"The Greater Depression Has Started" - Comparing 1930s & Today

by Tyler Durden on 04/09/2016 19:35 -0400

Submitted by Doug Casey via InternationalMan.com,

You've heard the axiom "History repeats itself." It does, but never in exactly the same way. To apply the lessons of the past, we must understand the differences of the present.

During the American Revolution, the British came prepared to fight a successful war—but against a European army. Their formations, which gave them devastating firepower, and their red coats, which emphasized their numbers, proved the exact opposite of the tactics needed to fight a guerrilla war.

Before World War I, generals still saw the cavalry as the flower of their armies. Of course, the horse soldiers proved worse than useless in the trenches.

Before World War II, in anticipation of a German attack, the French built the "impenetrable" Maginot Line. History repeated itself and the attack came, but not in the way they expected. Their preparations were useless because the Germans didn't attempt to penetrate it; they simply went around it, and France was defeated.

The generals don't prepare for the last war out of perversity or stupidity, but rather because past experience is all they have to go by. Most of them simply don't know how to interpret that experience. They are correct in preparing for another war but wrong in relying upon what worked in the last one.

Investors, unfortunately, seem to make the same mistakes in marshaling their resources as do the generals. If the last 30 years have been prosperous, they base their actions on more prosperity. Talk of a depression isn't real to them because things are, in fact, so different from the 1930s. To most people, a depression means '30s-style conditions, and since they don't see that, they can't imagine a depression. That's because they know what the last depression was like, but they don't know what one is. It's hard to visualize something you don't understand.

Some of them who are a bit more clever might see an end to prosperity and the start of a depression but—al­though they're going to be a lot better off than most—they're probably looking for this depression to be like the last one.

Although nobody can predict with absolute certainty what this depression will be like, you can be fairly well-assured it won't be an instant replay of the last one. But just because things will be different doesn't mean you have to be taken by surprise.

To define the likely differences between this depres­sion and the last one, it's helpful to compare the situa­tion today to that in the early 1930s. The results aren't very reassuring.

CORPORATE BANKRUPTCY

1930s

Banks, insurance companies, and big corporations went under on a major scale. Institutions suffered the consequences of past mistakes, and there was no financial safety net to catch them as they fell. Mistakes were liquidated and only the prepared and efficient survived.

Today

The world’s financial institutions are in even worse shape than the last time, but now business ethics have changed and everyone expects the government to "step in." Laws are already in place that not only allow but require government inter­vention in many instances. This time, mistakes will be compounded, and the strong, productive, and ef­ficient will be forced to subsidize the weak, unproductive, and inefficient. It's ironic that businesses were bankrupted in the last depression because the prices of their products fell too low; this time, it'll be because they went too high.

UNEMPLOYMENT

1930s

If a man lost his job, he had to find another one as quickly as possible simply to keep from going hungry. A lot of other men in the same position competed desperately for what work was available, and an employer could hire those same men for much lower wages and expect them to work harder than what was the case before the depression. As a result, the men could get jobs and the employer could stay in business.

Today

The average man first has months of unemployment insurance; after that, he can go on welfare if he can't find "suitable work." Instead of taking whatever work is available, especially if it means that a white collar worker has to get his hands dirty, many will go on welfare. This will decrease the production of new wealth and delay the recovery. The worker no longer has to worry about some entrepreneur exploiting (i.e., employing) him at what he considers an unfair wage because the minimum wage laws, among others, precludes that possibility today. As a result, men stay unemployed and employers will go out of business.

WELFARE

1930s

If hard times really put a man down and out, he had little recourse but to rely on his family, friends, or local social and church group. There was quite a bit of opprobrium attached to that, and it was only a last resort. The breadlines set up by various government bodies were largely cosmetic measures to soothe the more terror-prone among the voting populace. People made do because they had to, and that meant radically reducing their standards of living and taking any job available at any wage. There were very, very few people on welfare during the last depression.

Today

It's hard to say how those who are still working are going to support those who aren't in this depression. Even in the U.S., 50% of the country is already on some form of welfare. But food stamps, aid to fami­lies with dependent children, Social Security, and local programs are already collapsing in prosperous times. And when the tidal wave hits, they'll be totally overwhelmed. There aren't going to be any breadlines because people who would be standing in them are going to be shopping in local supermarkets just like people who earned their money. Perhaps the most dangerous aspect of it is that people in general have come to think that these programs can just magically make wealth appear, and they expect them to be there, while a whole class of people have grown up never learning to survive without them. It's ironic, yet predictable, that the programs that were supposed to help those who "need" them will serve to devastate those very people.

REGULATIONS

1930s

Most economies have been fairly heavily regulated since the early 1900s, and those regulations caused distortions that added to the severity of the last depression. Rather than allow the economy to liquidate, in the case of the U.S., the Roosevelt regime added many, many more regulations—fixing prices, wages, and the manner of doing business in a static form. It was largely because of these regulations that the depression lingered on until the end of World War II, which "saved" the economy only through its massive reinflation of the currency. Had the government abolished most controls then in existence, instead of creating new ones, the depression would have been less severe and much shorter.

Today

The scores of new agencies set up since the last depression have created far more severe distortions in the ways people relate than those of 80 years ago; the potential adjustment needed is proportionately greater. Unless government restrictions and controls on wages, working conditions, energy consumption, safety, and such are removed, a dramatic economic turnaround during the Greater Depression will be impossible.

TAXES

1930s

The income tax was new to the U.S. in 1913, and by 1929, although it took a maximum 23.1% bite, that was only at the $1 million level. The average family’s income then was $2,335, and that put average families in the 1/10th of 1 percent bracket. And there was still no Social Security tax, no state income tax, no sales tax, and no estate tax. Furthermore, most people in the country didn't even pay the income tax because they earned less than the legal minimum or they didn't bother filing. The government, therefore, had immense untapped sources of revenue to draw upon to fund its schemes to "cure" the depression. Roosevelt was able to raise the average income tax from 1.35% to 16.56% during his tenure—an increase of 1,100%.

Today

Everyone now pays an income tax in addition to all the other taxes. In most Western countries, the total of direct and indirect taxes is over 50%. For that reason, it seems unlikely that direct taxes will go much higher. But inflation is constantly driving everyone into higher brackets and will have the same effect. A person has had to increase his or her income faster than inflation to compensate for taxes. Whatever taxes a man does pay will reduce his standard of living by just that much, and it's reasonable to expect tax evasion and the underground economy to boom in response. That will cushion the severity of the depression somewhat while it serves to help change the philosophical orientation of society.

PRICES

1930s

Prices dropped radically because billions of dollars of inflationary currency were wiped out through the stock market crash, bond defaults, and bank failures. The government, however, somehow equated the high prices of the inflationary '20s with prosperity and attempted to prevent a fall in prices by such things as slaughtering livestock, dumping milk in the gutter, and enacting price supports. Since the collapse wiped out money faster than it could be created, the government felt the destruction of real wealth was a more effective way to raise prices. In other words, if you can't increase the supply of money, decrease the supply of goods.

Nonetheless, the 1930s depression was a deflationary collapse, a time when currency became worth more and prices dropped. This is probably the most confusing thing to most Americans since they assume—as a result of that experience—that "depression" means "deflation." It's also perhaps the biggest single difference between this depression and the last one.

Today

Prices could drop, as they did the last time, but the amount of power the government now has over the economy is far greater than what was the case 80 years ago. Instead of letting the economy cleanse itself by allowing the nancial markets to collapse, governments will probably bail out insolvent banks, create mortgages wholesale to prop up real estate, and central banks will buy bonds to keep their prices from plummeting. All of these actions mean that the total money supply will grow enormously. Trillions will be created to avoid deflation. If you find men selling apples on street corners, it won't be for 5 cents apiece, but $5 apiece. But there won't be a lot of apple sellers because of welfare, nor will there be a lot of apples because of price controls.

Consumer prices will probably skyrocket as a result, and the country will have an inflationary depression. Unlike the 1930s, when people who held dollars were king, by the end of the Greater Depression, people with dollars will be wiped out.

THE SOCIETY

1930s

The world was largely rural or small-town. Communications were slow, but people tended to trust the media. The government exercised considerable moral suasion, and people tended to support it. The business of the country was business, as Calvin Coolidge said, and men who created wealth were esteemed. All told, if you were going to have a depression, it was a rather stable environment for it; despite that, however, there were still plenty of riots, marches, and general disorder.

Today

The country is now urban and suburban, and although communications are rapid, there's little interpersonal contact. The media are suspect. The government is seen more as an adversary or an imperial ruler than an arbitrator accepted by a consensus of concerned citizens. Businessmen are viewed as unscrupulous predators who take advantage of anyone weak enough to be exploited.

A major financial smashup in today's atmosphere could do a lot more than wipe out a few naives in the stock market and unemploy some workers, as occurred in the '30s; some sectors of society are now time bombs. It's hard to say, for instance, what third- and fourth-generation welfare recipients are going to do when the going gets really tough.

THE WAY PEOPLE WORK

1930s

Relatively slow transportation and communication localized economic conditions. The U.S. itself was somewhat insulated from the rest of the world, and parts of the U.S. were fairly self-contained. Workers were mostly involved in basic agriculture and industry, creating widgets and other tangible items. There wasn't a great deal of specialization, and that made it easier for someone to move laterally from one occupation into the next, without extensive retraining, since people were more able to produce the basics of life on their own. Most women never joined the workforce, and the wife in a marriage acted as a "backup" system should the husband lose his job.

Today

The whole world is interdependent, and a war in the Middle East or a revolution in Africa can have a direct and immediate effect on a barber in Chicago or Krakow. Since the whole economy is centrally controlled from Washington, a mistake there can be a national disaster. People generally aren’t in a position to roll with the punches as more than half the people in the country belong to what is known as the "service economy." That means, in most cases, they're better equipped to shuffle papers than make widgets. Even "necessary" services are often terminated when times get hard. Specialization is part of what an advanced industrial economy is all about, but if the economic order changes radically, it can prove a liability.

THE FINANCIAL MARKETS

1930s

The last depression is identified with the collapse of the stock market, which lost over 90% of its value from 1929 to 1933. A secure bond was the best possible investment as interest rates dropped radically. Commodities plummeted, reducing millions of farmers to near subsistence levels. Since most real estate was owned outright and taxes were low, a drop in price didn't make a lot of difference unless you had to sell. Land prices plummeted, but since people bought it to use, not unload to a greater fool, they didn't usually have to sell.

Today

This time, stocks—and especially commodities—are likely to explode on the upside as people panic into them to get out of depreciating dollars in general and bonds in particular. Real estate will be—next to bonds—the most devastated single area of the economy because no one will lend money long term. And real estate is built on the mortgage market, which will vanish.

Everybody who invests in this depression thinking that it will turn out like the last one will be very unhappy with the results. Being aware of the differences between the last depression and this one makes it a lot easier to position yourself to minimize losses and maximize profits.

* * *

So much for the differences. The crucial, obvious, and most important similarity, however, is that most people's standard of living will fall dramatically.

The Greater Depression has started. Most people don't know it because they can neither confront the thought nor understand the differences between this one and the last.

As a climax approaches, many of the things that you've built your life around in the past are going to change and change radically. The ability to adjust to new conditions is the sign of a psychologically healthy person.

Look for the opportunity side of the crisis. The Chinese symbol for "crisis" is a combination of two other symbols - one for danger and one for opportunity.

The dangers that society will face in the years ahead are regrettable, but there's no point in allowing anxiety, frustration, or apathy to overcome you. Face the future with courage, curiosity, and optimism rather than fear. You can be a winner, and if you plan carefully, you will be. The great period of change will give you a chance to regain control of your destiny. And that in itself is the single most important thing in life. This depression can give you that opportunity; it's one of the many ways the Greater Depression can be a very good thing for both you as an individual and society as a whole.

In the 1930's most people had Christian morals and believed in working for a living. Now the 10 Commandments have be taken out of schools and atheism is taught. Now the multi generation inner city ghetto dwellers think they are owed a free living by the government. So in the next depression they will go out and riot, kill, rob, and burn down buildings when their welfare checks stop.

The reason things aren't as bad as they were in the 30s is all the entitlements, govt spending and the actions of the Federal Reserve.

All of it on borrowed money of course, but shit sure looks better than the 30s, don't it?


I will agree with one major issue noted in the article, that being there may well be more than one path to a great depression scenario.

A lot has been learned since the 30s but it pays to remember that there are always unintended consequences.
We're 8 years into this and the central banks still can't raise interest rates for fear of plunging the entire world back into a recession within that depression; another 1937.
Some of those central banks have actually instituted negative interest rates. It will be interesting to see what the unintended consequences of those are.

They came up with all of those entitlements in response to the Great Depression because the world economy was shifting to a dependence on capital markets.

Prior to that, if you were failing in the capital market system for whatever reason, you could just head out into the mountains and live off the land, or head out on the high seas with a boat. Your ability or right to primal survival was hardly brought into question.

One of the big issues of Shay's rebellion which brought about the conditions which led to the Bill of Rights was shady economic management on the part of the colonial government.

The Bankers of that era, a collection of British Freemasons and Jewish capitalists, had managed to come up with various schemes to selectively separate themselves from British crown sovereignty yet participate in its financial system. This was done largely though the colonial government. There were currency issues of otherwise fairly worthless currency, including the money which was paid to soldiers (like Shays) in the American revolution.

Centrally managed money meant the troops were issued Continentals as payment for services, then the Continentals were simply devalued, worthless for trade, sale and barter. The men then borrowed British money to restart their farms, failed miserably, and were thrown in debtors prisons from time to time where the real punishments often had to do with their colonial rebellion in the first place, because the Brits still ran the economic system.

Shays lost most engagements, troops being horribly impoverished, mostly on the brink of starvation. They lost their last skirmish while trying to obtain weapons from a military armory.

As Shays aged, he was again, impoverished due to failed farming techniques and high interest loans. He applied for and received a small pension from the government which was approved by the central bankers. Hence, Shays had become, in his twilight years, a recipient of one of the first American welfare programs, which was a small subsistence pension for war veterans, aimed at easing the pain and blunting vendettas over the way British Masonic and Jewish aligned bankers were ending up running the US economy anyway.

Thats why the system which controls and can stop your financial productivity surely does owe you something when they benefit from the act of preventing your primal survival.

Its also what gets to this stuff about closing off federal land and preventing rural people from gainful self employment and self sufficiency. They are owed jobs in the city, a monthly stipend or both. You just can't have legitimacy in any system which actively prevents people's survival. Nobody owes you CEO status at a fortune 500 company, but its one of those touchy points that comes up with tax resistance by productive people who constantly stand the chance of being regulated out of economic sustainability.

Take food stamps for instance, and why I don't give food to beggars in the first half of any month. Reality is that food stamps pays fairly well, especially to families with children. If your income is low and you are eligible but not signed up, then you are a deliberate burden on friends and family. Or someone being stubborn and a burden on the general public on the street, by begging and lounging on the sidewalk, being a piece of human street litter. Or, you make enough money in the gray market under the table economy that you really don't want any interface with government agencies that would necessitate financial disclosures.

Breacher, you usually write some of the best stuff on this forum. I can't believe you are sticking up for people who live off of welfare instead of working. I don't like my tax money going to welfare recipients that are able bodied but will never work another day in their lives and get out their Medicaid card and call an ambulance for a free ride to the emergency room for free medical care every time they get sick. The system will collapse soon.

"If a man will not work, he shall not eat". 2 Thessalonians 3:10

I am glad you posted this since I can use it as an example of one of the things that we need to start thinking differently on.

I posted in another topic that in the future A.I and Robots were going to replace all human workers with the result that the Government was going to have to give everyone enough money so that they could live a decent life even though they did not work. And that people were going to have to start thinking differently on what is known as Work Ethic or as you just put it, "If a man will not work, he shall not eat".

What you and others who think like you fail to understand is that there is a Huge Difference between people who can't work and people who just don't want to work.

Also why should a person who used to work as lets say a Computer Programmer, as I used to be, until their Job was sent to India have to work Flipping Hamburgers or using a Shovel to Dig Ditches.

This person lost their Job though No Fault of Their Own so why shouldn't they expect the Government to help them, I mean after all it was the Government who signed that stinking N.A.F.T.A Treaty that was responsible for his Job being sent to India.

So Texas Resistance you are going to have to change your attitude about Welfare, since more and more Workers are going to be unemployed, and you will have to do it fairly soon

It sounds like you are having a pity party for yourself Vader. I am employed way below what I have college degrees in. Men are superior to damn robots. I will dig ditches or flip burgers before I take welfare. Lord Jesus blesses me for obeying him by working.

I have always maintained physical fitness so manual labor will not hurt me and I will be ready for the collapse and civil war.

A human being should be able to change a diaper, plan an invasion, butcher a hog, conn a ship, design a building, write a sonnet, balance accounts, build a wall, set a bone, comfort the dying, take orders, give orders, cooperate, act alone, solve equations, analyze a new problem, pitch manure, program a computer, cook a tasty meal, fight efficiently, die gallantly. Specialization is for insects.

-Robert A. Heinlein

It varies by situation, and the fact of the matter is, when the system restricts someone from being able to survive on their own, then that person is owed.

Food stamps, welfare, those are social check valves to people without highly developed ethics like my own just saying screw all of the rules and then they go out begging and stealing. Reality though is, for those who go straight to begging and stealing while not having signed up for the food stamps, there is not much of any excuse for that shit. People in at least my generation around here don't dig that shit in the least. The 20 somethings want to beg and mooch then act too proud to sign up for the food stamps, that's a no-go.

Reality right now, if you are not outright going fugitive, there is not much of any excuse for going out and begging and stealing, but there are a lot of reasons why good men can't get work, and then down from there, single parents, unattractive women, people with disabilities.

Its not like anyone is free to just go out and live off the land even if they have the skills, and in many jurisdictions going out to live off the cash economy in an ethical manner is a challenge. Some places, it is perfectly acceptable for a grown man to go door to door with a lawnmower and hedge trimmer looking for work, other places, they can and will find a reason to throw that guy in jail and trash his lawnmower and hedge trimmer.

I look at these sons of bitches out of Washington State who ripped off myself and Strat, all their bullshit and pride over what they did, and reality is, they should have just gone on welfare instead of bothering the rest of us with their e-begging, exploitation, lies and scams to call themselves "making it".

I have circles of people from church and some social networks I hustle to do projects for, but I build stuff for them, I fix and fabricate. I got rich guys who kind of know I am not the cheapest or best at what I do, but it's good and fair and the results turn out good enough for all to see, it is what it is. That's why I put the stuff in video. Now hard core serious union level builders will turn their noses up at it, but I get enough happy customers on furniture, decks, garden structures and occasional fences that I am not starving. Having any nest egg for retirement, that's a bit worrisome.