Does 2010 Look Like 1930; Are We On The Verge Of Another Crash?

Posted by politicalpartypooper on June 9, 2010

Is Wall Street and our government merely trying to buy time?  Are they staving off the inevitable?  A recent article by Henry Blodget says that in 1930, Americans did not yet know they were in the beginning of the Great Depression.  Within his article, he links to a collection of New York Times clippings from early 1930 compiled by Dan Alpert of Westwood Capital.  A quick comparison of the stock market after the 1929 crash actually shows that it rebounded within six months to what he calls a “hope” rally of 48%.  But the Stock Market didn’t hang around there for long.  It steadily declined, and eight months later, had hit a new low.  The “Hope Rally” high was 294.07, while the eventual bottom was 41.62.

Even more disturbing is that prior to that eventual bottom, unemployment was never higher than 10% in 1930, and after the new low in the stock market, quickly rose to nearly 25% by 1932, eighteen months later.  What occurred during the hope rally of 1930 to raise stock prices so quickly, and keep unemployment relatively controlled?  Easy money, that’s what happened.  From a New York Times article in 1930:

“The reduction of the bank rates in New York and London yesterday offered another example of apparent cooperation between the two markets.  The movement toward lower central bank rates began on Oct. 31, last when both New York and London cut the rate.  The Federal Reserve Bank here led the British institution by a week in the next reduction, which came on Nov. 15 here and on Nov. 21 in London.”

There is no doubt that money has been easy for banks since the crash of 2008/2009.  But for many other borrowers, such as home owners or small businesses, getting cash has been like pulling teeth.  And remember this little fact; despite all of that easy money made available to banks back in 1930 to stimulate the economy, unemployment remained virtually unaffected by it.  Do you see any similarities today?

From the White House in 1930, “prosperity is just around the corner”, and the Fed is managing interest rates to “guarantee that the economy continue its sure recovery”.  Sound familiar?

Every night I turn on CNBC and watch talking heads argue that this most recent downturn is merely a correction and that the market “loves volatility”…three digit swings.  In March of 1930, when the market started on its long march down to a new low, bankers, brokers, and experts all believed it was just a slight correction, right up to the moment the market dropped below the crash levels of 1929.   Could we be witnessing another double crash?

Would our government know if we were about to crash, and would they tell us?  Would Wall Street?  If you held the  economic fate of 300 million Americans in your hands, would you tell us?

We are in the midst of a jobless “recovery”, and it’s very possible that this recovery is fools gold.  The stimulus money has had virtually no impact on unemployment.  If the market crashes again, within one year, unemployment may reach as high as twenty-five percent.  If history is any indicator, it’s more likely to happen than not. Remember, none of the experts knew they were in the midst of a Great Depression until it was too late.  Even our government kept shouting that a recovery was happening…just like today.

You might want to prepare yourself.  Don’t ask me how.  I’m still trying to figure that out for myself.     Ω


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