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  • highmyrddraal highmyrddraal Nov 9, 2008 5:01 PM Flag

    The Great Crash 1929

    Just finished reading "The Great Crash 1929" by John Kenneth Galbraith, and I am shocked by the similarities.

    Here are the top 4 reasons why the Great Depression happened:

    1. Wealth Distribution -

    This is from the WSJ (April 16th, 2008)

    "Since 1913, the United States witnessed only one other year of such unequal wealth distribution — 1928, the year before the stock market crashed, according to Jared Bernstein, a senior fellow at the Economic Policy Institute in Washington. Such inequality is likely to impede an economic recovery, he said."

    Wealthy people are not monsters, they simply have your money. They do not want to see you suffer, the problem is simply that they can only "buy so much bread". The uber rich spend money on investments and luxury. When money tightens, they do not invest, and spending 10k on a 5 star hotel in Mexico does nothing to stimulate the economy.

    2. Bank failures and banking fraud - no need to explain this as its been all of the news for months..

    3. Poor corporate structure. - This is direct from the book

    "Here as with the investment trusts, was the constant danger of devastation by reverse leverage (this is going on in the hedge fund world today). In particular, dividends from the operating companies paid the interest on the bonds of upstream holding companies. The interruption of the dividends meant default on the bonds, bankruptcy, and the collapse of the structure (think mortgage backed securities).

    Under these circumstances, the temptation to curtail investment in operating plant in order to continue dividends was obviously strong. This added to deflationary pressures (think oil and gold prices falling). The latter, in turn, curtailed earnings and helped bring down the corporate pyramids. When this happened, even more retrenchment was inevitable. Income was earmarked for debt repayment. Borrowing for new investments becomes impossible. It would be hard to imagine a corporate system better better designed to accentuate a deflationary spiral."

    4. The dubious state of foreign balance. Enough said about that...

    What brought us out of the Great Depression? WW2.

    Last week we killed 14 people in Pakistan by firing missles over the border.

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    • Great post High, today's economy is strangely similar to then. The point about the masses not having any wealth has always been tantamount in my mind. I attribute it to the greed of the wealthy, not to insult wealthy, but when the $$$$ is not circulated the wheels don't get enough grease and everybody does better when the wealth is spread around. Wages for the bluecollar worker have been gettin axed for the last 35yrs. and the white collars have just gotten better during this period, eventually you just can't keep asking people to work more hours to make the same wage. I know several couples that work two jobs each (both less than full time)to make ends meet. They can probably economise some but there is not much left fot them to cut out of thier lifestyle. I too have some fear about where this will end up one day! GLTU

    • US May Lose Its 'AAA' Rating

      http://www.cnbc.com/id/27641538

    • Surprised you didn't mention anything on War Reperations. This was a Global Depression and WWI Reperations supposedly made it worse for everyone.

      • 1 Reply to czekl123
      • Those were the top 4 per the book.

        Lots of other reasons went into it...

        We currently have a standing army in 120 countries, this does not help. Please do not believe for a 2nd we will every pull out of Iraq fully, we never will.

        Here is another quote for you guys:

        "I believe that banking institutions are more dangerous to our liberties than standing armies.

        Already they have raised up a monied aristocracy that has set the government at defiance. The issuing power (of money) should be taken away from the banks and restored to the people to whom it properly belongs."

        -- Thomas Jefferson, U.S. President.

    • It's all too obvious.

      There's no reason to rally, no reason to buy, and no reason to hold long positions.

      I'm still baffled that this market isn't selling off right now... but hey, everything in due time.

      :)

    • There are many more factors eerily similar to the 1929 crash, one is a huge run up in commodities, then the deflation of those commodities. That has happened this year and may continue. I think brief bounce here on China economic stimulus package, but then the reality will set in that it isn't going to help manufacturing at all in China. we'll see.

    • longs...?

 
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