At the beginning of every alarming recession the question
gets raised whether this one is the next "Great Depression".
The answer is "yes" for the millions of people who have lost
jobs and homes. Their collective numbers have not yet created that
mass effect of tens of millions which would move unemployment to 20% and
allow the coroner to pronounce his sentence.
Some of the financial leaders who are considered smart
are now talking about the current and upcoming period as
worse than the recessions of 1987, 1998 or 2001.
John Thain, the CEO of Merrill Lynch (MER) during its last
months of independence until the credit crisis forced it into
the hands of a bank, argues "the global economy is in a deep slowdown and will
not recover quickly, and the environment recalls 1929, the
advent of the Great Depression." Since he is too young to have
been a player even in the recession of 1987, it is hard to imagine how he can have the right perspective to
make predictions about the Great Depression.
The situation which has frightened so many financiers
is that this storm is so savage in its early stages that
they are left to wonder how it will look at its peak fury.
It is not hard to imagine with unemployment rising
at the current rate that it could make it to 10%. It
is feared but not imaginable that joblessness could go
much higher. Contemplating that is just too overwhelming.
The other part of the calamity which almost no one
can reasonably imagine is that the governments
and central banks may have no real impact on this economic
crisis, no matter how much money they commit to solving
the problem. The commitments to save the financial,
infrastructure and housing systems are now into the
many trillions of dollars. So far the crisis is
The horrible scene that some imagine is
that the economy has become like a huge hurricane at sea
whose fury can not be altered. It can only blow itself out
in the atmosphere over time. The sum total of leverage built
up in the financial system over the last decade may be
so powerful that when it unwinds perhaps nothing will be
able to stop it.
The question of whether we are in or entering a Great
Depression is an epistemological one. No one can know
until it is well under way or over. There are no real methods
for forecasting it.
That leaves most people, now frightened by the prospect
of seven long years of famine, imagining the very real
possibility that they and many of their fellow citizens will
lose most or all of what it has taken a lifetime to accumulate.
They will have nothing for retirement, disability, or the
education of their children or grandchildren. Their homes
may only be worth a very little; but many will not be able
to keep even that. According to Reuters, Families are flooding homeless shelters across the United States in numbers not seen for years, camping out in motels or staying with friends and relatives, homeless advocates say.
Jobs, which often define people and gives them both a sense of community and self worth, may be lost in an instant and the economy may keep them from being reclaimed, perhaps for years.
For many, there is no historical perspective on what is happening now.
The last great economic disaster is too old for almost anyone today
to remember. It resides in a few memories, but mostly is a tale told
in books now.
Those who believe that they are in trouble cannot fathom how recently they were at the point in their lives when they had their greatest wealth, wealth beyond what their parents and grandparents had, and perhaps greater than their children would have. This was largely because they had homes. Some people had owned their homes for two decades or longer. They were worth many multiples of their original purchase prices. Those homes were like cattle were to the ancients. They could be borrowed against and saved for the value they would bring in a person’s old age.
During a sharp downturn in the economy, older citizens will certainly suffer greatly during the crisis and have less opportunity to ever recover financially. Young people, many of whom have never had any deprivation in their lives, may suffer more since they are often psychologically incapable of living with nothing and rebuilding a life on their own.
Douglas A. McIntyre