Is the Great Recession the Great Depression?
If history is an indicator of what is about to happen to the United States economy, then people need to hunker down and start shoving money under their mattress because we are in for a bumpy ride.
Some people may recall, after the stock market crash of 1929, spearheading the economy into depression, the market rallied back and then crashed even further in the early 30’s, leading the economy into a black hole worse than feared. Ultimately, WWII was the catalyst for the recovery.
The recent stock market rally and gains in GDP which followed the burst of the housing bubble, negative GDP growth and drastic drop in the S&P 500 appears to be very similar to what happened in the 30’s.
From 1929-33 the economy saw six quarterly bounces in GDP with an average gain of 8 percent, sending the stock market to a 50 percent rally in early 1930. Just as everyone thought the worst had passed, the economy sank further into the duldrums.
After four consecutive quarters of negative GDP which occurred in 2008-2009, the economy bounced back with four consecutive quarters of positive GDP in the four most recent quarters. Sound familiar…although this time the average percent gain is only 3.3 percent.
Since many of our readers weren’t born at that time, it is difficult for us to imagine such dire conditions, but also keep in mind that the United States government didn’t step in and provide as much, if any, stimulus back then, so it was remarkable that an average GDP gain of 8 percent was recorded.
Even after Obama’s tremendous stimulus package, unemployment is still rising, housing sales are falling, foreclosures are rising, durable goods orders are falling, consumer spending is down and consumer sentiment and commercial real estate is weak.
Can you imagine what the economy would be like had Obama not stepped in?
Taking all of that into consideration, I think it is safe to say that we are in a depression, or are about to head into one.
I’ve felt this way for a while. I know holding an MBA in business management and marketing doesn’t make me the most reputable source, but after David Rosenberg, an economist with Gluskin Sheff made the same call on CNBC last week, I felt confident about my assumption.
Rosenberg states the signs of an economic recovery “were unsustainable and only provided a false sense of stability.” Furthermore, he declares the country is in “a depression, and not just some garden-variety recession.”
In addition, about half-dozen analysts from firms including Goldman Sachs and JPMorgan have slashed GDP projections for 2010 to the 1.5 to 2 percent range. Considering that the first and second quarters saw 3.7 and 2.4 percent gains respectively, without doing the math, the third and fourth quarters are expected to be a lot worse in order for their predictions to be accurate.
At the same time, Chicago Federal Reserve President Charles Evans said the risk of a double-dip recession has escalated. This has worried many investors, and over the past few weeks, we have witnessed a steep decline in the broader market as well as heightened speculation about the overall state of the economy.
Even market bulls like Jim Cramer have become weary. “The markets will continue to push lower until leadership steps forward to inspire confidence that things will get better,” Cramer stated during a recent CNBC interview. “Until President Obama renews our faith in stocks, no rally will be sustainable.”
Cramer is most fearful of the job market and doesn’t see any sign of recovery until Obama steps in. “All of these housing issues could begin to go away if we create jobs, and the president needs to be the point man on employment,” Cramer said. “If he makes a real effort to fight joblessness, then and only then can this market have a sustainable rally.”
However, turbulent waters may not only be seen on this side of the Atlantic. Just last week, Standard & Poor’s downgraded Ireland’s sovereign debt, over concerns about the growing cost of its bank bail-out. This comes as concerns in Greece, Spain, Portugal and other European nations still persist.
When I asked some fellow peers what they thought, I received responses ranging from: “the beaches and hotels are filled” and “the theme parks were jammed this weekend” to “I’ve been unemployed for over a year” and “so many businesses are closing in my town”.
Yes, packed beaches are a good sign but keep in mind that Florida receives a high amount of international tourism and this may not be an accurate depiction of the economy, especially when our state’s housing and unemployment is one of the worst in the nation. I would love to speak with the people of Detroit, Pittsburgh or the mid-west, where tourism isn’t a factor. I’m sure they would have a drastically different perspective.
My purpose for writing this column is not to instill fear into everyone’s mind, but to awaken people who may not be as informed as others, so they have time to prepare for the worst, if that day comes. Like the old adage says: “It’s better to be safe than sorry.”