Shockingly, Similar Great Depression-esque economic factors are prevalent today, just as they were during the end of the Roaring 20’s and the start of the Turbulent 30’s
No one ever refers to the “Aughties” (from 1900-1909) or the Turbulent Thirties (1930-1939) when reliving history – it’s always about the Roaring 20s or the Swinging 60s. We tend to spend little time revisiting the darker times in our recent past, and the 1930s are all too often paired up with one of the scariest times in U.S. history – the Great Depression. So as easy or convenient as it is to put the Great Depression and much of the 1930s into our collective back burners, there are global and domestic indicators in play today that show we may be marching right into another calamitous market crash – possibly not as devastating as the Great Depression, but no one ever anticipated we’d fall as hard as we did almost 90 years ago. Here are some of the ways today’s economy echoes the Depression era.
Loose lending standards: Think it’s hard to get a mortgage today? Freddie and Fannie recently lowered their FICO score thresholds to allow borrowers with scores as low as 620 qualify for a subprime mortgage. Compare that to Freddie’s standard of 660 in 2007. Think about it – we lowered our standards after the housing crisis – does that make any sense? This compares to the easy access to credit (buying on margin, anyone?) that typified 1920’s equities investing and real estate speculation.
Financing foreign markets: Today’s emerging economies and growing global entities are experiencing unprecedented influxes of cash from U.S. and European investors – just like we saw in the 1930s. Yet many of these nations and their respective economies are now being downgraded by leading ratings agencies, creating a dangerous situation for those invested in foreign debt.
Unemployment: Wait a second, unemployment is at a national rate of 4.3% as of May 2017, so how can this be in parallel to the Great Depression? Consider this – in 1928, the year before the Great Depression officially took hold, the national unemployment rate was just 4.2%. It increased to 8.7% in 1930, and a whopping 23.6% in 1932. Scary enough on its own, but also consider that today’s unemployed individual spends an average of six months looking for comparable work, and many have simply left the job market entirely or are relegated to taking on part-time work. The numbers don’t paint a complete picture.
No Government Bailouts: The Great Depression was different than the Great Recession in that the Federal Government couldn’t do much to bail out the nation in the 1930s. Today’s citizen, bloated on the idea of hundreds of social welfare programs and recent examples of the government coming to the rescue, simply expect Uncle Sam to pay off the “bad debt” like they did in 2008-2009. With $19 trillion in debt right now, there simply isn’t enough flexibility in the coffers to initiate another bailout – so we’d have to fend for ourselves if the market were to collapse, just as citizens had to in the 1930s.
Study today’s economic factors and you’ll discover far too many parallels to the Great Depression – and the years leading up to this dark time in our history. One thing is certain, though – gold was the only real safe haven during the Depression. With the Dow Jones Industrial Average down 85% between August 1929 and June 1932, gold showed a 22% increase in value. Gold is the standard hedge against market uncertainty – and it certainly looks like the market may have a chance of slipping again. For more information on adding gold to your investment portfolio, contact American Bullion today.
Although the information in this commentary has been obtained from sources believed to be reliable, American Bullion does not guarantee its accuracy and such information may be incomplete or condensed. The opinions expressed are subject to change without notice. American Bullion will not be liable for any errors or omissions in this information nor for the availability of this information. All content provided on this blog is for informational purposes only and should not be used to make buy or sell decisions for any type of precious metals.