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The Great Depression - Could It Happen Now ?

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Watched 'Cinderella Man' last night. Russel Crowe gives an acceptable perfomance as heavyweight boxer James T. Braddock, an underdog who made good during the 1930's

The film itself is a typical Ron Howard underdog-wins-against-all-odds heartwarmer but there are some thought provoking issues in there, mostly concerning The Great Depression and how families lived during those times.

I was struck by two things in particular:

Firstly, the conformist subtext. There is one scene in particular when Braddock is having a beer with his friend and they discuss how they lost their money during the great crash. Both had invested heavily in shares and had never expected anything of that magnitude to happen. 'What are the chances ?' laments Braddock. His friend blames the system and exploitation of the masses by the bankers and political elite. Braddock puts it down to 'our own greed'. Braddock and his family accept their lot during the Great Depression. Braddock sees it as 'hard times... A run of bad luck' that President FDR will pull them out of if they have faith. He begs with cap in hand and tear in eye when the electricity gets turned off but he will not steal and he even returns his welfare money once he wins a fight and earns a few dollars. He is a True American Patriot and is rewarded by a second chance, a shot at the title and a hefty payday. His friend goes a different route. He fights the system by trying to unionize the dockworkers and even attempts to organize a 'commie' rally in a central park Hooverville. The cops smash his skull in and leave him lying in his own blood. The film ends rousingly with Braddock winning the title against the formidable Max Baer. His friend gets an unmarked paupers grave, buried alongside three other unfortunates would-be revolutionaries.

Secondly, the vivid imagery of The Great Depression. Families living on a slice of spam and a crust of bread a day, foraging for firewood and hoping desperatley that one of their kids would not fall sick with anything because it might mean they could die. The scenes of the Depression contrast greatly to the earlier scenes of the twenties where Braddock and his family live in a nice suburban detached house and are well dressed and affluent with not a care in the world.

I could not help drawing parallels to today and the Roaring Nineties, and I wonder if our generation today would have the grit to get through something like that should it ever recur. I cannot help feeling that something like this is a step away at all times, especially considering the excesses of today and the grip of the banks over our lives. All it would take would be for them to simply stop lending as they did back in the 30's. Existing loans still had to be paid, so the money in circulation slowly dried up. The structure of our debt-money system is such that a big fall in lending could easily plunge us into another depression. Throw peak oil into the mix and we might have some very trying times ahead. And while our grandfathers might have partied too much during the 20's, they were hardened from World War I and so could readjust better during the Depression. Our generation by contrast has not had to endure anything so trying on a collective basis and so the adjustment would be jarring and traumatic.

Another Great Depression during our or our children's lifetimes or is it 'different now' ?

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Impossible to anticipate people's reaction today. I have heard radio programmes where commentators have said that politicians had told them they were surprised that there was not more civil unrest during the high unemployment times of the Thatcher years.

So, maybe folk will accept much privation and "soldier on".

However I'm always surprised at how readily some will destroy things if they do find a reason.

Look how much was destroyed in Northern Ireland and in the wars in the former Yugoslavia.

Decades of infrastructure and property can soon go.

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I don't expect anything so severe for most.

But certainly expect average living conditions in the 'West' to fall to those of Eastern Europe, or therabouts.

Globalisation without protectionism will be a great leveller. As we are currently high, our living standards will fall. but it will be good for the majority of the world.

But I suspect we'll see the developed world embarking on protectionism and war before they let living standards decline too much.

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Much of the great depression was created by any elite group of bankers withdrawing credit from the USA and transfusing all money to Germany who needed it to manufacture tanks and the like in readiness for the war.

Banks create these cycles so that people borrow during a boom and then the banks can buy up all the assets during a bust for a tenth of what they were worth.

It’s a bit like a drug pusher getting you addicted to crack and then putting the price up.

Recessions and depressions are simply tools to transfer wealth from the mass to the banks and most of our politicians are involved in the plot as they are well rewarded by the bankers and at the end of the day you can stick the power, give me the cash.

We are already in a recession since our living standards are already going down and that official. Next they will tell you the recession started two years ago and it’s al over now but don’t be fooled ! just look how they twist the data on house prices if evidence was ever needed.

Germany and Russia have been replaced with India and China, Africa is being held for another day.

Don’t know about the ‘R’ or ‘D’ word, maybe the ‘F’ word if Americans fight the will of the bankers this time.

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Dr Bubb

I read your family history (i assume it's yours anyway) through a link from another post re. the depression

interesting stuff, this type of poverty echoes much of what my parents suffered in cyprus during the 40's and 50's colonial rule

no jobs or food, 6 to a room and shoes made from cheap rubber only in wintertime

I have no doubt that the wheel turns, perhaps our present lifestyles and modern industrial development are a bubble in themselves waiting to burst, a once-in-a lifetime deal driven by cheap energy that we will never experience again

William Grieder wrote an excellent book on this, 'One World, Ready or Not'

I guess time will tell what shall be, but it is definetly prudent to get used to living with MUCH less and learning some basic self-reliance skills.

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THE FILM comes out at an interesting time.

Today's dreams could well be shattered by another depression.

And those that survive and thrive will not be the sheep, who just calmly go with the herd.

It will be those who think for themselves, stay out of debt, and prepare for the winter.

Here's another memory of the Depression you may want to read:

http://www.financialsense.com/fsu/editorials/2005/1003.html

Right on. But let us be clear...the money supply in America contracted by a THIRD during the depression. Contraction of the money supply is the real reason for the business cycle - not 'sticky wages' or somesuch nonsense.

Watch interest rates, watch for Gilt issues, and watch for news of tightened lending. We are doing so on this forum, and hey, guess what?

1) Interest rates are going up around the globe...UK will surely follow or face big devaluation of sterling

2) Lending is tightening up (Portman, other lenders announcing credit tightening...)

3) People are getting scared and beginning to try and pay off their debts

4) Gordon just raised 65bn in Gilts.

The interest on loan repayments is increasing, buying gilts reduces the monetary base which banks use as collateral for lending (so they can lend less), money is being 'retired' from the economy as it is paid back to the banks, and at the same time the amount of money coming into the economy through new loans is decreasing.

See the motley fool figures for personal debt...God they were shocking! When these idiots realise that the money needs to be paid off, and they tighten their belts, it's goodbye economy. What is rational for the individual in this situation is disastrous for the wider economy.

Did I see someone write somewhere that MEW'ing expenditure accounted for 9% of GDP!?!?! Please tell me this is wrong. My God if it is then we are F.U.K.K.E.D!!!

The money supply is beginning to contract. This is what causes the misery. Now we sit back and watch as everyone suddenly begins to realise their is not enough money swilling about anymore to satisfy their Bling-Bling lifestyles. Reality bites.

Regardless of whether this boom-bust stuff happens due to a mixture of natural economics and greed/stupidity (the DrBs view and I largely agree with you DrBubb...I am not the complete conspiracy nutter you think I am!), or perhaps has an additional element of design behind it as well (sorry but I do think there is an asset grabbing element to the boom/bust cycle) - it is happening - and being aware of it can save you a lifetime of misery.

Merry Christmas!

:D:D

Edited by marko

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Banks create these cycles so that people borrow during a boom and then the banks can buy up all the assets during a bust for a tenth of what they were worth."

tend to agree with Justice on this one, although not sure about the transfer of wealth to germany. DO agree that banks drive booms and recessions/depressions by issue of debt money, and that this process is calculated and planned.

I am doing my BEST to educate people here, to take action while they still can

what are your predictions, i would be interested to hear them

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DrDub

I hold many of your posting in high regard but I do not take your criticism posted above

“THAT IS pure nonsense, and comes from the victim's mentality.”

So tell me what happens if the farmer supplies an abundance of feed to his cattle or sheep. Do they not get fat ?

What happens if the price of drugs comes down and the availability goes up.

A one armed bandit is programmed to go caching, caching a bit more regularly if few people are playing ! Do you not except that bankers could be a bit more sophisticated than this or you saying that we don’t have world banks that synchronise their actions.

Marko

Did I see someone write somewhere that MEW'ing expenditure accounted for 9% of GDP!?!?! Please tell me this is wrong. My God if it is then we are F.U.K.K.E.D!!!

i think it was 8% of GDP so when paid back with compound interest I think it will swing to about -10% of GDP.

Edited by Justice

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Marko - ah, the chicken and egg problem... Does a contracting/ inflating economy drive the money supply to contract/ inflate, or the other way round?

I tend to think that the economy has "natural" cycles, and that money supply & velocity acts as positive feedback loop (positive feedback = bad as causes greater oscillations) Some of this is to do with psychology - depression/ war kids have completely different view to baby boomers. I even see this in graduates - those who graduated in a boom are different to those that graduates in a downturn (though that is also supply/ demand driven, there is a definite upsurge in quality applicants during recession. But as an aside, many of our new graduate trainees are now coming from Tsinghua (Beijing) and St Johns (Shanghai) and boy, they are good)

Although I once managed to argue successfully that inflation & inflation expectations was the exogenous factor, and drove money supply & velocity... the equations and the causations are so woolly they can be amde to show just about anything

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Justice, the reason I don't believe in conspiracy theories is because I have been close enough to the supposed perps to know that it is **** up, not conspiracy.

I've worked for the banks, been to the business schools, had friends get elected MP's or go to the trilateral commission. And there just isn't the conspiracy. They are just normal people, just much more ambitious and driven than most. The market really does work as a conglomeration of individual actions. I do try to fix the market I am in all the time (a business should always be striving for monopoly/ oligopoly/ unique selling point to earn more than cost of capital) and it is tough (it is actually the threat of market entry that keeps me most "honest" - raise the prices/ profits too much, and extra capacity/ players would flood in, so it is important to always add the extra capacity yourself, and the prices "fair")

Then again, I would say that wouldn't I just to cover it all up...

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Some of this is to do with psychology - depression/ war kids have completely different view to baby boomers. I even see this in graduates - those who graduated in a boom are different to those that graduates in a downturn

I think you've hit on a very interesting point there. It would certainly explain why I have regularly arguments with my father about if/when I will buy a house (I'm under increasing pressure!). He is a baby boomer ('47 vintage), so in his formative years his world was getting better and better (end of rationing, country getting back on its feet after war, good demand for labour, general feelgood factor). I'm not saying it was all easy for him and his generation, but lady luck cut them a lot of breaks - he was able to buy a family home on an electricians salary mainly through good timing for example - and this would explain his general optimistic outlook.

So for him, the early nineties, when he lost his job, had to leave the family home to look for work etc etc were just a blip in a bigger story of improvement and triumph.

But for me the early nineties were when I learned what the world was all about. It was quite distressing to have my dad leave home for months at a time. Half the kids in my class at school had their dads out of work, loads of parents were getting divorced, people were getting repossessed all over the place. Hell one of thepubs in our town even changed its name to "The Recession".

So while my dad tells me "it's always hard to buy your first house, you have to stretch yourself, it'll be ok" etc etc, I just can't see it that way - I won't buy till I can definitely afford it and I will put down a huge deposit. I look at the high street full of chintzy shops selling over-priced knick-knacks in a town that has no obvious source of wealth creation to sustain this kind of luxury, and I think back to when I was a teenager and half the shops were boarded up. And I think that it could easily happen again, a thought that just doesn't cross my dad's mind.

So maybe growing up in the early nineties instead of the swinging sixties has made me risk averse. Or just a realist?

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The market really does work as a conglomeration of individual actions.

Where some individuals' actions are far more important and can have far reaching consequences for others.

Cockup or conspiracy, we each have own opinion. We are each members of different "groups" and as such it is in our own interest for those groups to survive.

If I were a politician, although in competition with other politicians both of my own and other parties, I certainly would not want to see the demise of politicians. So, are politicians necessary for the conduct of society or do they conspire to make it so?

Same with bankers, car manufacturers, unions, religions etc.

Edited by Mushroom

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I look at the high street full of chintzy shops selling over-priced knick-knacks in a town that has no obvious source of wealth creation to sustain this kind of luxury

very articulate and spot-on remark !!!

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Marko - ah, the chicken and egg problem... Does a contracting/ inflating economy drive the money supply to contract/ inflate, or the other way round?

I tend to think that the economy has "natural" cycles, and that money supply & velocity acts as positive feedback loop (positive feedback = bad as causes greater oscillations) Some of this is to do with psychology - depression/ war kids have completely different view to baby boomers. I even see this in graduates - those who graduated in a boom are different to those that graduates in a downturn (though that is also supply/ demand driven, there is a definite upsurge in quality applicants during recession. But as an aside, many of our new graduate trainees are now coming from Tsinghua (Beijing) and St Johns (Shanghai) and boy, they are good)

Although I once managed to argue successfully that inflation & inflation expectations was the exogenous factor, and drove money supply & velocity... the equations and the causations are so woolly they can be amde to show just about anything

Okonu,

You are right of course - economics represents so many interlinked and interdependent factors, all influencing each other, that it is basically impossible to work out cause-and-effect....it is such a woolly and 'dismal' science!

On the other hand, I do see the effect of lowering interest rates as the definitive 'stoker' of the economy in recent years...i.e. we have boomed on the back of a bubble in house prices brought about by cheap credit.

In summary:

Low interest rates => cheap credit => economic boom (and bubbles)

I think that this is the primary causal relationship at work here...I don't think that low interest rates were somehow 'caused' by the boom. Because I think this, I naturally will tend to assign the same causal relationship in the other direction...i.e.

Higher interest rates => contracting money supply => recession and burst bubble.

I don't think it is reasonable to say that a recession causes high interest rates somehow. I guess you could aruge that there is a time lag between BoE decisions and their effect, and in fact the BoE try to smooth the course and head-off a bubble by raising interest rates but then naturally overshoot and instead unwittingly cause a recession....but this in itself is terrible mismanagement.

I am however rather afraid that 'unwittingly' is the wrong word. I think that it is the actions of the central banks/banks (through setting interest rates and loan decisions) that are the primary driver of the boom/bust cycle. Whether this is intentional (I think so) or accidental (also alarming because it represents chronic mismanagement) is a key question of course. I am afraid that I think it is somewhat intentional: I am pretty sure it was in the great Depression anyway - they contracted the money supply by a 1/3rd!!!

p.s. you say in another post that it is just ****-ups....I am not so sure....yes society is the sum of an aggregate of peoples actions...but that is exactly my point: what if there is a group of people whose actions have a hugely disproportionate influence on economics...say with the ability to set interest rates or create money through debt? THEY have a huge influence, and to imagine that they would do it purely in the interest of wider society is at best naieve.

Edited by marko

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they contracted the money supply by a 1/3rd!!!

that is exactly what will deflate this bubble also - a contraction of the money supply. was it not said early on that the sign to watch for would be a tightening of the lending criteria ???

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Low interest rates => cheap credit => economic boom (and bubbles)

Indeed. The fundamental problem is government control of interest rates: if rates were set by individuals in a free market lending each other money, then they'd change far more rapidly to adjust to economic conditions, and few lenders would choose to lend their money out at below the rate of inflation or to people who are unlikely to be able to pay it back.

If we want to minimise 'boom and bust' (it will never be eliminated, as markets are never 'perfect'), we need to get the government out of the money business.

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OKONU

Justice, the reason I don't believe in conspiracy theories is because I have been close enough to the supposed perps to know that it is **** up, not conspiracy.”

People are close to the ground and this may explain why so many in decades gone by saw the theory “The Earth is round” as being just a conspiracy theory

I've worked for the banks” yes me too and more than one

been to the business schools” not just school but in business itself.

had friends get elected MP's” not me but know a few very rich people

or go to the trilateral commission” no just jury service for 2 weeks

but banks do work in tandem. Banks are global and are out to make a profit anyway they can.

And there just isn't the conspiracy.”

Call it what you want, business cycle, supply demand but it’s a fact that all banks in a given region will all increase or decree the lending criteria at about the same time. WHY ?

i think Marko says the same thing but in a better way than me

They are just normal people, just much more ambitious and driven than most.

Hittler was a poor student once living in the equivalent of the UMCA but he had ambitions and look what happens when this is allowed to go unchecked.

Then again, I would say that wouldn't I just to cover it all up...”

maybe you are like the loyal German citizens back in 1939 and believe what you are saying, I don’t know

Do you think it’s fair if I borrow your car and rent it out as a taxi without your knowledge and the police ensure you remain oblivious to my scam !

The same happens with peoples money under fractural reserve banking but in this instance the police are replaced with the media and the state run propaganda machine, schools also ensure our children are kept in the dark.

MarkG

If we want to minimise 'boom and bust' (it will never be eliminated, as markets are never 'perfect'), we need to get the government out of the money business.

Like you I once believed it was just government but as I have studied I have found that government has less control than I thought and in the big game have to go along with the bankers.

God help us as this world is now governed by Lawyers, MP’s and bankers. Bring back the knights in shining armour savaging the lands. :)

Edited by Justice

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Watched 'Cinderella Man' last night. Russel Crowe gives an acceptable perfomance as heavyweight boxer James T. Braddock, an underdog who made good during the 1930's

The film itself is a typical Ron Howard underdog-wins-against-all-odds heartwarmer but there are some thought provoking issues in there, mostly concerning The Great Depression and how families lived during those times.

I was struck by two things in particular:

Firstly, the conformist subtext. There is one scene in particular when Braddock is having a beer with his friend and they discuss how they lost their money during the great crash. Both had invested heavily in shares and had never expected anything of that magnitude to happen. 'What are the chances ?' laments Braddock. His friend blames the system and exploitation of the masses by the bankers and political elite. Braddock puts it down to 'our own greed'. Braddock and his family accept their lot during the Great Depression. Braddock sees it as 'hard times... A run of bad luck' that President FDR will pull them out of if they have faith. He begs with cap in hand and tear in eye when the electricity gets turned off but he will not steal and he even returns his welfare money once he wins a fight and earns a few dollars. He is a True American Patriot and is rewarded by a second chance, a shot at the title and a hefty payday. His friend goes a different route. He fights the system by trying to unionize the dockworkers and even attempts to organize a 'commie' rally in a central park Hooverville. The cops smash his skull in and leave him lying in his own blood. The film ends rousingly with Braddock winning the title against the formidable Max Baer. His friend gets an unmarked paupers grave, buried alongside three other unfortunates would-be revolutionaries.

Secondly, the vivid imagery of The Great Depression. Families living on a slice of spam and a crust of bread a day, foraging for firewood and hoping desperatley that one of their kids would not fall sick with anything because it might mean they could die. The scenes of the Depression contrast greatly to the earlier scenes of the twenties where Braddock and his family live in a nice suburban detached house and are well dressed and affluent with not a care in the world.

I could not help drawing parallels to today and the Roaring Nineties, and I wonder if our generation today would have the grit to get through something like that should it ever recur. I cannot help feeling that something like this is a step away at all times, especially considering the excesses of today and the grip of the banks over our lives. All it would take would be for them to simply stop lending as they did back in the 30's. Existing loans still had to be paid, so the money in circulation slowly dried up. The structure of our debt-money system is such that a big fall in lending could easily plunge us into another depression. Throw peak oil into the mix and we might have some very trying times ahead. And while our grandfathers might have partied too much during the 20's, they were hardened from World War I and so could readjust better during the Depression. Our generation by contrast has not had to endure anything so trying on a collective basis and so the adjustment would be jarring and traumatic.

Another Great Depression during our or our children's lifetimes or is it 'different now' ?

I haven't seen this movie, but your description of it confirms a very American attitude--that individuals must save themselves from financial ruin rather than band together and try to reform the system itself. (Anyone who does try to speak out against the system is, after all, a "commie.")

A reactionary viewpoint, and one that keeps people acting like sheep.

I personally believe that individuals have a responsibility to not get caught up in the culture's emphasis on materialism and to budget wisely. But we also need to organize to make sure the system works for ordinary folks as well as for the wealthy.

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Yankee

I couldn't agree more.

This movie is symptomatic of the conformist attitude so prevalent throughout american culture

To much of the american public, questioning the system is anti-american and unpatriotic

Another blockbuster- Forrest Gump - illustrates this perfectly. forest goes to 'nam, nearly gets blown to bits for his country and ends up a millionaire. his childhood sweetheart who joins the counter-culture ends up mixing with some very bad types and eventually dying from AIDS

pure brainwashing, albeit on a very subtle level

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My tuppence worth:

1. Tightening of lending started this week re the Portman and its decision to no longer give mortgages to BTL properties of less than 12 months old. More will follow and, in the months ahead, lending will be tightened up across the board.

2. Very few people saw the Great Depression coming. The level of discussion that we have even in the daily papers today does not compare to then let alone to the discussion on forums like this. Yes, some very clever, far-sighted risk takers saw what was coming and did OK but the majority, whether they were the poorest of the poor or the richest of the rich, did not see it coming and many, many rich people - who supposedly knew better - were wiped out financially.

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  • 301 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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