MasterPo says: This blog is about topics and issues that are of importance to me. I am not one of the countless blogging lemmings that are tripping over each other scurrying down the hill and off the cliff of blogging oblivion trying to write the greatest blog on the latest topic de'jour. Your comments are welcome.

February 14, 2010

It is Not 1929 All Over Again! (Unfortunately)

Politicians and pundits love to characterize the current economic plight as being a cat's whisker away from being the same as the Great Depression. While that may look good in the headlines, and certainly some of the "symptoms" of now look the same as back in 1929 (e.g. unemployment, bank failures, etc) looks can be deceiving and in this case MasterPo believes they are.

On a recent Glenn Beck show, Beck listed 3 points as to why he believes today and 1929 are not at all similar:

1) National debt as a percentage of GDP – According to Beck, in the Great Depression the national debt represented about 15% of the GDP. That means it would take 15% of the GDP during the Great Depression to pay off the U.S. debt. By comparison, today the national debt is about 90% of GDP (and projected to grow to 95%+ in 5 years!!). That means basically everything the American economy produces would need to go to just paying the debt.

In terms of our personal lives, imagine if 90-95 cents out of every dollar you earned went to paying your mortgage or car loan or credit cards – How much do you think you have left for food? Energy? Clothing? Transportation? Etc.

2) Unfunded programs and commitments – National government programs like Social Security and Medicare did not exist in 1929. They do today. And there is no money to pay for them! There is no "social security trust fund", no pot of money or secured vault loaded with cash to pay for it. Same with Medicare. All that is paid for (barely!) on the presumption of income tax revenues (a dollar in, a dollar out). Problem is a dollar in needs to no pay $4 or $5 out! Paper doesn't stretch that far.

3) High personal debt and the lifestyle of debt – Back in 1929 credit cards didn't exist. People paid with cash for what they wanted to buy. No cash? No purchase. Simple as that. Same with most homes (very small mortgages, mostly paid with cash, certainly no 120% loans!). And people where able to make more of their own subsistence. People grew more of their own food, even in the cities. People made their own clothes (especially for children). People did much more their own furniture manufacturing (at least basic tables and chairs etc.) Unlike today where people just buy on credit whatever they feel like and push off paying for it – maybe never!

To this list MasterPo would add two other points:

4) Crushing compounded taxation! – In 1929 the income tax as we know it today didn't exist. Neither did sales tax or use tax or energy tax or a hundred other taxes, fees, licenses/registrations, and other government charges that everyone pays with every step you make during the day! By them selves it's little. But it all adds up. A single snow flake is barely noticeable. But put them all together and you have a deadly blizzard. Same with taxes.

People and businesses of the Great Depression were not weighted down already by taxes at every twist and turn of their lives! People did have to make very hard choices of spending what money they had. But it was because of a lack of income and not because their income was being taxed away with everything they did in life!

5) Vilification of people and business – In the last 2-3 years, and in the last 12 months especially, the worst thing a person can be in America today is "rich" (defined however you want). Even felons (save for perhaps Madoff) get more respect than a millionaire or a CEO. And if a business is actually doing well these days it must be trickery and theft from the poor masses! Can't be good business practice.

MasterPo is reasonably good student of history and does not recall the President or Congress or anyone (of any particular note) publicly vilifying the "rich" and business during the Great Depression. And certainly no one in 1929 was talking about raising taxes on the "rich" and business as the solution to the problem! But that's what our [so-called] leaders are saying today.

History does repeat itself.
Sometimes that takes a lot of time for the cycle to come around.
Often it can't be avoided no matter how much we want to try.

The issue is: Have we learned from the last cycle what to do in this cycle?

Seems like we haven't. Or are just totally ignoring it.

May you live in interesting times.

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