";s:4:"text";s:4245:" Even in 1932, at the depths of the depression, they wanted to shrink government spending by 25%.The Great Depression saw a reduction in government spending while we’re going to throw 10% of GDP at this thing (and potentially more).Here are a few other things that didn’t exist during the Great Depression — social security, the SEC, Medicaid & Medicare, FDIC insurance or unemployment insurance.Many of these programs were created in the aftermath of the depression so most people had no backstop at the time which only made things worse. The average GDP decline since 1948 is -2.3%, with the worst print coming during the 2007-2009 contraction. The period directly before the Great Depression and the period before the current financial crisis (sometimes referred to as the Great Recession) both had the highest levels of income inequality in U.S. history to date, followed by the two biggest economic crashes and crises to date. When money costs that much it strongly discourages borrowing. Back then there were no 401ks or IRAs or periodic contributions into the market. But the truth is that many things caused the Great Depression, not just one single event. The United States hasn’t experienced a double-digit decline in economic activity since the post-WWII recession but prior to that is was commonplace:Depending on when things get back to normal, it’s possible 2020 doesn’t end up on this list but this will likely be one of the worst U.S. recessions of the past 100 years.With so many companies impacted by the shutdown from the pandemic, the coming earnings numbers are going to fall off a cliff as well.Using data from Robert Shiller I looked back at the history of earnings declines going back to 1871:Corporate earnings fell more than 70% during the Great Depression. On its website, the Bureau of Labor Statistics The longer joblessness lasts, the more damage it does. Social Security and the Works Progress Administration, two of the most famous New Deal programs, weren’t signed into law until 1935. Bankruptcy filings In the early years of the Depression there was no safety net aside from help provided by churches, charities, labor unions and family members. Central banks around the globe have pumped liquidity into the system to make sure the plumbing of the financial markets continues to function.This was not happening during the Great Depression and it’s one of the reasons there was a run on the banks and a huge number of bank failures.During the Great Depression, they did the opposite. Economists and historians point to the stock market crash of October 24, 1929, as the start of the downturn. Earnings numbers fell more from 2007-2009 but this figure is difficult to compare over different historical periods because the rules on how companies account for earnings have changed over time.But it’s possible the fall in quarterly earnings could rival some of history’s worst drawdowns too.Some people will look at these numbers and assume we’re heading down a similar path as the depression.I don’t know how bad things are going to get because the economy has never been effectively shut down like it is at the moment. At the beginning of this recession, Our Stock Market, the … Being on the same table as 1987 and 1929 data is typically not a good thing.The levels of volatility over the past month are worse than anything markets saw in 2008 or 1987 and are on the doorstep of Great Depression levels. Still, people have tried. This is one of the reasons there a bonafide recovery didn’t take place in the years following this downturn. In other ways, we are far better off.I don’t know how things will play out because they weren’t dealing with a global pandemic back then.But I am hopeful our response to the crisis this time around means things won’t get as bad as they did during the 1930s.A Wealth of Common Sense is a blog that focuses on wealth management, investments, financial markets and investor psychology. Instead, the Today’s jobless numbers aren’t directly comparable with those from the 1930s because before 1948 the government didn’t collect employment data the way it does now.
Recent Comments