I think we can say goodbye to the reserve currency

so you’re saying “Bye Bye Bretton Woods” ???

has it really come to that ???

we lost the true victory of World War II ???

heck of a job, georgie

Yes — one could probably figure a way to compare Greenspanvilles with Hoovervilles. Teaching this stuff for years, I found a total lack of awareness of who was Hoover — too much misidentification with the guy who headed the FBI. (You can’t underestimate the lack of Historical Knowledge.) Anyhow, there is good statistical information on Hoovervilles and the phenonema of Families doubling and tripling up in housing. (Thanks largely to one of the New Deal Programs that provided employment for underemployed economists.)

One of the huge differences I see today is that the Great Depression in Agriculture really began long before 1929. Market for Farm products was very high during and immediately after the First World War — leading to converting grasslands in Colorado and Oklahoma to crop production land. But the market fell apart in 23-24, when Europe and the Soviet Union restored ag production. It never recovered, but overproduction for existing domestic and foreign market continued, drove down prices below cost of production, and then when climate changes made the former grass-lands into the dust bowl, the ag sector was profoundly depressed. Add to this the Boll Weavel in Cotton, which dates from the mid 20’s and you see the complexity of it all. Add to this the size of the total workforce dependent on this sector, and you increase the scope of the problems.

In contrast — today and in the foreseeable future the market for Grain and many other farm products in the world market is huge. The use of ag product for potential energy is bidding up land prices and commodity prices. For the 2% of the American Workforce in Ag today — all the signals are certainly not about Depression. Moreover many landowners can increase income by installing wind turbines, with no loss of productive capacity. I personally predict that in the near future we will find small scale manufacturing moving to small town midwestern America, simply because of energy potential. It is the complete opposite of Great Depression conditions, but the favorable conditions impact a very small slice of the workforce.

If FDR had any underlying theory for the New Deal, it was to minimize competition for jobs in the private workforce, by creating conditions for keeping additional competition out of the potential workforce. With the National Youth Administration, High School students were paid to stay in school to graduate, rather than leave and compete for unskilled jobs. With ADC as part of Social Security (Aid to Dependent Children) assistance was based on an unemployed mother careing alone for underage children, when no Father was in the home. The logic behind the GI Bill as initially conceived was to keep returning military out of the workforce, by diverting them into training for higher skilled and higher value jobs. CCC which paid a dollar a day to enrollees, allowed participants $5 per month for personal spending, the additional 25 dollars went to an unemployed family, and was frequently the sole family cash support. Many WPA projects were planned along the same lines — about 21 dollars per week for 35 hours work was attractive enough to temporarily limit competition for scarce jobs, region by region. Roosevelt believed it was only when employers were forced to pay higher rates as a result of both wages and hours rules, but also because of diverted competition, that the economy could be re-inflated — which was afterall his objective. And the conditions he faced were fairly similar in all segments of the economy.

The situation today is probably very different, and should Government take an activist approach, it would have to approach sectors with more specially targeted approaches. I would, for instance, certainly do educational diversion into areas where the market has failed to deliver needed personnel — early childhood education, K-12 education, Nursing and Practical Nursing, all areas where commitment to higher professional wages would also be essential. In essence, any new activist effort would need to be predicated on comprehension of what the Germans call “Social Market Economy” in American Clothes — and this would require a huge effort to defeat the ideas from Conservatives regarding the value of the raw market economy.

So it is not the same, but it is very similar.

But note how far from most people’s everyday experience the alternative measures are. That I think is one reason that even some who are not inherently afraid to say the D-word might resort to changing the basis of comparison instead, so as to keep speaking in terms of the broadest statistics that summarize the economy, with which the average person has some familiarity. And once the use of what looks like a continuous data series (though as you say it is not, really, and partly because the event itself led to major changes in social measurement) is out there, the comparisons start.

I should think most data adjustments on labor would actually make the Depression look even worse in the numbers than it was, though it’s interesting to think about what adjustments for women’s labor might be like. So until we catch up to the GD quantitatively, as we already have with some housing data, comparing things to it is probably selling way short just how miserable the ’30s actually were for most people, is my main point.

Btw, t emphasize, I don’t think it’s impossible that we could get there; to me the path is sort of undefined, is all. Those Bushvilles, or maybe we should call them Greenspanvilles*, springing up in CA are really, really worrisome.

*Maybe that should be trademarked, especially since the dude can’t stay out of our hair. I was just having some fun calculating some of the house price growth rates (next-last column; just calc x-quarter some year/year before percent change) that Greenspan should have been informed of, but which he didn’t seem to think indicated something fishy had to be going on. 34 percent y-y growth, 2004-1 versus 2005-1 in Bakersfield!

Likewise, in Industry, the tendency was not to lay off workforce, rather many mass production industries cut wages and hours. These individuals were not classified as unemployed. As examples, in Rubber, auto tire builders were getting 11 hours work per week, and truck tire builders were down to 9 in the first quarter of 1933. Tirebuilders were a skilled segment of an industrial workforce. (Today most of it is off shore, and what is in the US is automated. The Great Grandson of the tirebuilder likely tends a computer terminal, and produces a multiple of the tires his granddad did.)

All this to illustrate the difficulty in doing comparisons. The best contrasts emerge from things that have ultimately remained the same, carloads of building lumber for instance, month by month, or sales of truck tires month by month. Such index trends can be compared so as to suggest economic activity in key sectors, such as transport or home construction.

So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in recent memory using this definition.

During the Depression, unemployment is said to have risen to 25 percent in 1933 as FDR was inaugurated. Then after abating eventually to around 14 percent when the NRA and other first term actions were taken, the recession of 1937-8, an ass-kicker by any standard, sent the rate up again to around 19 percent. (Wikipedia has a lot of this in their Great Depression articles.)

Cutting across all segments of the population, these numbers are just mind-bogglingly bad compared to anything we have now or can immediately expect. On the unemployment front, they rival nothing we have seen except present-day numbers on unemployment among teens in the labor force (Feb 2008, seasonally adjusted: 14.4 percent white, 31.7 percent black). On the GDP front, just nothing, period.

The one thing that so far is beginning to resemble the Depression era is the prevalence of householders that are underwater or otherwise at risk. And of course, housing is at least as important a sector in our economy as it was in the 1920s.

So in a general sense, when looking for a comparison, post-WWII is safer in that the reference is more likely to be similar to the subject. But in thinking about how much there still is to play out in the financial and housing sectors, getting familiar with those Depression numbers is probably a good idea; there is a chance we’ll need them. However we’re not yet there, and should probably not assume that we have to go all the way there. You know, fear itself and all.

(That recession of which they speak is happening now, oh yeah.)

Dem leadership needs to hammer some Republican ass on this.

By the way. Hi, Sara. Enjoyed your comment. Nice to see you.

At what point will the Fed Fund rate fall to zero…

I guess we find out a little more about that tomorrow.

When it does, the Fed can’t lower it anymore, so what can they do?
Maybe, impose a derivative Fund Rate?

Maybe you’ll be glad to know that the folks at the Fed have not only thought about that, but that your conjecture is in some way not far off of what they’ve come up with. These TAFs and TSFCs or whatever they are, are basically ways to open channels into the financial markets that will produce what amount to other, non-zero interest rates that the Fed can manipulate. Since FF is still above 0 (so far), we haven’t seen all that could be done with the new ideas. Who knows, maybe they turn out not to be so good, but remember, they’re meant to deal with extraordinary times.

Tin foil hat time. (Again.)

First, Put all the foreclosed housing that meets FHA standards into a management pool under the auspices of State Housing Agencies (they are contractual agents for HUD).

Second, Allow individual communities to establish not for profit management agencies. These non-profits would then oversee the rental of these properties, (in some cases hopefully to the foreclosed resident), using local market-rate rental pricing. Distribute rents 1, cover local assessments, 2, pay fees of non-profit management, 3, pay partial payments to note holder, and 4, establish escrow accounts for each renter to serve as security deposit, and once market normalizes, can be converted into partial down payment under traditional fixed rate FHA terms. Non profit management would serve as landlord for duration — responsible for repairs in essential housing systems (electrical, plumbing, heating, etc.)

My objective here is to take the air out of the bubble without destroying local government, dependent on property taxes, public education, also so dependent, and not compromising neighborhood housing values any more than necessary. I also intend to limit the exposure of tax payers to short term massive bail-outs, and spread the necessary deflation in housing values over several parties, and over time. There is also social value in limiting stress on families, keeping kids in their current schools, allowing community institutions such as churches and organizations to function and support recovery. The large scale management-maintence function would create salaried jobs for former Real Estate Agents, and for maintence crews.

Once the market for housing improves, or normalizes in a deflated status, — these non-profits would be obligated to arrange sale of property, at market rates, with preference given to those who rented, and had good records.

As I channel FDR, (and I know a lot about his administration) I think something like this is what he would do. To be sure, HUD would have a hard nosed inspector system required to audit all parts of the system.

We need to understand that the use of the term “after WWII” is not only intended to avoid mentioning the Depression, most of all it is about not mentioning New Deal Style Solutions that were identified with FDR. In fact there was no recession after WWII — yes, industry had to reconvert to peacetime products, but because of the Depression and the War, there were about 15 years of pent up demand for cars, housing, clothes, and all the rest in the system, and as a result of rationing and forced savings during the war, there was consumer savings to pay for it once it was produced. And then they came along with TV and LP records — and the late 40’s were consumer heaven. The big debate in congress in the wake of WWII was all about whether to avoid sharp inflation by keeping price controls in place, and there was a certain upset among many that the GI Bill actually put the construction of VA approved housing at the top of the list for contractors. But 16 million vets had a GI benefit, and 4 million of them bought homes in that period. (no money down, 25 years to pay at fixed mortgage rates.) (Yes, another FDR program also supported by the VFW and American Legion.)

In the meantime, before we can elect a congress willing to do such things, they can put back some of the Banking and Finance regulation they junked during the Reagan through Clinton era. Not exactly the same rules and regs, but an updated version of it all.