MY EYES were glued on Suze Orman, well-known personal finance expert and author, as she affirmed to Larry King yesterday on Larry King Live on CNN that the current crisis is comparable to the Great Depression. See the rush transcript here .
Because of the US subprime crisis, the US big banks are falling, and so does everything else—stocks, yields, even the super insurer AIG, so it does seem like the sky is falling worldwide. After Bear Stearns, Lehman Brothers, and Merrill Lynch, two other banks—Morgan Stanley and Washington Mutual–are up for grabs. Just a few hours ago, news came in that central banks in other countries are pumping cash into their economies to help stabilize markets.
So, is this really the Great Depression 2.0?
The Great Depression happened in 1929 when the US stock market crashed on October 29, which has since been referred to as Black Tuesday. Crop prices fell, trade declined, businesses closed, incomes diminished, jobs became scarce, and in Gone With the Wind, Scarlett O’Hara had no choice but to face poverty. It was a devastating event for people who just experienced prosperity in the roaring ‘20s. It spread from the US to other countries and lasted into the late ‘30s when World War II began.
Historians say the great imbalance of wealth and stock market speculation caused that 1929 Great Depression. The rich became so rich, while the rest of America discovered credit, and soon consumers had so much debt they couldn’t buy every new thing coming out of assembly lines. Farmers also encountered an over-supply situation in the international market, so prices fell. Then it snowballed from there.
But thanks to government reforms and assistance, the US and other countries got back on their feet. Economic slowdowns happen, but they don’t last forever.
Since then, financial reforms and restrictions have been put in place, so we stand a greater chance of bouncing back faster from economic setbacks. As the Bangko Sentral ng Pilipinas says, RP banks are safe.
A New York economist shares the same view. Mark Getler, an economist from New York University, was quoted by Wall Street Journal saying: “This has been the worst financial crisis since the Great Depression. There is no question about it. But at the same time we have the policy mechanisms in place fighting it, which is something we didn’t have during the Great Depression.”
So business goes on. Back to work, guys.
September 19th, 2008 at 7:58 am
Please do make a piece about the dichotomy between Finance and the Real Economy and how the debasement of fiat currency created the condition for this current implosion.
Hey, why bother with Getler when Roubini is available?
http://www.rgemonitor.com/
September 19th, 2008 at 7:48 am
Ok, for starters what is the best asset class that where you can park your hard earned money for the next 2 to 5 years that will give you a positive risk adjusted return?
Show me, show me, show me?
Then we we go back to this simplistic assurance of the blogger.
See you in 5 years. Ciao.
September 19th, 2008 at 12:05 am
I wrote a two post on the subprime mortgage crises. Watch the funny youtube videos that let’s you understand the subprime mortgage crises more easily at the same time find yourself laughing to your heart’s content.
http://www.zdiaz.com/index.php/2008/09/18/subprime-mortgage-bloopers/
http://www.zdiaz.com/index.php/2008/06/20/idiots-guide-to-the-subprime-mortgage-crises/
September 18th, 2008 at 9:38 pm
You don´t know what is coming soon, this is just the beginning… who’s next???
September 18th, 2008 at 6:17 pm
incisive.
a rare piece that enlightens the reader and does not add to the panic of the not-so-financially literate public.