Daily Investment Interpretations

March 8, 2009

2009-3-8 A Brief Romp Through the Great Depression
    In order to deal with this, we probably need to review the Great Depression.
    It began with a bang! with the stock market crash of '29. The economy deteriorated rapidly. As I've mentioned elsewhere, there was no unemployment insurance, no savings account protection, no social security, and no welfare. The Federal Reserve initially raised interest rates and then lowered them, dropping eventually to 1%. President Hoover tried to reassure the public to prevent fear from feeding upon itself, but in the end, it destroyed his credibility. He attempted to start public works programs, but they were too little, too late.
    The stock market and the economy didn't fall all at once, but declined linearly over a three-year period. By the time the presidential elections arrived in November, 1932, the country was tilting toward revolution. Unemployment was at 25%, and the GDP had shrunk by 25%.
    Franklin D Roosevelt launched an aggressive public works program, and from 1932 to 1936, the economy slowly recovered. However, even by 1936, the unemployment rate was still 18% in 1936. Then in 1937, worried about the deficits, FDR cut back on the New Deal, plunging the country back into recession, which ended with World War II. (As the war was drawing to a close, influential economists, including the one (Stuart Chase) whose book I read at the time, expected the U. S. to fall back into recession after the war ended, when our returning servicemen began competing for jobs with all the women who had entered the workforce during the war.)
    The initial contraction lasted about three years. After that, things improved for 4 years, then fell a little but basically flattened out until the onset of World War II at the end of 1941.
    As I've mentioned elsewhere, life was basically normal for my family, and for my friends' and neighbors' families. There wasn't a lot of change during the '30's because the markets didn't support new developments. But people took vacation trips, and celebrated Christmas the way they always had. Movies were very popular. It would have been those who were unemployed who would have suffered. Some families lived in the basements of the houses they had begun to build when the Depression hit. No one went hungry.
    Tomorrow's stock market futures are neutral tonight.