Decade of The Great Depression

A Short Summary:

It is August 1939 and Americans are still recovering from the Great Depression–the worse nightmare that has ever happened to the United States. For the last ten years, since 1929, this country has experienced total economic collapse. Who could have imagined that this would happen in our modern industrial world?

The Wall Street stock-market crash of 1929 signalled the beginning of this Great Depression, even if it did not actually cause it. Ten years have passed and this economic depression has had devastating effects on most people in this country. Production fell sharply. Unemployment went through the roof. No one had much money, so purchasing declined. Thousands of businesses and hundreds of banks have closed.
We are a country of small farmers, but farmers everywhere have gone into bankruptcy. People lost their jobs, homes, and savings, and now many depend on charity to survive. In 1933, more than 15 million Americans–one-quarter of the nation’s workforce–were unemployed.

the-great-depression-homeless-man

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The Real Unemployment Rate is Closer to 16.5%

Reuters

1930-depression-bread-line-in-nycBy Pedro Nicolaci da Costa

NEW YORK (Reuters) – When economists tell us the current U.S. slump could never turn into another Great Depression, they all point to one thing: one of four Americans was out of work in the 1930s.

But since the definition of joblessness has changed over the years, this expert assessment might be too rosy.

As many as 25 percent of Americans were unemployed during the days of bread lines that symbolized the Depression, but that figure is more than three times the current 6.7 percent unemployment rate, the economists say. Even the most pessimistic estimates only foresee the rate rising barely above 10 percent.

“We are in a very, very different place than the U.S. economy was in the 1930s,” James Poterba, president of the National Bureau of Economic Research told a recent Reuters Summit.

Or are we? Figures collected for Reuters by John Williams, from the electronic newsletter Shadowstats.com, suggest that, while we are not there yet, the comparison is not as outlandish as it might initially seem.

By his count, if unemployment were still tallied the way it was in the 1930s, today’s jobless rate would be closer to 16.5 percent — more than double the stated rate.

“I expect that unemployment in the current downturn, which will be particularly deep and protracted, eventually will rival, if not top, the 25 percent seen in the Great Depression,” Williams said.

He and other critics have one particular sticking point with the current way of measuring unemployment: the treatment of discouraged workers.

Under President Lyndon Johnson, the government decided individuals who had stopped looking for work for more than a year were no longer part of the labor force. This dramatically decreased the jobless rate reported by the government.

“Both part-time workers wanting full-time work and discouraged workers tend to make the unemployment rate lower than it would otherwise be,” says Robert Schenk, professor of economics at St. Joseph’s College, Indiana.

The latest report, due on Friday, is expected to show another month of more than half a million job losses in December, and a jump in the unemployment rate to 7 percent.

However, some economists, including Kenneth Rogoff at Harvard University, now say joblessness could top 11 percent. Under Williams’ methodology, that picture might look much more like the Great Depression.

(Reporting by Pedro Nicolaci da Costa; Editing by Kenneth Barry)

Dollar Hits Two-Year High Against The Euro

“This is just another stage of the credit crisis,” said Birinyi Associates analyst Cleveland Rueckert.

“Now we’re seeing the effects in world economies of the trickle down effect of the last year and a half.”

The sell-off in commodities has hit gold, oil, base metals, sugar and grains and is tied to the soaring dollar. The dollar hit a two-year high against the euro on Wednesday as investors move away from investing in foreign markets and look to the dollar as a safe haven. Whereas earlier in the year many investors hid in commodities pushing prices higher than demand warranted, now there’s a big move to cash, Rueckert said. This hurts dollar-priced commodities, which appear cheaper as the dollar gets stronger.

The euro fell to $1.2886 against the dollar from $1.30, while the pound fell to $1.6208 from $1.6698.

Other currencies are also depreciating as central banks try to inject capital into their financial systems. The United States has been doing the same, but the dollar is still benefiting as a safe-haven play.

Record Drops in Dow

Dow Biggest Point Drops

Dow Jones Biggest Point Drops

Record Drops in Dow and S&P

Monday 09/29/08

Dow      10,365.45    -777.68  (-6.98%)

S&P         1,106.42    -106.85  (-8.81%)

All the major indexes were down more than 6% for the first time since 1998.

Prior to today, the biggest point drops for the Dow and S&P was after the 9/11 attacks in 2001.

The VIX (a volatility index closed at 46.72 Up 11.98 or 34.48%) was at levels not seen since 1998.

Dow biggest point drops

  • 9/17/01 down 685
  • 4/14/00 down 618
  • 10/27/97 down 554
  • 8/31/98 down 513
  • 10/19/87 down 508

S&P biggest point drops

  • 4/14/00 down 83
  • 8/31/98 down 70
  • 10/27/97 down 65
  • 9/15/08 down 59
  • 10/19/87 down 57

NASDAQ biggest point drops

  • 4/14/00 down 356
  • 4/3/00 down 349
  • 4/12/00  down 286
  • 4/10/00  down 258
  • 1/4/00  down 230
© 2008 CNBC.com

Jeremy Siegel: Even in a Bearish Market, Bullish on Stock

In an open discussion with executives in the Securities Industry Institute, Wharton professor Jeremy Siegel examined investment strategies in the current market. Siegel, author of the landmark books Stocks for the Long Run and The Future of Investors, drew upon historical records in making sense of the current downturn.

Based on Siegel’s analysis of data from 1802 to the present, stocks have outperformed every other major asset class — including treasury bills, bonds, and gold — over the entire period, including important sub-periods. A dollar of gold in 1802, for example, would be worth just $2.45 in December 2007 after adjusting for inflation. In contrast $1 invested in stocks would have grown to more than three-quarters of a million dollars. Stocks have delivered 6.8 percent return per year after adjusting for inflation. “It is remarkable how consistent this has been across all long-term periods,” says Siegel, who also teaches in the Investment Strategies and Portfolio Management program for investment professionals and individual investors. “Equities are about the last asset class that you can buy at or near its long-term historical value.”

The gap between stock and bond performance has been widening. While bonds have delivered 3.5 percent returns above inflation over two centuries, returns are going down. Since the end of World War II, bonds have delivered only a 1.7 percent real return per year. Currently Treasury Inflation-Protected Securities (TIPS) have a real return of about 1 percent. Of course, for experienced investors who can recognize values outside the triple-A bond market, there may be opportunities. “Safe bonds are of no value today. They are one of the worst values,” Siegel says. Continue reading