The Stock Market Crash of 1929 and the Global Recession of 2008
78The Stock Market Crash of 1929 and the Global Recession of 2008
The Stock Market Crash of 1929 and the Global Recession of 2008
The Stock Market Crash of 1929 is described in many ways: Wall Street Crash, Black Tuesday (or Thursday, or Friday, or Monday, depending on when your country was hit the hardest) and there is no doubt that it devastated the American and the world economy. In America, the stock market crash of 1929 seemed to hit much harder than it hit the rest of the world, and even though most Americans alive today were not yet born when it occurred, the memory lingers.
Stock Market Crash of 1929 was preceded by a period of devaluation in the housing market, much like the recession of 2008 was. Although there was no way people could have seen it coming in 1929, investors in 2008 could not use that excuse. Did we not learn from history?
Of course, there were many differences between the two events. In 1929, society was caught in the grip of the roaring twenties. Women had experienced a level of emancipation, and the stock market was profitable for everyone. Times seemed easy, and everyone looked forward to achieving the American dream; wealth enough to retire and enjoy life while still young. Even experts predicted, mere days before the stock market crash of 1929, that the market would likely stay at high levels permanently.
In 2008, the world was very different. People had grown used to easy credit in the form of credit cards, loans, lines of credit, and no down payment mortgages. Most citizens had learned to treat credit cards or lines of credit as money in the bank – the attitude seemed to be that as long as you made your minimum payments each month, you’re weren’t really in debt. When the housing market started to decline, it took awhile for people to realize that their houses were no longer the assets they thought they were. In fact, many people now owed more money on the houses than the houses themselves were worth, meaning that even selling the house wouldn’t undo the damage. This is similar to what happened on Black Tuesday in 1929: things that people thought were assets suddenly turned into losses, and the decision about whether to hold out for a recovery or sell for what you could get was impossible to make without a crystal ball.
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A big difference now is the public debt. Were we to have a depression, and the tax base cratered, the feds couldn't fully economize simply by cutting operating expenses. We're still stuck with about $500 billion per year of interest on the official national debt, plus $3 trillion per year of interest on the off balance sheet debt. And this completely ignores buildup of funding required for benefit accruals in Medicare, Unemployment Insurance, etc.
We would also suffer giant defaults in over a trillion in LBO debt, and almost a trillion of consumer credit card debt.
The damage from a depression now are far higher than in 1929. Most of the debt back then was collateralized. Admittedly, the collateral (housing) temporarily took a hit, but it bounced back. Much of today's debt has no asset backing of any kind. And today's debt is a much larger percentage of GNP. Counting all forms of public and private debt, we owe well over ten times GNP.
Steve McG 14 months ago
Your house is definitely not an asset, despite most people thinking it is an asset. If it takes money out of your pocket, it's a liability. That doesn't mean I think people should not buy houses. They just need to understand what they are getting into.