comments (12)

I'm considering witing an article with the above proposed title, and would like to see how some of you react to the phrase first.

Personally, I'm far more interested in how our present predicament differs from historical case studies than how it resembles them. Comparing disparate events carries an inherent risk, whereby even one misconstrued correlation can render the comparison faulty ... and therefore the conclusions drawn from it potentially misleading. Contrasting our predicament against those same case studies, meanwhile, can glean valuable insight without attempts to leap directly to some hasty projection of what we can expect to come as comparative analyses commonly set out to do.

I suppose, however, that I would find the greatest value in a macroeconomic analysis that simultaneously compares and contrasts elements of our predicament with myriad historical cases, drawing from the well of history for insight one item at a time, and progressing to conclusions carefully only after amassing a wealth of observations.

Here's where you come in, Fools. While I have made it my mission to think along these lines throughout the crisis -- as I've observed isolated characteristics of the event and sought to place each of them within a boader context -- I'd like to know your thoughts on this complex question.

Throughout your quest to make sense of what is transpiring (a quest we have all been forced to undertake in one form or another), what specific parallels or contrasts have jumped out at you personally?  Again, because so much has been made of comparisons to Great Depression One, Japan, Weimar Germany, and even such vastly disparate events as the dot-com bubble or the 1970s inflationary event, I am more keenly interested in your take on ways in which specific historical events contrast to our predicament. They are many ... I believe the ways in which these events are utterly unprecedented will be shown in the final analysis to far outnumber the parallels that can be neatly drawn.

While listening to Bernanke, Paulson, Geithner, Frank, Bush, Obama or any of these guys portraying a response strategy that is entirely under control and proving effective in diminishing systemic risk, I continually sense that their confidence is merely an aire ... and that truthfully they're lost in an unknown wilderness with no familiar landmarks to guide them. I ascribe the complete failure of their collective responses to address the root causes of the crisis in part to this absence of a relevant map. Weimar and Zimbabwe may stand as stark reminders of potential consequences of their approach, and yet they continue down that road as if it's the only path they can find. A gold standard constrained the scale of potential fiscal response to Great Depression One, at least until Roosevelt removed that obstacle to increased spending. I've encountered too many diverse intepretations of Japan's experiences to permit simple comparing or contrasting, though to date I have considered many comparisons between our present experiences and those of Japan rather unconvincing. My own research has focused more heavily upon Great Depression One, and unfortunately I find that where our two Great Depressions differ materially, it is generally in ways that lead me to anticipate an event of much larger proportions this time around. It is, after all, different this time around. 

Food for thought:

Bernanke recently exclaimed: "I was not going to be the Federal Reserve Chairman who presided over the second Great Depression". Meanwhile, this Fool imagines him qualifying the statement in his own head: "Leaving it for the next guy seemed a far superior option".

12 Comments – Post Your Own

#1) On August 19, 2009 at 3:55 PM, 4everlost (28.99) wrote:

Rec #5 from me.

Don't forget that our fearless leaders are also thinking "it can't happen here..."

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#2) On August 19, 2009 at 4:07 PM, starbucks4ever (91.97) wrote:

You are right. It IS different this time.

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#3) On August 19, 2009 at 4:29 PM, portefeuille (98.81) wrote:

well, let's see whether it is different now. maybe it is just 87 again ...


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#4) On August 19, 2009 at 4:40 PM, Entrepreneur58 (37.76) wrote:

You missed the collapse of the Soviet Union.  That is what we should be compared with in my opinion.  Here's why.

In simple terms, an economy has to incentivize as many of it's citizens as possible to produce more than they consume.

The Soviet economy did not do this.  Hard work earned you nothing.  People worked as little as possible.  The system failed.

The US is going down a similar but different path.  All of our economic policies are geared to promote consumtion of goods and services.  Low interest rates, easy credit, steady erosion of the dollar - all of these promote spending money we haven't yet earned by producing something.   We worked harder than the Soviets, but we still consumed more than we produced.  Our system is now failing also, just like the Soviet system because it is unsustainable. 

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#5) On August 19, 2009 at 4:45 PM, ReadEmAnWeep (86.41) wrote:

Is it different this time. It is always different than before. I think it is much easier to compare what things were similar. It is harder to talk about differences, just because there is practically an unlimited number of responses for any point in history.


 Also, I wouldn't know what you are trying to look for.




Now people are more immediately fed information. So drops will probably be quicker than back then.


I think that now, because of 401k and such, there are so many more people involved in the markets. There are many more uneducated people. I think back then it was people who where more deeply involved in the market and speculation. But the last crash is actually similar (I guess all bubbles are) where prices look like they will keep going up forever, then when they don't everyone freaks out.


One big difference is that we haven't been hit as physically hard as they did. I mean unemployment went up but it isn't near what they had.


Another thing about the great depression was the trouble farmers had and that affect on food. So much was involved in this but basically, for what ever reason there was a shortage on farmers for a while and so we started importing food such as ham from Europe to feed us. Then farm tractors were also being invented around the same time. This was both good and bad for that industry. A few people could now till/cultivate lots of land instead of lots of people tilling/cultivating less land. So they were able to produce more, but they also let lots of people go. Then due to the sudden increase in supply from the US farmers with tractors and the European imports the price plummeted. So now US farmer started losing farms to the banks. On top of the price falling the US also went through a period coined the "dust bowl" which also massively affected farmers in the negative sense. So after most farmers lost everything, we now have a shortage of food. And that is why so many people were going hungry at the time. Fortunately that isn't happening now. (See the grapes of wrath on this one)


Also, right now for what ever reason I think the general sentiment in America is the feeling/desire for instant gratification and also that that they shouldn’t have to work hard.


Also, we are in the middle of a war. Back then they were between wars.


Swineflu? Except I think the flu pandemic was 1918, so relatively close.


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#6) On August 19, 2009 at 4:59 PM, ReadEmAnWeep (86.41) wrote:

"The US is going down a similar but different path.  All of our economic policies are geared to promote consumtion of goods and services.  Low interest rates, easy credit, steady erosion of the dollar - all of these promote spending money we haven't yet earned by producing something.   We worked harder than the Soviets, but we still consumed more than we produced.  Our system is now failing also, just like the Soviet system because it is unsustainable.  "

 That is a really good point. I think that this nails it better than my "Everyone is lazy" thought. Because, if you think about it people actually have to work hard over here. "Full time" in America is 40 hours a week. In Europe, I think it is 32 or 36. The thing is that no one works just 40 hrs. over here. The vast majority of people work somewhere between 50-70 hrs.

It is because people do not what to live within their means. They don't want to save up for anything. They are always hungry for the new Iphone, big-screen tv, or car. They want it now, they can't affort it, so they get it financed. That's just the American culture.

That is another difference. The "culture" right now is to get everything you want and just take out debt to pay for it. Back then, and until very recently, people didn't do this. So now, when people loss their income they lose everything.


As  Entrepreneur58 mentions, people have incentive to work over here. In a communist society, there is no incentive to work. Educated people are the first to see this in leave, mostly becuase their wage would be much higher elsewhere. Why would a doctor stay, when he can get so much more somewhere else? That is why they had to build the Berlin Wall. To keep people in.

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#7) On August 19, 2009 at 7:16 PM, Tastylunch (28.69) wrote:

It's different this time just like it is everytime!

Wait doesn't that mean it's the same ? ;)

Great Depression One, Japan, Weimar Germany, 

I persnally think the two best parrallels I've seen are japan 1989 if you are a deflationist and Argentina 1999 ish if you are inflationist. But even those have some key differences from now.

Human behavior may never change but that doesn't mena some of the details of the event can't be different, the key I suppose is to know which details determine the direction of the outcome

Sinchi I'm sure you are fmailair with itulip, I personally think they ahve the bets explanation of why we may gte runaway train inflation.

As you can guess I'm unsure of which we'll actually get. I change my mind almost daily it's very very hard to get a read on.

All Ic an sya for certain is that I'm most defintiely experiencing deflation at my day job. Credit is tight, rent is falling and my inventory repurchases as getting cheaper by the week.

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#8) On August 20, 2009 at 9:39 AM, XMFSinchiruna (26.56) wrote:


A fascinating parallel ... well done! 


Actually, you'd be surprised ... the 1929 crash was preceded by a massive increase in the number of Americans involved in the equity markets. Since the creation of the Fed in 1913, people quickly pushed prior crises out of their minds and took delight in a very successful post-WWI equity run. By 1928, the equity markets were popular conceived as the "can't lose" path to riches the way home ownership came to be conceived here through 2007.

One big difference is that we haven't been hit as physically hard as they did. Not yet anyway! It's still just 1930 or so.

Fortunately that isn't happening now. Are you sure? Remember the rice shortages last year when commodity prices caught fire? Sugar supplies are in trouble. Monsanto just dropped a huge bomb on farmers in the form of a 42% increase in the price of seeds! When Iceland's economy crashed last year, store shelves were bare within days as the nation lacked the credit to import goods. While none of these are identical to a dust bowl event, they do offer interesting parallels.



As you can guess I'm unsure of which we'll actually get. I change my mind almost daily it's very very hard to get a read on. There's no need for confusion, really. The fatal mistake people make is in viewing the two as mutually exclusive, when in fact they can be completely separate and coincident phenomena. Falling prices, especially on non-essential goods and services, can indeed continue well into a currency-led inflationary event that occurs regardless of economic circumstances.


Thanks to everyone for your thoughts and discussion!

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#9) On August 20, 2009 at 9:54 AM, wno (< 20) wrote:

Same but different...

For the last couple of years I've been having that feeling that I've been here before.  Although, I think here is much closer to 1980 than the great depression.  In the late 1970's, actions by OPEC artificially increased the price of oil and disrupted the US economy.  Results were high inflation, high unemployment, significant bank failures.

The similarities are 1) a banking crisis (though California and Florida this time instead of Texas), 2) massive increases in commodity prices (especially oil), 3) the end of a generally incompetent US presidents term, 4)Heavy doses of Keynesian spending policy were/are employed to acheive economic recovery.

The differences: 1) cause of the financial crisis (speculation in oil development changed for housing bubble), 2) commodity prices driven by increase in demand instead of reduction of supply, 3) main pain was felt in the oil production states previously and will be felt in CA and FL this time, 4) Reagan's "optimism" pulled us out of the 1980's and looking for Obama's "change" to pull us out this time.

 We are currently seeing relatively high levels of bank failure.  Unemployment will likely continue to rise to 10% or so.  The jury is still out on inflation.

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#10) On August 20, 2009 at 12:14 PM, vtBrunson (29.29) wrote:

What is different this time is our (over) confidence that we can "solve" this crisis has increased (we've had "crashes" before, we have data about those crashes and we can analyze what we think went wrong and stop that from happening again)

We think we are smarter this time around 

This is folly IMHO.

Whenever I hear about a new program,bailout, stress test, or statement that "everything is O.K." ...I get the vision of Frank Drebon saying "Please Disperse... nothing to see here"


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#11) On August 20, 2009 at 12:24 PM, richthegeek (< 20) wrote:

I think some of the differences between our current situation and '29 have to do with work ethic, erosion of our industry, and overuse of credit.

Yes- many of us do work more hours than we used to, but there are many who don't. Back then there was a prideful independence that kept many from just accepting handouts, but I don't think that exists anymore. I know several people who have lost their jobs and are taking time off while they live on unemployment comp.

I also think our industry is slowly erroding - we are producing fewer real goods and shifting toward a service economy. I see first hand how the design and manufacturing work is all going overseas. At least in '29 we made what we consumed.

The biggest difference I see is the reliance upon credit. Until recently - I'm guessing around the 80s - people saw something in a store window then went home to save for it. Now they pull out the plastic.

The problem is that it's too easy to live outside of ones budget that way. We do that on an individual level and we do that as a nation. Pulling us back within our means is painful on a personal level and impossible on a national one - to try to balance the budget is political suicide.

It's those differences between now and '29 - particularly the reliance on credit - that make me think that this time it's serious.

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#12) On August 21, 2009 at 12:34 AM, stiggf (< 20) wrote:

ha ha cramer is funny in this clip

watch this cramer clip/...what a fool

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