A man of the bourgeoisie states this...
SRD states all is well and there are 4 more decades of economic
dynamism of the USA...
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http://www.timesonline.co.uk/tol/comment/columnists/william_rees_mogg/artic=
le4326794.ece
This recession could easily tip into a depression
The experience of the 1930s makes me think that the present downturn
will be relatively long and difficult
William Rees-Mogg
Today I am celebrating my 80th birthday, an age that seems less
formidable when one has reached it than when one can see it only from
afar.
I was born on July 14, 1928, about 15 months before the American boom
of the 1920s came to its rather abrupt end. Like everyone else, I am
naturally curious to see whether the global credit crunch is going to
be a brief interruption in global prosperity, or the prelude to a
longer and deeper depression.
I cannot claim to have clear memories of the 1929 Wall Street Crash,
which occured when I was 1year old, or of Britain leaving the gold
standard in 1931, when I was 3 years old.
I do however, remember newspaper articles about the later stages of
the Depression. In the 1930s, my parents read The Times, the Financial
Times and the Daily Mail.
I can remember the news stories of the Jarrow march of the unemployed.
I also remember discussing with my mother a lead story which re****ted
that farm workers' pay was to be raised 6d (2p) to what would now be
=A31.50 a week. The depression was a fact of existence in the North
Somerset coalfield up to the outbreak of war in 1939.
Fortunately, there has only been one Great Depression in my lifetime,
but there has also been a Great Inflation. In 2006 Pickering and
Chatto, which I refounded in the 1980s, had the good timing to publish
a three-volume History of Financial Disasters, under the general
editor****p of Mark Duckenfield.
His introduction to the 1929 crash on the New York Stock Exchange
makes an im****tant point: =93Most of the stock market's loss in value
took place in later years as the Depression deepened. Three years
after its initial crash and shortly before the 1932 election, the Dow
Jones Industrial Average had fallen to 34, a loss of more than 90 per
cent in less than three years. The Dow did not return to its 1929 peak
of 381 until a quarter of a century later at the end of 1954.=94
On that basis, stock markets would get back to their 2007 levels in
2032.
There are various ways of measuring a recession. These are reasonably
useful when applied to minor fluctuations of the stock market, or to
minor adjustments of the world economy. But the big booms and slumps
need to be measured by their broader impact over time.
The Great Depression can be regarded as lasting for ten years from
1929 to 1939; the Great Inflation ran for a similar period, from 1973
to 1982. Even these dates could be challenged, since both events were
preceded by a build-up of debt and other warnings of trouble. Both
were followed by aftershocks.
One can even argue about the correct date to take as the starting
point of the present recession. It was certainly preceded by two great
American bubbles, the dot-com bubble of the late 1990s and the US
housing bubble of this century. On one view, the present recession
began on August 7, 2007 - only a year ago - when the sub-prime
mortgage crisis came to the surface. That date could also be used to
mark the bursting of the US housing bubble, which is still having so
damaging an impact on mortgage banking.
Alternatively, one could reasonably start the present recession from
the bursting of the dot-com bubble itself, which was the beginning of
a bear market on Wall Street. That happened in the early months of
2000, already eight years ago. If this is a depression, it is a matter
of choice whether one regards it as one or eight years old.
A big inflation has many of the same consequences as a big depression.
That is why many people made a dangerous mistake in the early 1970s.
They saw that inflation was the immediate threat and assumed that it
would raise the value of capital assets while liquidating debts. In
fact, it raised interest rates on debt and actually reduced the value
of many capital assets.
The inflation of the price of oil after 1973 was accompanied by a
collapse of the British property market and the insolvency of the
secondary banking sector in London. It is obvious that a big
depression is bad for investors; a big inflation is bad for them as
well.
The present recession has some characteristics which make me think
that it will be a relatively long one. The recession is centred on
banking and property. In an ordinary recession, one has to wait for
consumers to regain their confidence, which, in turn restores the
confidence of business. Now one has to wait for the bankers as well.
At present, banks are too anxious even to lend to each other, let
alone to expand consumer credit or business loans.
This recession has produced a succession of nasty surprises. Things
are always proving to be worse than anyone had expected. Last week the
crisis spread to the American mortgage giants Fannie Mae and Freddie
Mac, created by President Roosevelt in 1938.
These are far bigger than the investment bank Bear Stearns and
Northern Rock put together. They have brought the crisis from the
level of billions of dollars, to the level of trillions. No doubt they
will be saved because the US would be bust if they went down. But you
cannot save six- trillion-dollar institutions without suffering on a
large scale.
The debt crisis, the banking crisis, the property crisis, the oil
crisis, the ****ft to Asia, the bear market in stocks, are huge global
adjustments that have all come together at the same time.
If my birthday does not prove to be another Black Monday on Wall
Street, I shall think myself rather lucky. There is now a momentum of
negative events sweeping away financial flood defences; in the 1930s
that force overturned democratic governments as easily as it
overturned banks.
Before we get back to balance, we may see dramatic changes in
politics, as well as in business and finance.
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