The cause of the depression in the 30’s vs. 2008-2009

The new conversation topic at family and neighborhood gatherings is saving and cutting spending and doing without and paying down debt.

That is what turns recessions into depression, not the Fed and not Congress as they try to tell you was the cause of the depression in the 30’s. It was a period of excess where debt was too high with individuals and business and it took years to get back to normal.

The government is trying to convince people that all we have to do is have the fed put more money out or the government “stimulate” more and we can end this. That is flawed thinking. It only works if the consumer takes the money (borrows) and/or spends instead of saving or paying down debt.

The “consumer” drives the economy. The government tells us that over and over. “The consumer is 70% of GDP.”

Well, guess what happens when a consumer with a zero savings rate returns to 10% savings like they used to do 20 years ago? Think about a 10% reduction in spending, just from saving. Then think about the other things going on, like higher food prices reducing the money for discretionary spending. Think about the lost tax revenues from lower spending that is crippling the spending of cities and states.

You can’t have a society that went from saving 10% to spending that 10% and then return to saving and not have a lot of pain for as long as they are saving to the point they feel a comfort level and then slow saving and return to spending more.

2008-2009 ECONOMIC DOWNTURN IS UNPRECEDENTED; THE CAUSE AND THE POSSIBLE RESULT OF IT.

The cause of this downtrend:
1. American has been providing a excess supply for the past 30 years. People produce a lot of unnecessary products, people believe no matter what to produce, there is a customer. This is what makes retail store expanding so fast.
2. The financial system hasn’t been regulated since last crash in 1987. The lending rules are loose.
3. Europeans follow U.S lead, boost economy by increasing the debt which cause a lot of “bubbles”. Especially Americans, heavily consume with debt.
4. Banks, financial institutions, big firms speculating the future too often too good, they use future money to expand just like Enron. They race, especially the banks, competing by lending the money(see who lends faster) , which cause this suprime loan crisis.
5. House bubble, credit crisis came up together drag U.S down to the hell.
6. U.S is the biggest debtor now.
Possible result of this unprecedented global economic downturn:
Dollar’s Dominance Dipping or collapsing.
U.S losing it’s leading power in world economy. U.S financial institutions will be under supervision by outside force(because U.S needs cash injecting)
U.S may not be the most consuming nation anymore since Americans are not suppose to consume this much. China or Japan may be able to replace it.
People hate America more.
2008-2009 economic downturn is unprecedented, and so there is no way to know how steep the decline will be or for how long.

You may also want to read: http://investment-blog.net/government-wants-us-to-increase-debt-to-boost-spending/

Related Posts:

• 2008-2009 economic downturn is unprecedented; The cause and the possible result of it.
• Obama’s tax cut may not work out well for U.S GDP and debt
• The market is overpriced, but do not force your beliefs against the market.
• Trying to bail out housing is a nightmare.
• As long as you have stops to protect from a big drop and you got in early, you should be ok.

Leave a comment