Waiting Hawk, did you see my post on your blog?

I will be one of the first (and few) to predict that we are actually headed for a depression, rather than a recession. I admit this is mostly based on gut feelings (I think my brain tends to shut down when there are too many variables to calculate). At any rate, there is a little method to my madness.

The science behind my prediction is based primarily on the consumption factor of GDP, which is often broken down between personal and public sector consumption. The US is the largest single consumer in the world. Consumption in the US has been “priming the pump” since the dot com bust. Unfortunately, this consumption has been financed largely by housing speculation and cheap loans. This is somewhat similar to the lead-up of the Great Depression.

From Wikipedia:

“Prior to the Great Depression a huge wave of investing in the stock market had taken place which created artificially high prices of stock. This process was driven by the fact that shares were being used as a collateral for loans in order to buy more stocks. When the economy showed signs of slowing and share prices plummeted, this caused an extensive domino effect.”

Some predicted that the dot com bubble would lead us to a depression. This was offset by extremely low loan rates and artificially boosted housing prices. In other words, I think we averted an impending depression after the dot com bust and 9/11 by falsely boosting consumption. And now, in the words of Ward Churchill, the chickens have come home to roost. We are no longer able to consume at our previous levels. The worldwide “pump” will no longer be fed by US consumption.

“I admit this is mostly based on gut feelings”

🙂

We need a real leader. Not one that is not like forest gump.We  have a lot of problems that this leader seems to be ignoring,and it looks like all the problems hit about the same time.Nobody really cares until they lose a job and can't find another one. That is when america will wake up.

rankandfile, I’m 1/2 Italian. I love to listen to my older relatives talk about what it was like during the Great Depression (my grandparents on my mother’s side were Italian immigrants who settled in Boston). Until the last 7-8 years I thought an economic depression like that could never happen again – at least in my lifetime. Anyway, everyone that I’ve talked to that experienced it said that they were poor but they didn’t know they were poor because everyone else was poor. Basically, it doesn’t seem like they were any less happy than people today. It seems like people were a lot more neighborly and down to earth. They would walk everywhere and everyone in the neighborhood knew each other. Crime really didn’t seem to be a major problem either. It wasn’t until the 50’s that the old neighborhood really started to deteriorate and all my relatives moved out to the suburbs. The old neighborhood now is the type of place where you would be afraid of getting shot if you drove through there after dark. So much for progress – it seems like progress has worked in reverse in a lot of our cities.

I think as long as you have the mentality of living within your means and making sound decisions, you’ll survive anything. The thing that does worry me now though is that the social structure of the nation seems a lot weaker. Rather than people helping each other out, I rather think a lot of people would rob and kill each other to try and maintain a faux riche lifestyle. As far as growing your own food, my grandmother did that and it seems like that was very common during the depression. Even city dwellers would grow vegetables on what little land they had. It seems, overall, that city dwellers fared better during the depression than people living in rural areas. Farmers were hit extremely hard.

My grandmother used to talk about a few men that committed suicide. They lost it all when the stock market crashed and were just not psychologically prepared for their illusion of wealth to be taken away. I think the people who fare the best during tough times are the ones who can adapt to change (and are not overly leveraged with debt and high-risk!).

powayseller, my grandfather was a construction worker (specialized in tile floors) and I think his employment situation was pretty up and down. My grandmother worked in a factory making dresses. The older kids provided day care for the younger kids to some extent. When my grandfather died, my grandmother supplemented her income by becoming a bootlegger. She made wine at home (the kids all helped crush grapes in the bathtub) and would host card games at their apartment, selling wine to the patrons. Their pillow cases were old flour sacks. The education level was pretty low and people would do whatever they had to do to put food on the table. A lot of us are much more educated now but I’m not completely sure how that will benefit us other than help us make sound decisions.

One other interesting thing is that people used to put their money in coffee cans and hide or bury them rather then put money in a bank. People did not trust banks. Since deflation was going on, you didn’t need to get any interest on your money! The coffee cans (in that type of deflationary economy) were an effective way to preserve your principal.