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Old 10-09-2008, 08:18 PM
 
Location: Ohio
22,798 posts, read 15,979,434 times
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Quote:
Originally Posted by SouthCali4LifeSD View Post
tell me how this can't cause a depression?
It didn't cause a depression. It was the largest tax increase in US history coupled with a ghastly import/export tariff that caused the depression.

I'll say this again for the 50 Millionth time: No stock market crash has ever caused a recession/depression and no stock market crash ever could.

When the 1929 Crash occurred the US GDP had already declined 20% (actually about 19.8%) over the previous 20 months.

The stock market crash had ZERO effect on the economy.

In fact, the economy did quite well, not losing and not gaining.

Then the Republican-controlled Congress enacted the largest tax increase in US history, which sucked whatever money was left out of people's pockets, and then in June 1930, they passed the Smoot-Hawley Tariff which shut down all imports/exports to the US as other countries passed retaliatory protectionist tariffs (which is what Smoot-Hawley was).

That's what caused the depression.

The GDP dropped another 28%. The US GDP is now HALF of what was 3 years earlier.

Why? It had nothing to do with the stock market. It had to do with the fact that crap was piling up on the docks and in warehouses because you couldn't export anything, and you couldn't import anything to sell or use to make something else, which didn't really matter, because nobody had any money.

You have thousands of businesses that can sell anything, and can't import/export. They lay off their workers or cut production, and they default on loans. Defaulting on loans caused banks to start collapsing.

Neither the Federal Reserve nor the government did anything about it, so it got worse.

The Democrats took control of the House in the 1930 election and by late 1931, with everyone working together, they got the economy to grow 20% by repealing the taxes and tariffs, but banks were still failing.

By the time the 1932 Elections rolled around, a lot of banks had failed by at least the economy was still moving in the right direction very slowly.

When FDR took over in 1933, he closed all remaining banks that were open then taxed the crap out of everyone and sent the GDP plummeting again as businesses shut down.

The economy stumbles along until for 5 years until the US starts exporting war materials to Europe and Japan in 1937.

By 1942 the US GDP had jumped nearly 50% and was averaging 12+% per year from 1937 to 1942.

Oh, and the stock market collapsed over that same period. Worst stock run in the history of the market was 1937 to 1942.

GDP up 50% and stock market down 48%.

The stock market has nothing to do with the economy. It's just one of several dozen ways to invest. If I can get a better return on bonds, then that's where I put my money, not the stock market.
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Old 10-09-2008, 08:22 PM
 
Location: Albemarle, NC
7,730 posts, read 13,149,044 times
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The debt of the 1920s was to invest in the stock market. Our debt is based on homes and cars. These things have some value.
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Old 10-09-2008, 08:38 PM
 
1,954 posts, read 4,936,170 times
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Quote:
Originally Posted by Mircea View Post
The stock market has nothing to do with the economy. It's just one of several dozen ways to invest. If I can get a better return on bonds, then that's where I put my money, not the stock market.
Yes, but is it at least somewhat possible to talk about the stock market being a barometer for the economy and people's fears, hopes, confidence and everything thing else? If stock market selloffs cause enough people to worry about their own financial condition, to start spending less, to stop hiring so much, to lay off workers, etc., then aren't the two at least loosely related?

A difference between the 1930s and today is that so many ordinary people are invested in the stock market today. If they see their retirement savings evaporate before their eyes (whether that's real money or not is beside the point), then isn't it possible that they will begin making decisions that will have a major impact on the economy now and down the road?
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Old 10-09-2008, 09:23 PM
 
48,508 posts, read 88,602,322 times
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The real problenm is that people with money ( there is trillions out there) don't want to invest it i nthe market at this point. The banks that have moeny don't trust what other banks have and wouldn't interact. In otherwords there are the haveswho are holding and the have nots that need money.
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Old 10-09-2008, 09:28 PM
 
Location: Great State of Texas
86,068 posts, read 76,787,344 times
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Quote:
Originally Posted by paperhouse View Post
The debt of the 1920s was to invest in the stock market. Our debt is based on homes and cars. These things have some value.
Stocks have value just like homes/cars but only what a buyer is willing to pay..the price is not "fixed".

They created the margin account back then. You only needed to keep 10% reserve in your account. When stocks plummeted margin calls went out..people could not make their margin calls.

Again..excessive leverage by normal investors and lots of speculation to get rich quick.

Speculating on margin and the Great Depression
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Old 10-09-2008, 09:41 PM
 
8,317 posts, read 27,096,825 times
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Quote:
Originally Posted by paperhouse View Post
The debt of the 1920s was to invest in the stock market. Our debt is based on homes and cars. These things have some value.
Irrelevant. The stocks of the 1920's also had some value behind them--some productive businesses. Houses and cars may be nice to have, but they are not productive investments. In both cases, speculation and excessive debt inflated the monetary "value" of the underlying asset far beyond any intrinsic value it had/has. The "crash" is the marketplace de-leveraging that debt and re-pricing the asset nearer to its intrinsic value. Just as in the stock market crash of 1929 and the Great Depression following, that de-leveraging and re-pricing happening today is going to be horrifically painful for tens of millions of Americans, but no less necessary and inevitable now than it was in 1929. It's what you get when people, banks, markets, and governments behave imprudently for years. The chickens come home to roost.

I also disagree with poster who stated that an inflationary depression is impossible. It is absolutely possible to have one when a central government decides to try to madly expand the money supply to stave off deflation when there is no underlying increase in production of tangible wealth to accompany it. It's called hyperinflation and it can cause an economic crash worse than than a deflationary depression. The prime example (but by no means the last) was the hyperinflationary depression that collapsed the Wiemar Republic in Germany--and, in part, allowed Hitler to gain power (most people forget that he was actually initially elected). That is why I find the "bailout" such a dangerous precedent.
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Old 10-09-2008, 10:14 PM
 
19,346 posts, read 16,974,162 times
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Quote:
Originally Posted by jazzlover View Post
Irrelevant. The stocks of the 1920's also had some value behind them--some productive businesses. Houses and cars may be nice to have, but they are not productive investments. In both cases, speculation and excessive debt inflated the monetary "value" of the underlying asset far beyond any intrinsic value it had/has. The "crash" is the marketplace de-leveraging that debt and re-pricing the asset nearer to its intrinsic value. Just as in the stock market crash of 1929 and the Great Depression following, that de-leveraging and re-pricing happening today is going to be horrifically painful for tens of millions of Americans, but no less necessary and inevitable now than it was in 1929. It's what you get when people, banks, markets, and governments behave imprudently for years. The chickens come home to roost.

I also disagree with poster who stated that an inflationary depression is impossible. It is absolutely possible to have one when a central government decides to try to madly expand the money supply to stave off deflation when there is no underlying increase in production of tangible wealth to accompany it. It's called hyperinflation and it can cause an economic crash worse than than a deflationary depression. The prime example (but by no means the last) was the hyperinflationary depression that collapsed the Wiemar Republic in Germany--and, in part, allowed Hitler to gain power (most people forget that he was actually initially elected). That is why I find the "bailout" such a dangerous precedent.
Hello jazzlover,

Its a simple function of the fractional reserve debt currency. In a full reserve system the prices could no be driven up because the money supply is stable and does not increase with debt. If someone defaults in a full reserve system that just means the money is elsewhere and the bank and the creditor don't have it. However the money is not destroyed. In our lovely system reserves are destroyed in bank runs. It is not necessary and inevitable unless we are speaking of entirely planning it.
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Old 10-10-2008, 02:22 AM
 
105 posts, read 203,346 times
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Quote:
Originally Posted by bale002 View Post
Look at the measures that Mexico announced this morning.

Very basic: put people back to work in something productive.

Look, the government is taking over the banking industry, sooner or later the government will be ordering infrastructure projects, retooling factories for basic produdction, and the like.

This is what they should have done after 9/11, instead of allocating resources to inefficient housing and cars and encouraging people to go on a shopping spree.

I don't like it, but the majority of the people are not mature enough for a free enterprise system, it's a shame for those who are. An injustice that we'll have to bear.


I believe there will be a depression in the future for North America and theres nothing it can do about it. Any government that adds 24 to 34 Trillion dollars to it debt load in less than 20 years in the future will implode from the inside out. Thats reality. Many othere scenarios can add to a countries decline or fall. I don't know everything but thats my take. Interesting times coming up.
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Old 10-10-2008, 02:43 AM
 
105 posts, read 203,346 times
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Quote:
Originally Posted by KansasChick View Post
Interesting theory - so what's the solution
Quote:
Originally Posted by SouthCali4LifeSD View Post
that's the trillion dollar question, i don't know. i don't think anyone does!




Traitors in D.C. that sell out U.S. in the future.
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Old 10-10-2008, 03:20 AM
 
Location: San Diego
940 posts, read 2,946,241 times
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Quote:
Originally Posted by Mircea View Post

I'll say this again for the 50 Millionth time: No stock market crash has ever caused a recession/depression and no stock market crash ever could.

The stock market crash had ZERO effect on the economy.

The stock market has nothing to do with the economy. It's just one of several dozen ways to invest. If I can get a better return on bonds, then that's where I put my money, not the stock market.
you keep lecturing everyone on the stock market having NOTHING to do with the economy. stop your propaganda! seriously! sure, the market doesn't move in perfect correlation to a countries economy, however, the stock market is a perfect bellweather indicator of the health of a countries economy. on top of that, the stock market is a HUGE constituent in the investment world.

The Dow/Nasdaq/S&P 500 have each plunged about 40% from their highs, and calculations have a loss of retirement and other accounts at over $7 trillion dollars ($3 trillion in retirement accounts alone). Imagine how much $3 trillion can do for our greater economy? If $150 billion dollars in tax break stimulus checks is deemed as significant (1% of our total GDP), then imagine what $3 trillion would do for our economy over time? $3 trillion is 20 $150 billion stimulus packages. $7 billion is 43 of them. Holy cow. we as a country have lost that wealth. wealth that will no longer stimulate our economy.

Stop using America's 1930's economy as the benchmark standard of measurement for todays economy. it was a completely different economy then. It was much more industrialized and heavily focused on manufactoring, that's why their was a huge boom in the mid 1930's, we were actually PRODUCING. also, FDR created a lot of regulatory agencies that in turn created craploads of jobs, and then the war started and more jobs were created. this nation was the worlds greatest creditor then and our dollar was backed by gold.

today, we are the worlds largest debtor, we are primarily a service economy, and our dollar is backed by trust in the government (or the federal reserve, whichever you prefer). back to the point -- much more people are invested in the stock market today due to its easy access through online brokerage accounts and 401K's/retirement accounts. now we are undergoing a credit crunch and the fed is pumping trillions of dollars back into this country. this will inevitably hyperinflate our currency and a whole different type of depression will possibly occur. the kind of depression where the middle class is destroyed and our dollar becomes virtually worthless. people are panicking and responding by plunging the value invested in the stock market. this will hurt the economy even more; it's a sick cycle carousel.
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