The economic trends at the beginning of the year could be called “promising” and current trends could be looked upon as “not-so-great.” Some still find hope that the economy will soon recover, but when recent trends are compared with ones during the Great Depression it gets a little too close for comfort.
Last Friday stocks were 34.7% below the all time high in October 2007. In order to reach levels of the Great Depression, it would need to fall another 78.8%. While it may seem highly unlikely and certainly unexpected, 1938 wasn’t expected either.
The economy was recovering in 1937 — perhaps like the “V” shaped recovery we heard about. But soon fell in 1938. Historians refer to it as, “the recession within the Depression.” The drop was so severe that, without the context of the 30’s, would qualify as a depression in and of itself.
The drop was caused by certain policy decisions. Consumers were hit with new taxes from the recent institution of the Social Security program. The Fed tightened, raising reserve requirements. And FDR cut government spending because he was worried about deficits. At the same time his administration was increasing its anti-business regulations and rhetoric.
Donald Lunskin with the Wall Street Journal explains:
Sound familiar? We’re repeating some of the same mistakes right now, even as fears of a “double dip” recession mount. Antibusiness rhetoric from the Obama administration is at toxic levels, and the pending Dodd-Frank financial reform bill is the harshest regulatory initiative in a generation. Taxes are set to rise [link], to support new social spending such as health-care reform, and if for no other reason because no one will stop the expiration at the end of this year of the 2003 Bush tax cuts.” –Donald Lunskin with The Wall Street Journal, July 9, 2010
While Journalists right now call this the “V-shaped” recovery, perhaps in few months they’ll be calling it the “W-shaped” recovery, if there is a recovery in a few months. But hopefully we won’t be calling our economic status an “L-shaped” market.
Source: The Wall Street Journal quoting Trend Macrolytics
Need I say more? All government must do is take their policy marker and fill in the rest. How far will we let them go before we have another Great Depression on our hands? How long will we let our government forget history? How much time will we give them to repeat it?
I know, it sounds depressing (pun to point.) We follow the old trends so closely it’s scary, but we don’t have to finish the chart. Will we look at the numbers, see the gloom and do nothing to stop it? Will we sit idle while our government finishes the chart? Absolutely not. How can we? After all, we are Americans. Do not let apathy or despair be our assassin.