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We couldn’t be in the “Greater Depression,” could we?

24 Feb

In the Great Depression homeless people built shacks on vacant land that were called "Hoovervilles" in honor of President Hoover. [courtesy Google Images]

In the Great Depression homeless people built shacks on vacant land that were called “Hoovervilles” in honor of President Hoover.
[courtesy Google Images]

In order to understand whether we are or aren’t in an economic depression, we need a definition of the phenomenon that we can compare to our current conditions.

Wikipedia defines “depression” as follows:

 

“In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies.  It is a more severe downturn than a recession, which is seen by some economists as inevitable part of capitalist economy.

“Considered by some economists to be a rare and extreme form of recession, a depression is characterized by its length; by abnormally large increases in unemployment; falls in the availability of credit, often due to some kind of banking or financial crisis; shrinking output as buyers dry up and suppliers cut back on production and investment; large number of bankruptcies including sovereign debt defaults; significantly reduced amounts of trade and commerce, especially international; as well as highly volatile relative currency value fluctuations, most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession.”

ObamaVille? During the Great Recession (and possibly during the Greater Depression) homeless people are pitching tents. [courtesy Google Images]

ObamaVille?
During the Great Recession (and possibly during the Greater Depression) homeless people are pitching tents.
[courtesy Google Images]

That’s a decent definition of “depression”.  It lists objective phenomena that, in sum, can tell us if we are or aren’t in a depressed economy.

But that definition is incomplete because it doesn’t mention the psychological forces that are intrinsic to a true economic depression. The truth is that we’re not really in a depression until the public generally believes we’re in a depression.

For example, we’re told that the Great Depression began with the stock market collapse of A.D. 1929.  We vaguely presume that one day the economy was strong, and then, following the stock market collapse, the national economy slipped instantly into a full-blown depression.  We tend to believe that the economy went suddenly from prosperous to depressed, much like a room goes from light to dark by flipping a light switch.

But that’s not so.   The Great Depression wasn’t a sudden vertical fall from an economic top to an economic bottom.  Instead, it was a slide at, say, a 45-degree angle, that included some significant ups before reaching the final “down”

Because the Great Depression was an up-and-down slide that took several years to reach “bottom,” it wasn’t clear to most Americans that they were in a depression until A.D. 1933.

In retrospect, we agree that the Great Depression started in A.D. 1929.  But, at the time, it took most Americans four more years to agree that there even was a “depression”.  Thus, for the first four years of the “Great Depression,” most Americans weren’t fully aware that they might even be in a depression.

But once most Americans believed the national economy was depressed, it became extremely difficult for government to overcome that belief and cause an economic recovery.  Some people think the Great Depression would’ve lasted 5 to 10 years longer if WWII hadn’t begun and forced a dramatic change in public sentiment.

My point is that, just as many Americans of A.D. 1929 didn’t recognize they were in a depression for up to four years, it’s entirely possible that today’s Americans could also be an economic depression for several years without knowing it.

 

•  Therefore, I’m fascinated by Richard Russell (Dow Theory Letters) who recently wrote,

 

“I hesitate to say this because it’s so extreme, but I believe the world is in a depression. We’re being lied to by a frightened and desperate government and Federal Reserve.  Sooner or later the US public is going to realize that we’re in a depression. The government and the Fed will fight the gathering depression with lies and propaganda. To fight the depression, the Fed will open the money spigots wide, creating new trillions of ‘dollars.’ Some wise investors are aware of all this, which is why gold continues to push higher . . . .”

Richard dared to say the “D-word” four times in five sentences.  That’s very politically incorrect.

He’s not alone.  There are a few other gurus who’ve also dared to say the “D-word”.   While the number of Americans who currently believe we’re in an economic depression are a small minority, their numbers are growing.

But are they right?

Is it possible that ten or twenty years from now, historians will look back and declare that the “Greater Depression” actually began with stock market “crash” of 2008?  If so, you and I aren’t living in a “pre-recovery” economy.  Instead, we may already be several years into the “Greater Depression”—and not yet even know it.

 

Depression Psychology

You might suppose that being in an economic depression without knowing it is impossible.  There should be objective signs and economic indicators (of the sort listed in the Wikipedia’s definition of depression) that can tell us, right now, how to accurately assess our current economy.

But that’s not completely true because an economic depression is determined at least as much by psychology as mathematics.  While we might be able to see the mathematical indicators, we might not be able to see the national psyche.

Being in a depressed economy, without knowing it, is possible because an economic depression is more of a subjective state of mind than an objective state of mathematics.  We’re not really in a depression, until most of the people believe they’re in a depression.  It’s hard for people to accept the belief that we’re in a depression—but once they do, it’s extremely difficult to escape the resulting “depression psychology”.

 

•  Again, much of the public’s understanding of economic depressions is based on the myth that the onset of the Great Depression was sudden and traumatic.  The stock market collapsed, stock-brokers jumped out windows, and OMG!, we were “instantly” in a depression!

As a result, most people today won’t believe they’re in an economic depression unless they see a sudden, painful collapse.  So long as we don’t see a sudden fall in the stock markets and bankers jumping from skyscraper windows (or roofs), we won’t believe that the economy is depressed.  So long as our entry into another depression is characterized by a slow slide over a period of years, most people won’t believe that they’re in a depression until their political leaders finally tell them so.

(Curiously, we did have a stock market “crash” in A.D. 2008 that was at least similar to the stock market crash of A.D. 1929.  I don’t recall any suicidal stock brokers or bankers jumping out of tall buildings in 2008.  But, in the last few months there’ve been reports of somewhere between 5 and 20 people in the global banking community who’ve jumped off of skyscraper roofs or otherwise checked out of the economy . . . permanently.)

Politicians know that an economic depression is much more than mathematics.  They know that an economic depression is, to large degree, psychological.  Therefore, insofar as politicians can manipulate and control the people’s psychological belief in their economic state of affairs, politicians can thereby influence whether we really are or aren’t in a full-blown depression.

 

Usual signs

One of the usual characteristics of a depression is deflation which causes prices to fall and the value of the currency to rise.  Deflation probably causes the most profound psychological change in a depression.

Once people see that their currency is growing in value, they realize that their currency will buy more tomorrow or a year from now, than it will today.  As a result, based on greed, people who have jobs or savings will refuse to spend or go into debt and instead choose to save for the time when they can get the best bargains.

As savings grow, spending declines and there’ll be less production, less credit and less sales.  Unemployment will rise, production will falter, profits will fall.  All economic activity will slow and the depression will grow more severe.  Businesses eager to generate cash flow will cut prices, the currency will become increasingly valuable.

People will worry that they won’t have a job or savings in the future and therefore refuse to spend a dime on anything that’s not absolutely necessary.  People will be increasingly motivated to save and not spend by fear rather than greed.  Once the depression psychology takes hold in the public mindset, it’ll become a kind of self-fulfilling prophecy that feeds on itself as the economy spirals deeper down into inactivity.

 

•  The psychological impact of falling prices (deflation) may be more important than rising mathematical rates of unemployment.  The fact that over 20% of American workers are unemployed may be depressing for them, but it doesn’t have too much effect on the psychology of the other 80% who still have jobs.  Yes, the volume of sales may decline because there are 20% less able-bodied consumers—unless government provides generous welfare for the unemployed so they can continue to purchase necessities.

However, until prices deflate and are generally expected to continue falling for several years into the future, the depression psychology may not take hold and the public can instead be persuaded to believe that they are in, or nearly in, a “recovery”.  Thus, if America was currently on the verge of an economic depression, we could expect leaders like “Helicopter Ben” Bernanke or Janet Yellen to spend every dollar they could print, borrow or steal in order to encourage Americans to borrow and spend and thereby “stimulate” the economy and inflate prices.  If deflation is the disease, inflation is the cure.

 

•  So long as the psychological force of falling prices (deflation) is more conducive to economic depression than rising rates of unemployment, we might even expect our government to spend more of its resources on causing inflation than on curing unemployment.   (If we look back over the past six years, has government spent more on unemployment or inflation?)

What do you suppose the primary purpose for the past six years of “Quantitative Easing” has been, if not to fight the forces of deflation?  Without government subsidies and “stimulation,” would today’s Dow Jones Average still be over 16,000 and near record-high levels?  Or would the Dow—which fell over 50% from 14,163 in A.D. 2007 to 6,594 in A.D. 2009—have fallen further and ultimately matched the 90% stock market fall in the Great Depression?

What did our more recent fall in stock prices indicate?  Deflation.

What does the government-inspired rise in the stock markets indicate?  Inflation.

Unemployment is mathematically bad, but deflation is psychologically worse.  Once people believe that prices are generally falling and likely to continue doing so, they’ll refuse to spend and the economy will grind towards a halt.

 

Government lies

Trying to determine if we are or aren’t in a depression is difficult because government understands that public psychology may be the most important element of depression.  Therefore, in order to maintain public confidence in the economy, government will lie by staunchly denying that a depression exists or is even possible.  Unlike Richard Russell, government will almost never officially say the “D-word”—even though the mathematics indicate that we are in a depression.  The public can’t be told because they’ll overreact and slip into the depression psychology.

In fact, if I had to distinguish between a recession and a depression, I’d say that a recession and depression were almost identical on a mathematical basis—but the depression alone was characterized by “depression psychology” of fear and an expectation of falling prices.

Government might admit to having been in a recession, but will insist that official data proves that recession is over and gave way to a recovery.  Insofar as the people believe that the Great Depression was caused by the stock market collapse of A.D. 1929, government will provide sufficient capital to keep today’s stock market afloat.  I.e., so long as the stock markets are high, the public is less likely to believe we’re in a depression.  So long as most Americans don’t know or believe that the economy is in a depression, the people won’t “panic”; the people won’t choose to save and will instead continue to borrow and spend. That borrowing and spending will “stimulate” economic activity and the depression may be avoided, or at least postponed.

By preventing the “depression psychology,” government may be able to stop or prevent the depression, itself.

In order to prevent people from believing that they’re in a depression, government will even falsify economic data in order to maintain public confidence in the economy.    For example, if the real unemployment rate was over 20% (as alleged by John Williams at Shadowstats.com), government might still insist that the official rate of unemployment is less than 7%.  If Williams is right, that deception is actually happening right now.

 

Global Depression?

There are other leaves in the breeze which, like Richard Russell, hint that we may be in or near to a depression.

For example, The New York Times (“World’s largest economy Flirts With Deflation”) reported that,

 

“. . .  the economies of many European countries remain very weak, and the euro zone as a whole could soon experience deflation . . . . Last month, inflation in the 18 countries that use the euro was just 0.7 percent . . . . far below the European Central Bank’s target for an inflation rate of just under 2 percent.

“Deflation is a pernicious and self-reinforcing [psychological] phenomenon that debilitates economies, as Japan experienced for much of the past 15 years. When prices fall broadly, consumers put off purchases and businesses see little value in investing for the future, creating a downward spiral.  Deflation also makes it more difficult for governments and other borrowers to repay their debts.

“Earlier this month, the central bank’s president, Mario Draghi, dismissed the fear of deflation, but his words were hardly reassuring. ‘There is certainly going to be subdued inflation, low inflation for an extended, protracted period of time, but no deflation,’ he said.”

 

Point:  Deflation is the boogie-man  responsible for depression.  Assuming the European governments are telling the truth about inflation/deflation rates, Europe is not yet in a state of deflation or depression—but it’s coming close.

Are deflation and depression contagious?  If Europe slides into a depression, will the U.S.  and the rest of the world follow the world’s biggest regional economy?

 

•  The BBC reported in “Japan’s Quarterly Growth Disappoints,” that the economy of Japan (the 3rd largest national economy),

 

“. . . grew less than expected last year . . . . Gross domestic product rose by 1% on an annualized basis in the three-month period to December, compared to market estimates of a 2.8% expansion. . . . This was due to weaker private consumption and capital spending, as well as lower export figures.”

Japan has arguably been in a state of depression for the past 15 years. Recent reports suggests that Japan’s slide into depression will continue.   That’s evidence that, once a depression psychology takes hold, the people are not easily persuaded to abandon that belief.

•  The Associated Press reported in “UK inflation below target for 1st time in 4 years”  that the inflation rate in Great Britain,

 

“. . . slipped in January below the official 2 percent target for the first time since 2009, making it less likely that the Bank of England will move soon to raise interest rates. . . . Official figures on Tuesday showed consumer prices were up 1.9 percent in the year to January, down from the 2 percent rate in December. The drop was due to retailers slashing prices on furniture, alcohol and tobacco.”

 

Assuming these figures are accurate, they’re no big thing, right? The difference between 2.0% and 1.9% inflation doesn’t seem worth mentioning.

But, on the other hand, the United Kingdom is the world’s 6th largest national economy.  Therefore, any slide towards deflation is cause for concern.

 

•  The world’s largest economy (the Euro-zone) is flirting with deflation.  Japan has been in a depression for 15 years.  England is slightly tending towards deflation.  The U.S. appears to have been fighting deflation and depression with some success for several years.  We may be in a recession, but we are not yet certainly in a depression.

So, is we is, or is we ain’t in an economic depression?

Hard to say.  The evidence is mixed.

It’s clear that most of the American people have not yet succumbed to the depression psychology.  Therefore, I’d tend to argue that we are not (yet) in a full-blown economic depression.

But it’s also clear that the governments of the world are working hard, even desperately, to try to print enough currency, manipulate enough economic indicators, and tell enough lies to prevent the people from believing that we’re in an economic depression.

Nevertheless, the strength of government’s determination to lie, manipulate markets and economic data, and print more fiat currency implies that we are at least near to an economic depression.

 

•  This article is not intended to prove that we’re in a depression.  But it is intended to show that it’s possible that: 1) we may be close to a depression; or 2) already in one, without yet realizing that truth.

Why?

Because depressions are more psychological than mathematical.

 
16 Comments

Posted by on February 24, 2014 in Depression, Economic collapse, Economy, Lies

 

Tags: , ,

16 responses to “We couldn’t be in the “Greater Depression,” could we?

  1. Frank Moorman

    February 24, 2014 at 3:04 PM

    If you own stocks , your OK. $10.50/hr what a deal for the WB’s. I’m happy. I do
    35/hr highly technical avionics. My job went to India. Just be happy to belong to
    a third world economy. And we have done away with our military.

     
  2. Martens

    February 24, 2014 at 4:37 PM

    Because a chart is worth a thousand words…

    The unemployment rate in the US 1910–1960, with the years of the Great Depression (1929–1939) highlighted:

    Various countries’ per capita income during the Great Depression:

    http://en.wikipedia.org/wiki/File:Graph_charting_income_per_capita_throughout_the_Great_Depression.svg

     
  3. hskiprob

    February 24, 2014 at 6:10 PM

    There is an old saying that a recession is when your neighbor is out of work and a depression is when you are out of work. However, let try to look at the really big picture in a mathematical and realistic way. Without government spending to the tune of about $3.2 trillion annually and 1/3 of that borrowed or printed, life in America would be much different right now. We have been propping up the economy using the printing press and the rest of the world is knows it and is tired of it, as the US Dollar continued to be debased, thus causing its devaluation and higher prices in most areas of the economy, especially the essentials. Would you want to keep trading the goods you manufacture in your country in exchange for a continually depreciating US Dollars; of course not. Growth is generally compared to annual GDP as a percentage of the total economy. If a huge percentage of that growth is attributed to non-productive things like military expenditures or other things that prove little benefit to productivity, like a $2.5 million mangrove habitat built off last year in the ultra wealthy area of Palm Beach in the Intracoastal waterway, the GDP number that is published does not show the misallocation of spending done by government and thus we look like we are doing much better than we truly are.

    This is a very dangerous course of action to continue and here’s why. If continued and the government is continuing to do so, inflation will intensify as more money is printed, as explained above. For those that are receiving the benefits of governments, including government employees, welfare, the 1000’s of government contractors, as large as GE and as small as the local lawn service, it appears everything is just fine and dandy and as soon as the economy picks up, every thing will be back to normal; wrong. If the economy picks up, so will inflation, causing the $Trillions on the sidelines to be invested into the market or loose value rapidly. We are currently what economists common refer to as “stagflation” and the typical next step, as experienced by at least 25 nations over the last several decades is hyperinflation. Because of the tremendous levels of deficit spending, mathematically you are going to have a lot of money chasing to few goods. Exacerbating the situations as noted above, is the rest of the world does not like the level of spending we have been doing, coupled with our money no longer being utilized as if once was for international trade, makes the US Dollar very undesirable to other countries and those US Dollars are also coming back into the economy. George Soros, just last week mentioned the importance of coming up with a method of controlling the rapid devaluation of the dollar and in many eyes, this is eminent.

    But don’t be so sure that those in the real economic positions of power, those pesky central banksters don’t have another plan up their sleeves. Rumors have been going around for sometime now, that they are going to abandon the US Dollar all together in exchange for the “Amero”, a three country currency, just like the European Union with at least Canada and Mexico as the primary partners which will probably put pressure on the central and south American countries as well as the Caribbean nations to join the union.

    The one thing for sure, one of the two above things are going to happen so be prepared. Perhaps I will tell you which one I’d prefer in another post, so I bet the Amero is coming to the local theater near you.

     
  4. hskiprob

    February 24, 2014 at 6:34 PM

    And yes, if you exclude governments misallocation of resources such as excessive military spending and pork projects, we’re surly are mathematically in a depression.

     
  5. Yartap

    February 24, 2014 at 6:58 PM

    Skip, I concur, that it is, a noticable to a few, hyperinflation that we starting to suffer from. If I recall correctly, it was not a so-called housing bubble; but rather, the loss of jobs that started the failures in our country.

    I supect that the removal of the Congressional debt ceiling was the first sign of the hyperinflation that is coming. With foreign US bond holders not renewing, we will see a fload of cash re-entering the US. This wilI throw more fuel on the fire. I further supect, that we will see bond rate slowly increase – possibly? – to drive more foreign and domestic investors to government bonds to try to releave the Fed. Res. This will throw more fuel on the fire.

     
    • hskiprob

      February 25, 2014 at 10:47 AM

      Yartap, yes exactly – One example is that I’m supposed to meet with investors from Brazil this week who are obviously trying to unload US Dollars like China and a number of other countries who have been doing this here in the US. Brazil is one of the so-called BRIC nations now contractually trading directly with Russia, India and China, excluding the US Dollar, for several years now.

      I think it is interesting that technology is also playing part in this. With the establishment of various Bourses (currency trading exchanges) around the world, countries do not need a reserve currency as they once did for international trading. Most currency are being traded against one another everyday and they are even shown in relation to gold and silver and other commodities. Companies throughout the world use to have to buy U.S. Dollars, then make the trade and the company in the other country would then have to sell the US Dollars, giving the Investment bankers who were controlled by the central banksters, commissions on both sides of the trade. The Federal Reserve Bank (FRB) could monitor every single trade around the world, as they were all done in US Dollars and all funds have to be cleared the FRB.

      If people are not taught this kind of stuff, they miss out on some very important situations that are going on around the world that effect us all. The marketplace has always been an international one and the banksters have used a multitude of methods to control and get a cut of all the action. Why do you think Ron Paul and so many others are opposed to the central banksters???

      Obviously they and their proponents lie about how central banks are going to stabilize economic cycles and divert depressions, as they are the ones that cause most of them as they did the last real estate boom and bust cycle that ended catastrophically in 2008. Government does it’s fair share, but they are really just pawns of the central bankers. Yes, both Bush and Obama really work for the central banksters and not we the people.

       
    • hskiprob

      February 25, 2014 at 11:11 AM

      Yartap, also correct on the housing issue but there are always a number of issues and causations to such events. We have been suffering with lower wages, unemployment and underemployment for a several decades now, really since the recession of the early 1980s. Small and medium businesses just cannot sustain themselves under the heavy levels of taxation and regulation without cheating to a significant degree. Thus why so many companies have either closed down or left the country. Those that remain have had to cut costs to make it and between government, company management and shareholders, the workers/labor will always loose. Interesting that we are debating the labor union issue going on in Tennessee between VW and the UAW on Jonathan Turley’s blog.

      Labor unions surely can help, but if government is unwilling to establish “reasonable” levels of taxation and regulation, there obviously isn’t enough money on the table to make ends meet for all the players or so many companies wouldn’t be shutting down or having to move off shore to survive as only the very strongest companies are able to survive in this environment.

      FYI: I like Jefferson’s definition of “reasonable; “that government is best which governs least.”

       
      • Yartap

        February 25, 2014 at 1:09 PM

        Skip, you are absolutely right about many other factors. Even the govt. is planning to add to the unemployment slowly with their cuts in military personnel. Plus, the Affordable Care Act (Obamacare) is a plan to make a feel-good program a savings for the govt, not the public, with 70% of enrollees placed on Medicaid; while Medicaid is being cut and doctors rejecting service to Medicaid patients and declining to add more Medicare patients.

        I believe the plan is for the PTB to out run the public’s wealth (devalued wealth) by inflation and then slam on the breaks in currency creation in the near future. Its all about saving the Elitist’s frontal faced govt. ponzi skim.

         
    • J.M.

      February 25, 2014 at 5:10 PM

      Yartap
      @ >Skip, you are absolutely right about many other factors.

      He sure is. But, what factors is he maybe not right about being that you said, he is right about “many” “other” factors. Are we still friends. If you don’t answer, I’ll understand.

       
      • hskiprob

        February 26, 2014 at 10:01 AM

        J.M. of course we’re still friends. I’m on a couple of other blogs, so I have to sometimes go through many posts, up to 50 or 100 daily plus Facebook, Quora and my own blogs.

         
  6. Martens

    February 24, 2014 at 9:05 PM

    Because a chart is worth a thousand words…

    The unemployment rate in the US 1910–1960, with the years of the Great Depression (1929–1939) highlighted:

    Various countries’ per capita income during the Great Depression:

    http://en.wikipedia.org/wiki/File:Graph_charting_income_per_capita_throughout_the_Great_Depression.svg

     
    • hskiprob

      February 25, 2014 at 9:49 AM

      Martens – you have to be very careful with using the reported number of the 29 -39 depression, as government did not keep these figure in the same manner as they do today. Even today, U-3, those just on unemployment compensation is what is published most often by the main stream media, instead of U-6 total unemployment, which is near 13%.

      Additionally comparing then and now is in my opinion comparing apples and oranges. We are a totally debt based fiat monetary system today and we were a totally asset based gold and silver monetary system than. Additionally, after WWI and Bretton Woods we became the world reserve currency and we are getting forcibly weaned off that as well. We were the largest creditor nation in the world than, we are the largest debtor nation in the world today. We were one of the most capitalists nation in the world then, up until 1913 and the resultant depression just 16 years later, we are one of the top socialists countries in the world today, .i.e our various levels of government, as a total, were significantly smaller and therefore less costly than, as a percentage of our “real” GDP, compared to what they are today.

      Very difficult to compare the two periods.

       
      • J.M.

        February 25, 2014 at 1:50 PM

        @ > Very difficult to compare the two periods.

        Makes sense to me. I agree, BUT, we are not ALL “alike” either.

         
  7. Chris

    February 24, 2014 at 10:55 PM

    Sooner or later, Toto always finds the ‘wizard’ behind the curtain, and massive disappointment and disenchantment follows….

     
  8. Thomas Higgins

    February 25, 2014 at 1:44 PM

    Hello, this Thomas Higgins from napa,ca. requesting more Info for form#521 from ssa. what to expect when filled out.Its Titled with draw from application.

    On Mon, Feb 24, 2014 at 11:56 AM, Adask’s law

     

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