Comparisons of the Past

Several experts have recently said that our current economic crisis is unlike any other financial disaster in US history since the Great Depression, which began in 1930 and finally ended in 1954. A good comparison? Sorry, I don't buy it.

Now if my memory serves me correctly, the reason for the onset of the Great Depression can be attributed to just a few cliff notes. Everyday people were able to invest in the stock market due to the increasing use of telecommunications systems and mass urbanization. Investors were able to purchase on margin, often at a 10% rate. Our currency was pegged to an asset which could rise and fall in value - gold. There was literally no federal banking system in place, so people's deposits weren't insured.

When the stock market crashed, people went to withdraw their money from the local bank, and it just wasn't there and neither were their jobs when they got back. Of course, the environmental catastrophe called the Dust Bowl also played a factor. Unemployment at its peak hit around 30%.

While on the surface these two periods in American history can look similar, there are more reasons why they are very different.

Why are they so different? Today it's credit not margin that's killing us. After the roaring 20s, our government was sitting on a huge stockpile of wealth and enjoyed a substantial trade surplus (due to the export of oil and other natural resources). Now, our government is perhaps the largest holder of debit. Instead of being a net exporter, we are a nation that survives primarily from imported goods. Back then, there was no real system in place to regulate the financial industry. Now it's the industry itself that has spawned a legacy of greed through deregulation.

You might say things started looking bad for us around the time of Hurricane Katrina when so many people's lives were devastated never being able to recover. Unlike the Dust Bowl however, environmental disasters like Katrina are the result of a global climate crisis which shows no signs of recovery, not because of over-farming in soil depleted regions.

I guess I could go on, but suffice it to say we are looking at something much larger in scope than the problems faced by previous generations.

Great projects like the Hoover Dam, Mt. Rushmore and the Golden Gate Bridge were built as government projects that employed people and injected money into the the system by providing jobs. Currently, our government is seemingly committed to injecting money it doesn't have anyway (by simply printing, or borrowing more) into the capital market.

Now unlike then, it seems they have committed to bail out mortgage companies Fannie May and Freddie Mac as well as hundreds of banks and investment brokerage firms through the Fed and FDIC. According to this article, total debit could be in the range of 70+ trillion dollars. The FDIC has 54 billion in reserve. Social Security, at most, 11 trillion.

Try to picture this. You're going to the bank to take out all of your money in exchange for cash because credit doesn't look so good anymore. OK sounds good, there's no reason to panic. Now picture everyone doing this at the same time, and in effect shutting down the bank itself. Your bank. OK, still no problem because you'll manage to get some of it back seeing that your deposit is federally insured right? Wrong.

Looks like instead of building great projects and employing people putting wages back into our hands, our tax money is being used instead to bail out the very financial institutions that have played a role in creating this crisis.

Soon there won't be enough money left in our pockets to fuel the huge tanker ships that come from China which supply us with the meaningless trinkets we used to make ourselves.

This time it won't be like the last time and it shows every sign of being dramatically worse. So, until the entire nation wakes up and our government starts actually working for us, we as a nation will continue our perilous journey into uncharted territories.