| | | |  | There are many similarities between the pre-Depression era and our own.Paul Alexander Gusmorino says:
"The Great Depression was the worst economic slump ever in U.S.history, and one which spread to virtually all of the industrializedworld. The depression began in late 1929 and lasted for about adecade....The excessive speculation in the late 1920's kept the stockmarket artificially high, but eventually lead to large market crashes.These market crashes, combined with the misdistribution of wealth,caused the American economy to capsize.
(The income disparity) between the rich and the middle class grewthroughout the 1920's. While the disposable income per capita rose 9%from 1920 to 1929, those with income within the top 1% enjoyed astupendous 75% increase in per capita disposable income…A major reasonfor this large and growing gap between the rich and the working-classpeople was the increased manufacturing output throughout this period.From 1923-1929 the average output per worker increased 32% inmanufacturing8. During that same period of time average wages formanufacturing jobs increased only 8% (This ultimately causes a decreasein demand and leads to growth in credit spending)
The federal government also contributed to the growing gap between therich and middle-class. Calvin Coolidge's (pro business) administrationpassed the Revenue Act of 1926, which reduced federal income andinheritance taxes dramatically…(At the same time) the Supreme Courtruled minimum-wage legislation unconstitutional.
The bottom three quarters of the population had an aggregate income ofless than 45% of the combined national income; while the top 25% of thepopulation took in more than 55% of the national income...Between 1925and 1929 the total credit more than doubled from $1.38 billion toaround $3 billion”. (Just like now, the growing wage gap has spawnedmassive speculative bubbles as well as a steady up-tick in creditspending. Wage stagnation forces workers to seek other opportunitiesfor getting ahead. When wages fail to keep pace with productivity thendemand naturally decreases and business begins to flag. The only way tospur more buying is by easing interest rates or expanding personalcredit, and that is when equity bubbles begin to appear. That's whathappened to the stock market before 1929 as well as to the real estatemarket in 2007. The availability of credit has kept the housing marketafloat but, ultimately, the resultwill be the same.
On Monday October 21, 1929, the over-valued stock market began itsdownward plunge. It managed a brief mid-week comeback, but 7 days lateron Black Tuesday it plummeted again; 16 million shares were dumped andthere were no buyers.
The game was over.
Confidence evaporated overnight. People stopped buying on credit, thebubble-economy collapsed, and the mighty locomotive for growth, theAmerican consumer, hobbled into the Great Depression. Tariffs werethrown up, foreigners stopped buying American goods; banks closed,business went bust, and unemployment skyrocketed. Tens years later thecountry was still reeling from the implosion.
Now, 77 years later, Greenspan/Bernanke has led us sheep-like to thesame precipice. The economic dilemma we’re facing could have beenavoided if the expansion of personal credit had been curtailed byprudent monetary policy at the Federal Reserve and if wealth was moreevenly distributed as it was in the ‘60s and ‘70s. But that’s not thecase; so we’re headed for hard times. | |
