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TMFDeej (99.47)

Still think that this is as bad as the Great Depression

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September 08, 2009 – Comments (31)

Many of the fearmongers out there like to compare what we're going through today to what happened during the Great Depression.  Obviously neither they nor myself are old enough to have lived through that horrible period, so I thought that I would share a nice chart that compares what the job losses were like back then to what they are like today:

Yes the economy is a mess.

Yes the jobs situation will continue to get worse.

Yes the headline jobless number understates the true gloominess of the jobs market.

Yes the government is propping up the jobs number by spending money that we don't have.

Yes the economic recovery will likely be much slower than the optimistic "V" shaped recovery crowd would like everyone to think.

However, to compare what we are going through today to the Great Depression is off base.  Things aren't nearly as bad today as they were back then.  We recovered from it and we will recover from this (even if stocks do appear a little overvalued at this level).

Deej

31 Comments – Post Your Own

#1) On September 08, 2009 at 12:12 PM, goldminingXpert (30.70) wrote:

Just wait, you haven't seen nothing yet. The next plunge will be so deep that it won't be fair to call this a double dip depression as you won't be able to see the first dip without a magnifying glass.

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#2) On September 08, 2009 at 12:18 PM, rd80 (99.11) wrote:

So far it's not even as bad as the late-70's / early -80's stagflation.  Unemployment was higher back then and we had double digit inflation.

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#3) On September 08, 2009 at 12:18 PM, russiangambit (29.94) wrote:

You know, the unemployment rate is really closer to 20% don't you? Also, they didn't have food stumps and unemployement benefits back then. The Congress will not dare not to extend the benefits because while they are denying the truth, deep down they know it.

I think it is as bad as a Depression it is just we started falling from much higher position this time so we haven't reached the rock bottom ( yet), but the fall is as deep as back then.

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#4) On September 08, 2009 at 12:24 PM, TMFKris (90.70) wrote:

Just thinking off the top of my head, the quality of unemployment in the Depression and now could be different for several reasons: not as much of a social safety net back then; families (with whom you can live and share bills) are more dispersed now; today's workers might have more "extra" expenses they can cut when things go bad (cell phone plans, Netflix subscriptions, gym memberships); cheap food is very available these days; families today have fewer children to support (maybe, I don't know) or fewer children to chip in from working.

 Kris (Motley Fool copyeditor) 

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#5) On September 08, 2009 at 12:28 PM, brickcityman (< 20) wrote:

Funny thing about the human animal...  It seems we are forever trying to make sense of things by comparing them to other things for which we have a complete dataset. 

 

Not suprising I guess since locked inside each of our skulls is nothing more than a really impressive pattern recognition engine coupled with some pesky emotional stuff.  In a sense we are by nature designed to try to make sense of the unknown by drawing comparisons to the familiar.

 

If "hey at least its better than the depression" makes you feel better, then I won't try to deny you that...  But to me that's hollow solace.

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#6) On September 08, 2009 at 1:04 PM, TMFDeej (99.47) wrote:

Russian, please read my post:

"Yes the headline jobless number understates the true gloominess of the jobs market."

Deej

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#7) On September 08, 2009 at 1:08 PM, TMFDeej (99.47) wrote:

Hi Mr. Brick.  History doesn't necessarily repeat itself, but it often rhymes.  People who forget about the past are doomed to repeat their mistakes.  As an amature history buff I believe that people frequently underestimate what can be learned from looking at the past.

I'd love to hear your thoughts on where the economy is headed and why and how you are investing or preparing for the future.

Deej

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#8) On September 08, 2009 at 1:11 PM, GeneralDemon (21.97) wrote:

"Obviously neither they nor myself are old enough to have lived through that horrible period"

All you have to be is about 82 years old to remember the worst part - so you are wrong about that. 

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#9) On September 08, 2009 at 1:29 PM, RonChapmanJr (98.37) wrote:

"We recovered from it and we will recover from this"

That is a complete guess.  You have no idea whether the US will ever recover from this.  I wish there was information on how many people throughout history who were in a society that was collapsing thought they were not. 

As I have said before in response to your blogs, it is better to be prepared for a collapse and then for one not to occur, than to think everything is going to be fine and something bad happen.

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#10) On September 08, 2009 at 1:38 PM, davejh23 (< 20) wrote:

Non-farm unemployment was terrible during the great depression, but is this really a fair comparison?  What percentage of the population worked in non-farm jobs at that point?  I know that all of my family still worked family farms during the depression.  For them, life went on...it was not anything like life in the city.  Your graph shows a very stark contrast, but since it excludes farm workers that didn't face similar struggles, it doesn't show a fair comparison in actual struggles between then and now.  Adjust this to include farm workers and the great depression line looks quite a bit more moderate.  Adjust the present line to reflect U6 unemployment and to include welfare recipients that are essentially unemployed and the current line looks quite a bit worse (20%+ unemployment)...however, the percentage change wouldn't be quite as bad, because we've had millions of welfare unemployed for some time now.  Current unemployment, including welfare recipients, is approaching the peak of overall unemployment during the Depression.  1 in 9 families receives food-stamps as well.  Just because you don't see soup lines doesn't mean people aren't struggling today.

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#11) On September 08, 2009 at 1:42 PM, brickcityman (< 20) wrote:

@ deej

 

I'm not saying that history isn't illustrative, to the contrary I think its all to often repeated.  Whether its asset price bubbles or the fashionable acceptance of "member's only" jackets we seem to be inclined to keep making the same stupid choices.

 

My point was more along the lines of trying to be concious of how much perceived patterns drive our decision making...  All too often I think people expect that they can foretell the future if only they can find the right analogous event with which to draw a comparison.

 

In this present case so many would seem to want use the "we avoided another great depression" rationale to buttress arguments for why stock valuations are appropriate.  But to me its complete bupkis.  For one thing there are always externalities that bring randomness to the equation (for example we've not had any major agricultural disruptions), so drawing comparisons is extremely difficult...  Also the points others have made about the changes in socio-economic safety-nets is well worth dwelling on. 

 

As for my personal opinion about where we are going...   Barring any major externalities I think we are about due for a major sector rotation...  I think people will start to flea financial names, and the impetus for this will be attempts at populist-based reciprocity against the major bailout recipients. 

 

As for where they (buyers) will go, right now I don't care all that much...  Becuase I also think any attempts at rotation now might tend to have a detrimental effect on the market as a whole, and if this coupled with enough bad news the overall trend will be down.

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#12) On September 08, 2009 at 2:02 PM, brickcityman (< 20) wrote:

@ deej again

 

I failed to answer all of your question...

 

As for how I'm preparing...  I've taken steps to capture profits in both my 401K and "play money" portfolios.  I've also taken steps to largely insulate my 401K value from a downtrend in the market (reduced my exposure to roughly 25%) while positioning my "play money" portfolio to benefit from such a downtrend. 

 

Who knows I may end up running the same playbook I did over the last year...  I initially started out with virtually no exposure to the market... scaled into various things late last fall and early this year (was ~100% in by Feb/March), and have since largely scaled my way back out.

 

Apart from that I've take some steps to secure additional credit facilities for "just in case" purposes.

 

I'm not stocking up on spam and bullets or anything like that...  Because I figure the need to do something like that will not be a sudden thing....

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#13) On September 08, 2009 at 2:39 PM, cthomas1017 (39.66) wrote:

Excellent post, deej.  Here's a chart that shows similarities between the Great Depression and now... http://www.gold-eagle.com/editorials_08/images/summers080309a.gif

I don't agree with your conclusion that we're not headed into a depression, but you've given a very credible piece of "food for thought".  Bravo for your post! +! Rec. :)

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#14) On September 08, 2009 at 3:01 PM, TMFDeej (99.47) wrote:

GeneralDemon , I'm well aware of when the Great Depression happened.  Are you 82 years-old?  How many 80 year-olds do you know who regularly read or write blogs.  I know none.  That was my point, not that it is physically impossible to have been alive during that time period.  Furthermore, how many people who are less than five years-old actually know what's going on in the world.  To be on one's low 80's at this point, that's how old one would have had to have been back then.

Deej

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#15) On September 08, 2009 at 3:04 PM, eldemonio (98.81) wrote:

dave,

I agree, farmers had it made during the Great Depression.  With the Dust Bowl, farmers didn't have to worry about the high crop loss that can result from over-irrigating crops.  The falling farm prices also encouraged farmers to sell more for less, and everybody knows that selling more for less is good.      

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#16) On September 08, 2009 at 3:04 PM, TMFDeej (99.47) wrote:

You're absolutely right, Ron.  I really, really need to prepare for the collapse of society.  Say you don't happen to know of any for-profit websites that could show me how to buy a survival manual for when society completely breaks down do you?  Oh yeah, you run one.  Not that you have a vested interest in convincing people that things are worse than they really are or anything like that.

Deej

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#17) On September 08, 2009 at 3:11 PM, TMFDeej (99.47) wrote:

Dave, life on the farm was far from a walk in the park during the Great Depression.  One of the worst periods of time in history for the American farmer, or at least a decent chunk of them...The Dust Bowl happened dueing the 1930s.  I just watched a special on the History channel about it several weeks ago and I have read about it some. 

Now that was some HORRIBLE stuff.  Anyone who thinks that they have it bad right now should look at what the poor people had to endure during the dust bowl, which lasted for a freaking decade, had to put up with.  I suspect that their whining would stop fairly quickly.

Deej

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#18) On September 08, 2009 at 3:16 PM, TMFDeej (99.47) wrote:

A prosperous farm circa 1936.  Every time I think about the Dust Bowl I get sick to my stomach.  The horrors that the people, particularly the children, had to go through back then are mind boggling.

Deej

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#19) On September 08, 2009 at 3:36 PM, catoismymotor (72.81) wrote:

Thousands of children died from dust pneumonia, soil in the lungs. The poor kids drowned from mud in their lungs.

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#20) On September 08, 2009 at 4:47 PM, kaskoosek (97.72) wrote:

it was going to be a recession.

 

Now it is stagflation baby. 

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#21) On September 08, 2009 at 4:52 PM, leohaas (91.57) wrote:

Deej,

Thank you so much for posting this picture. It says more than a thousand words.

I was not around during the Great Depression, but remember the stories my grandparents used to tell. OK, that is anecdotal, but nevertheless, today's stories are in a different league.

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#22) On September 08, 2009 at 10:38 PM, alstry (35.70) wrote:

DEEJ GET BENT OVER BY MISH??????

http://globaleconomicanalysis.blogspot.com/2009/09/depression-debate-is-this-depression.html

WOW.......LOTS OF PRETTY CHARTS TOO.

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#23) On September 08, 2009 at 10:59 PM, awallejr (80.13) wrote:

People do forget that we suffered a decade long "dust bowl" as well back then.

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#24) On September 08, 2009 at 11:24 PM, QualityPicks (34.50) wrote:

I have to agree and disagree. I think we are in worst shape fundamentally that we were in the great depression. The debt to income and GDP is way worse now. The government is on a path to bankruptcy, but for some reason nobody seems to care at this point.

But yeah, in the terms of how much home values and the stock market has corrected and almost everything has corrected only a portion of what it did in the Great Depression.

So, does that mean the worst is yet to come? I believe so, but not until everybody realizes for sure that the US government will not be able to pay its debt. I'm not sure how long until that happens.

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#25) On September 09, 2009 at 1:45 AM, StrongTrader (< 20) wrote:

No this is definitely not the same as Great Depression.

1) We were actually producing back then compared to pure consumption today.

2) We were still under gold reserver

3) The Federal Reserve system isn't as out of control as they are today.

4) Our debt level now is nothing compared to the 1930s

5) During the 1930s, the stock market wasn't as widely practiced because it was more of a "rich mans game" back then. It wasn't as accessible to everyone back then as it is today.

So you are right. Great Depression wasn't similar to today's situation. But it is still too early to dismiss that what we are going through right now can be worse than the 1930s.

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#26) On September 09, 2009 at 6:36 AM, TMFDeej (99.47) wrote:

Alsty, I tried reading Mish's blog once or twice, but his crappy site kept making the browser of whatever computer I used to access it freeze up.  From what little I have read of his, he seems to be frequently off base but always certain that he's not.

Deej

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#27) On September 09, 2009 at 7:21 AM, Mark910 (< 20) wrote:

That graph compares todays "uneployment rate" , a subset of the actual jobless number to a subset of the jobless back then.  For instance recent numbers sjow the actual jobless rate in CA to be 40%.  Non-farm means a totally different thing in todays economy.  I am not saying its worse today, I am just saying that graph tells me nothing.  Show me a graph of people with no jobs then vs people with no jobs now and you might convince me. 

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#28) On September 09, 2009 at 8:59 AM, ryanalexanderson (< 20) wrote:

Regarding the Dust Bowl, it's a bit eerie how that may occur again, thanks to climate change (man-made or otherwise). The Canadian Prairies have been dealing with that this summer, and Australia has been dealing with it for years.

No reason to believe the climate upheaval will stop anytime soon, and previously arable lands will become unusable. New ones may become usable eventually. But yeah, another Dust Bowl could easily be occurring.

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#29) On September 09, 2009 at 12:38 PM, ayekappy (< 20) wrote:

Deej: That stinks!  Because I visited Mish's site and it didn't give me any trouble.  What a coincidence that a site that uses your same graph and makes fun of it would also be the site to freeze up your browser.

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#30) On September 14, 2009 at 5:47 AM, mgiv (99.54) wrote:

Sorry if someone mentioned this already as I have not gone through all of the comments. I recommend you check this link out  A Tale of Two Depressions

These economists are convinced things have deteriorated much more rapidly than the great depression.  So is this worse?  The crash of 1987, recession of 1992, 2002 felt like a mild cold compared to this.  We are in an extremely contagious carcinogenic bronchitis.

 

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#31) On September 14, 2009 at 5:49 AM, mgiv (99.54) wrote:

also I've noticed the media warming up to the use of depression.  Happens first on the internet.  TV will be last.  When TV finally warms up to saying it.  go all in.

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