Are We Headed for Another Great Depression?

As I scour the Internet, reading up on different articles about the economy, I’m struck by the different opinions of writers.  Some are on the side of “We’re suffering a temporary setback in America: we’ll bounce back.”  Other camps insist that there’s no way out: We’re definitely headed for another crash, one that will easily rival The Great Depression.

I’d like to take the positive side, as I tend to be more of an optimist, but looking at the numbers, and the history of the Great Depression, I have to wonder.  I look at things such as:

Our national debt.  How long can we continue on this path?  The ever-rising national debt has gone up by over 4 trillion in the last 4 years alone.

Personal debt.  This article by the NY Times sums up the seeming attitude of a majority of Americans regarding debt: Give us a shovel and we’ll just keep on digging.  Although the article was originally written in 2008, this more recent article shows that things haven’t gotten any better.

People’s perceptions.  This 2011 Gallup poll shows that as late as 2011 Americans perceived their individual financial situations as worse, instead of better, compared to 2008 when the recession first hit.

The mirror of history.    Consider these facts documenting the months before the Great Depression, and then after the effects of Black Tuesday:

Economically, the era saw the large-scale diffusion and use of automobiles, telephones, motion pictures, and electricity, unprecedented industrial growth, accelerated consumer demand and aspirations, and significant changes in lifestyle and culture. The media focused on celebrities, especially sports heroes and movie stars, as cities rooted for their home team and filled the new palatial cinemas and gigantic stadiums.1

The Roaring Twenties was an era of great economic growth and widespread prosperity driven by government growth policies, a boom in construction, and the rapid growth of consumer goods such as automobiles. The economy of the United States, which had successfully transitioned from a wartime economy to a peacetime economy, boomed, although there were sectors that were stagnant, especially farming and mining.  The United States augmented its standing as one of the richest countries in the world, its industry aligned to mass production and its society acculturated into consumerism. (Source: Wikipedia: The Great Depression)

And there was something else that flourished during this time period: debt.   And lots of it.

Author T.H. Watkins, in his book, “The Hungry Years”, explains it like this:

To the distress of the few preachers of frugality left in the land, a postwar boom in installment buying – a dollar down and a dollar a week at its most primitive level – let millions of Americans have immediately what they might have waited years for in pre-war decades.  Instant gratification in the matter of clothes and gadgets and even automobiles bloated consumer credit from $2.6 billion in 1920 to $7.1 billion in 1929, the largest jump in the country’s history.

The postwar success and prosperity that so many Americans had experienced had left them feeling mighty fine.  Don’t worry, be happy.  Life is good.  And it was good, for a while.   But the bubble was expanding at such a grand pace that it had to burst at some point.

And burst it would.   The day of October 29, 1929, would come to be known as “Black Tuesday”.  The Dow would drop by nearly 8 percent.  But there were signs long before that, signs that the bubble was about to burst.

Almost a full year earlier, The Brookings Institution, a new think tank, had warned that the balance of the economy was “precarious”.  The economy was tipping.  Nationally, durable manufacturing, the most important single meter on the dashboard of the economic engine, was plummeting, and more rapidly than anyone could remember.  Unemployment was moving up by the millions.  By the spring of 1929, 1 in 5 American men would be unemployed.

Black Tuesday was simply the straw that broke the camel’s back.   Everyone, it seemed, was deeply in debt, including the banks.  Their precarious involvement in the stock market had affected their bottom line as well.  Banks closed, people stopped buying, factories stopped producing, and thus, there was little to no money to earn; money that had kept America prospering for the previous decade and a half or so.  And so the landslide continued to crumble down.  Those without jobs couldn’t feed their families, those with jobs would suffer wage and hour decreases.  The less people made, the less they had with which to pay their bills.  By 1933/34, unemployment was up to nearly 25%, and almost half of all homeowners were delinquent or in foreclosure on their mortgages.

As I look at America today, I can’t help but see us teetering, again, on the brink of disaster.  We seem to keep adding one more straw to that camel’s back.  But am I right, or are my fears founded on nothing more than hyped up media reports and fear-mongers spreading doom and gloom stories?  And more than that, how can we prepare ourselves to survive if another Great Depression does hit?

What do you think: Are we truly headed for another Great Depression?

 

 

15 comments

  1. I think we are pretty close. While in 2008, people started tightening down and were paying down their debts, but once they starting hearing about the economy getting better, people started to spend, spend, and spend like they did before 2008. I think we are in trouble and we have a government that has no problems spending money that is not theirs.

    • Laurie says:

      Grayson, thanks for your thoughts. I have a sinking feeling you’re right, although I’d love to believe otherwise. I feel so thankful that Rick and I have you guys and others like you that have paved the road to debt free for us to follow – thank you!

  2. Laurie says:

    Thanks, Oliver. I appreciate your insight! So, you’re thinking it’s an income issue as opposed to a spending issue, or do you think it’s a bit of both? I agree totally too about the resurgence of small business. I think people are eager to take control of their income. At least that’s an area where they can work on earning more.

    • Laurie says:

      All very good points, Oliver, and I agree totally about income not keeping up with inflation. We just can’t continue to roll like that. Thanks for sharing your perspective! Have a great weekend :-).

  3. I don’t know what happens if the government keeps spending beyond it’s means. There are so many social programs available if you don’t work, food assistance, WIC, low income housing, LEAP for heating and cooling bills, Medicaid, unemployment for two years, even a welfare check. I understand the reasoning behind programs so no one will go hungry or homeless, and for people in a bind all those things should be a temporary measure.It’s too easy to sign up and stay on forever while you still smoke two packs a day and have a flat screen TV. I ran a low income eye clinic monthly for over a year out of my office and saw it all. It is a full time job to keep signed up and eligible for all those programs. So as long as those programs are available, I don’t see the majority of people living in tent cities. However if the government can’t fund them, that’s another story. I am looking to get to the point of no debt so that if the worst happens, I could get by on very little. Maybe I’d even learn to garden, LOL. Who knows?

    • Laurie says:

      I’m right there with you, Kim! I’ve done much volunteer work in the inner city and seen the same stuff. May all of us who are working toward debt-free and financial freedom reach our goals in time to avoid whatever it is that’s coming!

  4. Great post Laurie. With the increase on things like payroll taxes, an even bigger increase on health care cost, and the debt problem that nobody seems to want to fix it’s looks as if things will eventually come to a head whether we like it or not. It’s just a matter of time.

    One thing I would like to also mention is the fact that when it comes to our government they usually don’t like to fix anything unless it’s broke. I don’t like to get political and all but that’s what’s probably going to happen.

    • Laurie says:

      I agree, Chris, those things are going to make a huge dent in the financial unstability in the U.S. We’d all better brace ourselves for the coming crash. It’s not looking too good! Thanks for the comment, and have a good weekend!

  5. Pauline says:

    Interesting thoughts. I think if we learned how to depend less on consumer goods, there would be no depression. If you make $1,000 per month and still want an Iphone and to live in a mansion, then the whole country is headed to disaster.

    • Laurie says:

      Pauline, I think you’ve hit the nail on the head. You yourself are a great example of what value-based spending can lead to in terms of choices and freedom. It seems much of the time we spend simply to have, instead of truly thinking through our purchases before we part with our hard-earned money. Thanks for the comment!

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