The Dow suffered another 680 point drop today.
The Dow has fallen 39% from the all-time high hit one year ago today.
Shares of GM were down by 31%. Energy and financial stocks also booked deep losses. Morgan Stanley dropped by 26%. Exxon Mobil shares fell 12%
The Chicago Board Options Exchange Volatility Index (VIX) surged 11% to 63.57 an all time high and up 10 points since Monday, which also was an all time high.
So I’ll ask the question are we in a recession which is going to lead to the second great depression?
First step is to read about the great depression, since I’m old but not that old, and for that I turned to Wikipedia.
Here is what they had to say about the great depression in part:
“””””””””””””””””The Great Depression was a worldwide economic downturn starting in most places in 1929 and ending at different times in the 1930s or early 1940s for different countries. It was the largest and most important economic depression in modern history, and is used in the 21st century as a benchmark on how far the world’s economy can fall.
The Great Depression originated in the United States; historians most often use as a starting date the stock market crash on October 29, 1929, known as Black Tuesday.
The end of the depression in the U.S. is associated with the onset of WW II, beginning around 1939.
The Great Depression was not a sudden total collapse.
The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929.
Together, government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the previous year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the northern summer of 1930.
Even shortly after the Wall Street Crash of 1929, optimism persisted. John D. Rockefeller said that “These are days when many are discouraged. In the 93 years of my life, depressions have come and gone. Prosperity has always returned and will again
Debt is seen as one of the causes of the Great Depression, particularly in the US
In the 1920s, American consumers and businesses relied on cheap credit, the former to purchase consumer goods such as automobiles and furniture, and the latter for capital investment to increase production.
This fueled strong short-term growth but created consumer and commercial debt.
People and businesses who were deeply in debt when price deflation occurred or demand for their product decreased often risked default.
Many drastically cut current spending to keep up time payments, thus lowering demand for new products.
Businesses began to fail as construction work and factory orders plunged.
Massive layoffs occurred, resulting in US unemployment rates of over 25% by 1933. Banks which had financed this debt began to fail as debtors defaulted on debt and depositors attempted to withdraw their deposits en masse, triggering multiple bank runs.
Government guarantees and Federal Reserve banking regulations to prevent such panics were ineffective or not used. Bank failures led to the loss of billions of dollars in assets. Outstanding debts became heavier, because prices and incomes fell by 20–50% but the debts remained at the same dollar amount. After the panic of 1929, and during the first 10 months of 1930, 744 US banks failed. (In all, 9,000 banks failed during the 1930s). By 1933, depositors had lost $140 billion in deposits.
With future profits looking poor, capital investment and construction slowed or completely ceased. In the face of bad loans and worsening future prospects, the surviving banks became even more conservative in their lending.
Banks built up their capital reserves and made fewer loans, which intensified deflationary pressures. A vicious cycle developed and the downward spiral accelerated. This kind of self-aggravating process may have turned a 1930 recession into a 1933 great depression.””””””””””””””””
Ok so we have easy credit, overspending in the 1920’s which lead to bank failures, negative equity, and massive job losses which lead to no credit available in the 1930’s.
Sound familiar?
One final thing made the Great Depression so great during the time between the election of 1932 and the inauguration when no one was really in charge, tremendous damage was done.
The outgoing president, Hoover, asked his successor designate, Franklin Roosevelt, to cooperate with him on joint statements and policies, but FDR refused to do so. Meanwhile, the banking crisis deepened. Corporations failed.
The economy was allowed to spiral downward.
It was this disaster that led us to amend the constitution to shorten the time between presidential election and inauguration from 4 to 2½ months.
So the most important factor whether there this recession will become a depression, will depend on how effective the new president works with the outgoing Bush.
Personally no one knows where the bottom of this economy will be.
All we can do is hope, pray and make good decisions for ourselves and our family.
But you got to admit the similarities are scary.
Ok, I’ll put my neck on the line. Yes, but we can better manage our way out of it this time. Crisis will always occur, it depends on how we handle the conditions that surround it. No matter how badly this gets for the world economy it bodes well for the internet. Inefficiency becomes efficiency and the web is better positioned to withstand the turmoil. After all, that is why it was originally created in the first place.
All the tech. we have now will help make faster corrections to all markets…I think alot of globalization will go away…also, there are more ways to make money now than in the 1st depression.
It wouldn’t hurt to cut back on all the gadgets and luxuries anyway.
Tim, i dont think you realize how bad it will be. The amount of wealth that was and is lost, is mind bogling
. We talking about outstanding 50 billion dollars only on credit swaps aka shadow economy or in other words insurance that is not secured by assets, if those collapse. And some already did (lehman brothers held a lot of those), we are screwed royally. We already screwed, but the problem with you logic that we have more technoly, is also we have a lot more to lose. reason why this happened was all the teach, the complex derivatives, that on paper removed risk. I seen those in graduate school, those formulas are worthless now.
We have a lot more complex infrastructure then in 30s, and when that infrastructure begins to colapse under its own weight, what happens? The bigger they are the harder they fall. Our debt, or financial instruments were Rudimentary compared to what we have now. We also have accumulate a lot more wealth, so we have a lot more to lose.
We are no where near bottom yet, i mentioned on some other domaining site, where people were waiting for the next bubble. Haha, next bubble, we might not have next bubble.
I don’t know what happens, where such complex economy implodes. 30s had nothing on what we have now. Are we heading for depression? Question is, is there anything worse then depression?
We didn’t have the FDIC in the 1920s. We had the government do nothing for too long. We didn’t have “the great depression” to study and learn from. We didn’t have a federal reserve chairman who had studied it extensively.
However this one plays out, it will play out much faster. Depression? Perhaps. For 10 years? No.
Self-preservation is the operative word. Making plans now can save you a lot of anguish later.
Cut unnecessary expenses immediately. Make a run or two to Costco and stock up on essentials for 6-12 months or whatever is your personal comfort zone. Prices are going to go up, so you will be glad you have things on hand.
Buy some firewood, propane, flashlights, batteries etc…
Prepare for an emergency. Stash some cash. Buy a bike. Buy a safe and keep copies of all important records in triplicate (at least) in different locations.
Talk to friends, relatives and co-workers about their level of preparedness and create communities so that you have people to rely on.
In the worst case, you are a few steps ahead of the curve, and in the best case you donate the extra stuff to a food pantry and make a deposit in your bank account 9 months from now.
I think there is no harm in being prepared.
Kelly, good points. I havent thought about preparing on that level, but you make a good point. Food , water, firearms (just saying) .
Lets hope it doesn’t come down to the worst case scenario.
I wouldn’t worry about the next bubble.
Another important difference between then and now is that home loans at the time generally were for no longer than 5 years; unlike today’s 30 years.
Because all the lending institutions of the time wanted their money back on these balloon loans as they came, few rolled them over or made new home loans.
As bad as the housing market is today; it pales compared to how it was back then.
Combine this critical factor with all the layoffs, a hands off approach by the fed & state govs, massive bank failures (far, far more than today), and a virtually complete freeze in credit/loans, and the country (and rest of the industrial world) was far worse off than today…or tomorrow…or over the next few years.
Yes; we’re in a recession (something we come out of regularly); but a depression?
It’s not going to happen.
Now, if we want to talk about the mountain of debt we’re all piling on our children, their children, and their children…
…and all those benefit promises both presidential candidates keep making (when was the last time anyone voted for someone who told them “we’re going to take that one away from you”)?
Guess we’ll just take that on their backs, too.
Can they ever forgive us?
Not as extreme as Kelly, but the one positive – people will now reflect on what matters most again in life and lean on that as well, friends, family, time together not gadgets, cellphones, ipods, and tech crap that we all have and think we need.
We are so dang resourceful in this country. Our infrastructure is better. Our bottom should come a bit quicker and maybe less hard but in the information age we have now, I am confident the 18 months it takes (maybe more) to flush to a bottom will feel like 5 years at least…info overload.
What a time to learn, prioritize, and appreciate the words I laughed at when my Grandma told me 10 years ago “make sure you keep your good fortunes in cash (she knew I was doing well) and live lean, it will not last forever (the good times she meant)”…I did not appreciate the fact at the time that she lived through the Great Depression and knew first hand. I never forgot her words, did laugh at them more than once even, but luckily a little bit of it stuck.
As far as the “basic” survival needs are concerned, it really depends on where you stand economically right now.
For many of us, we will be able to make it through pretty well. For the very average Joe it is an entirely different story.
There are people around the world (Iceland!) who were completely caught off guard for this crisis and who wish that they had 6-12 months worth of supplies to rely on…
Everyone’s situation is very different. Most people are stunned that this crisis has even happened at all. So make sure you just plan ahead – just in case.
Here is a very good link. By the way Kelly thanks for heads up, just went and bought some silver “just in case”.
http://www.rgemonitor.com/roubini-monitor/25397
/the_world_is_at_severe_risk_of_a_global_systemic_financial_meltdown_and_a_severe_global_depression
Great flashback into history – also many great responses to the post.
Quick fix. Those swaps, are 50 TRILLIONS ,not billions outstanding. If it was only 50 billion, i wouldnt worry.
Just got more silver.
I would be more then willing to sell my domains on fire sale right now. Because no one will be buying for a long time. We wont see numbers in domains we seen before. People will still buy, but will be willing to pay much smaller amount. Domain or Food…hmmm
We believe there is a 70% probability that we are entering a protracted period of falling asset values for years to come. the classic bear markets are 40 %to 50 % declines. Structural Leverage unwinds such as we are experincing are much deeper.
My past experience as the marketing analyst for the rockefeller foundation and my intuition tells me to tell all of you to exercise caution about panicking. It is the Psychology of bear markets that is most damaging. Try to relax and know that we will all be in the same boat and we all will get through the storm.
I am on record saying it will get much worse. The fallout from all this takes many months to manifest. We have already had a crash and it continues. I think the difference in all this is even if we do have a “depression” it won’t be like 1929. Everything has been accelerated and that will be true of the economic storm we are about to go into. I just don’t think it will last as long. There are more ways to make $$$ today. There are many opportunities. It’s quite different to 1929 and the years following that. So I think it will get much worse, but I also think that we will get out of it faster than back then.
The barometer is unemployment. That tells the story. I think the things to watch for is to see if some retailers COLLAPSE and collapse BEFORE Christmas. I can already tell you that on December 26th and beyond there will be many closings. They are gonna drop like flies and the malls are going to start to look different.
Basically the only thing that can swoop in and help this is the consumer. If the consumer says he don’t care and spends like it is 1999, things could improve. However it is more likely to see a lean Christmas. That is another way to check the pulse of things without the filter of the media.
But there is something else to contend with. Inventories may be high. Most retailers have to order goods in July to get in time for the holidays. In July, things were bad, but not dire. So there is a glut of manufactured inventories all over the place. Retailers may have to discount to COST. To below cost. To whatever it takes to keep the cash flowing. That just feeds into their demise.
Then factor in the folks that just may shop online to save the $$$ from the gas. That further erodes the malls and Main St.
The ecoomy and this post have a lot in common. I could write all day because one thing affects another and another and we are all just scratching the surface of what is an economic avalanche.
I usually have a pretty good handle on where things are going. I admit I am baffled on this one. I am baffled but have been preparing for it for 18 months now. The question is where to you stand to not be caught in the avalanche. Where is the safe ground? THAT is the question yet to be answered.
Enjoy the day. lol….Crash!
It’s true there are many differences between then and now, but I am starting a small consortium of sites dedicated to covering bank runs, depressive economic conditions, and other factors that Americans have been raising as their major concerns.
I think how you feel and what you’re thinking are as important as what really could happen. People realize that some things are far out of kilter and that’s always a dangerous place to be.
I guess I’ll take the contrarian view here.
When everybody is negative and out of the market, that’s the best time to buy. I think all of the comments above mention a negative forecast.
So, where is everyone going to put their money once the confidence returns to the market? Nobody is going to sit on cash for too long. It’s just not the American thing to do.
Honestly, I would not be surprised if we have a 1000 point up day on the Dow and it could come as early as next week.
Look at all the positive things the US government and (for the most part) world government’s are doing to pump up the markets and now oil is under $90 per barrel. Maybe the fixes haven’t worked yet but just wait.
Sure. Things are different and things will be different but, as Rick said, there are always opportunities.
One thing I think we can all agree on is that we are confident in the future of the Internet and domains.
I would encourage people to take a look at Steve Conover’s blog at http://www.optimist123.com
Well thought out economic commentary.
We believe that of all asset classes, the cyber-asset class will be least impacted. Internet addresses on the internet which by definition are the best of locations, which are as close as an internet connection. Location,location,location, There is a reason that internet addresses lead all other asset classes, and the reason is they have earned it.
As Michael Castello pointed out the internet was originally birthed to survive catastrophic turmoil.
We all own and control letters of the alphabet.There has never been a time in history that this was possible , until recent history. There are many money people that lust after our assets , so dont get fooled and give them up easily because of fear. The smart money is right now buying names not dumping them in fear.
The probability of a severe Great Recession went from 70% to 100% after todays low volume sucker rally. Get into cash on any furhther rallies from here. The technical and fundamental underpinnings of this stock market are flashing caution. Just a friendly opinion. Hope I’m wrong but I doubt it.