You constantly hear the comparisons of today's tough times to those hideous economic events during the 1930's Great Depression. Each day brings more skepticism on my part as I stand in amazement at what is happening today and what happened then (as far as I've been told).
First, although the unemployment rate is close to ten percent today, during the Depression the percentage of the population that was out of work in the United States rose to 25 percent of the workforce at its highest level. This number translated to 15 million Americans being without work in the Depression era. There are far fewer Americans out of work today and that also represents a smaller portion of a much larger 21st Century workforce which translates to about a 9.4 percent unemployment rate. That, my friend, is quite a difference. There are also a number of differences as they pertain to the current governmental structure and control today that makes a huge difference between the two economic predicaments.
But there are a few similarities to the two events too; both were preceded by credit bubbles. In the 1920's, we saw the The Roaring Twenties - a period of social, artistic and cultural energy that captured the nation's hearts and minds - as well as their pocketbooks! And most recently we created the tech bubble, the housing bubble, and an easy credit bubble that all had a definite influence on what is happening to the global economy today. Other similarities include governmental use of stimulus packages in both events as well as government interventionist policies; like a ban on short selling both today and then. That's about where it ends.
Recent times have created a global population that generally does not know how to do without. Since the end of World War II, the American population has been growing beyond its means, while government social programs have been bleeding the nation's coffers. The two countries that were defeated in World War II, Germany and Japan, have been doing better than the rest. The world rebuilt those countries and their innate industriousness has allowed them to expand economically beyond anyone's wildest imaginations. In today's world, all that appears to be over (or at least drastically slowed down) and while we hear about the possibility of an economic turn around at the end of this year, it will definitely be weak and perhaps short-lived. Some of the world's preeminent economists are now saying that they now believe massive inflation is on the horizon.
Another major difference between then and now was the non-existence of deposit insurance at the banks during the 1930's era depression which makes today's situation completely different. The U.S. government has assured the value of all U.S. deposits -- even those that are over the recently recognized $250,000 limit. So, because of this important change, no depositor will, theoretically, lose their savings, and none of the VERY large commercial banks will fail.
The current downturn is not expected to result in the double-digit inflation, unemployment or interest rates that crippled the U.S. economy back in the 1970s and early 1980s during the Carter Administration. As bad as the economy appears today, we have experienced much worse. And remember, our economy not only survived but it flourished in a big way. There is no question it will do so again. I truly believe that.
I've watched documentaries about the 1930's Great Depression and remember seeing thousands of people standing in 'bread lines" in order to eat. But just last week, I saw people standing in lines to buy the new iPhone 3G(S). That picture comparison hit me hard. A recent report said that 16 percent of teenagers and 30 percent of business people would likely buy the new iPhone model and by Friday night, the shelves were empty. I have to believe that things just aren't as bad as the media is trying to portray. Let me repeat - there is no question that the hard times we face today will improve. They always have and always will. I truly believe that.