Wednesday, March 11, 2009

Why It Is NOT The 1930's: Reader Contest

Today a Sudden Debt first: a reader contest.*

First, some background.

Comparisons to the Great Depression are rising to a deafening cacophony emanating from the financial pundit chorus. "Worst since.." is a common opening phrase and a standard qualifier for all commentators - be they economist, banker or politician. President Obama, who should really know better, is no exception.

But no matter how one views this crisis, there is at least one crucial difference between today and the 1930's which completely alters its nature, progress and likely outcome. It is so major and obvious that I am astonished that not more people have picked up on it. The folks at the Fed and Treasury are excepted, of course, but then again they are at the very heart of this difference, so they have an unfair advantage (that's a hint, by the way).

And this is what readers are kindly invited to fill in:


The major difference is: [.................................................]


For your guide, what I have in mind can be expressed in one well-crafted sentence, a short paragraph at most. You can then enlarge on it, of course, but it's not necessary to win the contest. Being master of this blog the decision on who is the winner(s) is mine and mine alone.

And what do you win? From the immortal Stones and the late great Otis Redding: Satisfaction and Respect.


Now, for some other thoughts and observations that have been swirling inside by perma-contrarian (markets dept.) brain:
  1. I just got an email from Amazon advertising 8 new books. Seven (88%) were about the financial crisis/meltdown/bad money/bubble, etc.
  2. Nouriel Roubini is an NYU economics professor whose pessimistic views were considered outrageously doomerish two years ago - and I heartily supported him. Today he is considered a guru, appears everywhere - US and foreign MSM included - and is even invited to Davos.
  3. Citibank went from being #1 bank in the world by market cap to #184.
  4. Several "friends" and acquaintances - the same ones that scorned me as a despicable short a year ago - are now advising me to short bank stocks and buy gold because TEOTWAWKI is upon us.
  5. The World Bank just announced that the entire world would go into a recession in 2009, the first time since WWII, and Warren Buffet said that "the economy has fallen off the cliff."
  6. And as far as I know, the proper authorities have not warned of the imminent impact of an asteroid the size of Manhattan. The sky is not falling on our heads and our little Gaul village is still safe.
Caelum non caput!

Finally, a new feature: below the fold you will find voting buttons to record your reaction to this post (and all others). It's only fair: if I inflict my views on y'all you have the right to judge without having to write comments. That's what we call swift justice!

Ave, omnia.


*Or is it second time around? I vaguely remember doing something similar a couple of years ago, but I may be wrong.


  1. The major difference is... 1930 he US was the worlds largest creditor, while now it is the worlds largest debtor

    2. Gold standard

  2. major diff: ...government involvement

  3. The major difference is:

    Choose your answer

    1) China 2009 is US 1929... If this crisis is anything like 1929.

    2) This crisis is much like the "Panic of 1873", Vienna version.

    Of course, it is much more popular to talk 1929. Not because of the pain. u. But because of the glory.

    When one compare US - and Europe - 1929, these countries were at their historical peak.

  4. Technology allows us to build financial models we cannot comprehend, and instantaneous communication has compounded this opacity and risk globally.

  5. I am not smart enough to do this, and then again, I really HATE tests (contests are tests in disguise) and I haven't done them since school, so...
    In keeping with my ideological positions, I will not participate.
    Maybe I will learn something from the answers. (I have assumptions, but will not fill in.)

    Hell, why don't you turn out your own book, reorganizing the content of this blog, cash in (lol...) on it, collect the bundle, and then retire to a ? I no longer know a pristeen place that is untouched by all this mess.), to write MORE on this blog, and then a next book ?

    I also think it's too bad that you want to let people RATE your posts. I HATE HATE HATE quality control in almost any form it takes. IT also is part of the big problem that we have created...

  6. The major difference is...

    we got cable television to keep everyone placated.

  7. In 1929 US consumers had savings. Today the safe is empty. Nothing to lose... but no (easy) recovery expected.

  8. Dear Debra,

    Rest assured that rating the posts no way constitutes "quality control". Unlike politicians, I make up my own mind about what to write, popular or unpopular.

    I'm just trying to make the blog more of a 2-way thing..

    And thank you for suggesting that I should write a book. I'm flattered.


  9. The major difference is... this time we don't have the cheap energy resources to pull ourselves out

    ps- for Debra
    shoot me another comment with an email or something (I won't publish it, I promise)

  10. The major difference is the nature of debt being deflated.

    During GD I debt was mainly corporate debt in the US and public debt in Europe, now on top of that we have a huge amount of personal debt instigated by the FED as a "solution" for the corporate debt bubble of the 90s.

    So the parallel with 1929 would have been better suited for 2001, but the geniuses at the FED, Treasury, PBoC and so on, applied their "solution" to the problem and now we are facing a bigger nastier problem.

  11. The major difference is we now have color photography.

  12. The major difference is that this time the US dollar is the world's reserve currency - for now

  13. The major difference...

    the US is an incredibly wealthy nation -- before the meltdown and still today -- we are better housed, better fed, better educated and have far more safety nets. And we are fully entertained. Pundits and blogs are about keeping us entertained and many use the same entertainment approach as is common in horror movies... terrifying scenarios.

  14. 1. Today we have a social safety net.


    2. We were on a modified gold standard.

  15. One more striking difference is the Internet.

    In 1929 a random dude, as I am, would have been shocked and financially destroyed by forces that were totally unknown to him.

    This time around anybody with an internet connection, curiosity and a grasp of basic math had the chance to see it coming mainly thanks to financial bloggers and get TF out of the way from the financial point of view.

    Right now the fraction of people "getting it" is enormous if compared to the '30s and that is the only hope that in the end the world could end up in hands that are a bit better than today.

  16. After reading some other answers, I want to change my answer (if that is okay prof Hell!). I believe the answer is...


  17. This comment has been removed by the author.

  18. Because we can still drink beer! Other then that I tend to think this will not be a great depression, unless someone really screws up. If they do the great depression will look like a walk in the park. Look on the bright side 75% were employed. Those 75% got deals on houses, cars, and services. Probably never had to wait on a line either.

    This will probably look like Japan for the last twenty years. What's the big deal, the Japanese live longer then everyone else, those that want to work have a job, they have good health care, and they have a strong middle class.

    Why shouldn't stocks and housing be cheaper for the young, what's so wrong with that. To me this is a healthy correction that should reward the prudent.

  19. 1) information for anyone able to filter through the net (that's a positive change)

    2) USA ambitions backed by nukes and matching nuke wielders, a top position hard to let go and a new Great game of ultimate scale

    3) ability to wreak total havoc - heard about those "bird flue, human version" flue vaccines recently discovered in Europe?

    will think of some more, especially on the economics side

  20. Ha, I wonder if Hell KNOWS the answer or if he is fishing for the best one with his test...
    I'm sure that Hell knows Hell's answer, but then other people here may have answers as good as Hell's, right ?
    Tests seem to get lots of response though.
    I am sending you a message on your blog, Cottonbloggin. : )

  21. 1. The major difference is: [Irving Fisher + Milton Friedman] - First that comes to mind, given your hint. Bernanke seems to be taking both Fisher's and Friedman's thesises quite serious, doing what he can to prevent the well known outcome. Of course, the role of the FED and the treasury have changed as well, in large parts do to the research of these two men.

    2. The major difference is: [Smoot-Hawley] - At least we're not there yet...

    3. The major difference is: [Internet] - Not only does informaton flow much more freely, and markets being much more interwined. While the bank-run of the 30's was something everybody could see, and that could take days, it now done electronically, silent, and sudden. The very nature of a bank run have changed.

    4. The major difference is: [The EU] - The Depression of the '30s where also exacerbated by policy folly and rivalry between European powers. While there is still a risk of that today, it is indeed far smaller than it was during the Great Depression.

    However, there are important similarities as well. Like the vast expasnion of credit, change in geopolitical power, the bust after a boom in international trade, huge national debt on behalf of the host nation of the global reserve currency (UK in '29 US in '08), and certainly many more. I guess the fact that we now have nuclear weapons will make sure that in case this setback leads to global war, it's going to be pretty much different from last time...

    One last thing. From sometime after 1900, it became apparent for more and more traders that the British Empire where not able to support the global reserve currency. The process of changing the reserve currency lasted for at least 30 years, from 1914 to 1944 - a period of unprecedented volatility in both economic and political terms. Today we see a dollar system that has been questioned for quite some time, culminating with the irresponsible policies of Mr. Bush. What we see now, in the greater picture, could be part of that same process - changing the reserve currency.

    From what you hint to, I guess #1 is what you are looking for. But there are certainly other factors that makes this Depression different fomr the one in the '30s.

  22. Reserve currency status.

  23. The major difference is the dollar has morphed into a fiat currency.

  24. The major difference is the nature of money itself. The FED did have control of our money but we were still on a Gold standard. This prevented the creation of unlimited amounts of dollars out of thin air.

    Conversly, today, we have created 100's of trillions in derivatives that cannot be reconciled. This will result in a cascade failure that will take out the paper paradigm.

    Joe M.

  25. The major difference is that "Goldilocks" has been abandoned by her tycoon sugar daddies and is free to marry the workingman of her choice as the economy is progressively socialized.


  26. The major difference is: In the 1930’s there were no pre-existing liabilities like Social Security and FDIC insurance (FBA 1933 ACT) that were weighing down the potential for recovery. Both programs reduced the basic “risk” associated with life and financial health… The short term benefits outweighed the long term risk so greatly, that these programs did not evolve with the world market. Insurance, in general, leads to greater risk taking and speculation. …and “security” of any kind is costly, let alone social security that is based on life spans (and “retired life spans”) of a much larger work force that lives much longer and is more “insured” then ever!

    Just my take, Miss America

    p.s. I have about 30 other things that come to mind. Maybe I’ll throw more out later.

  27. The major difference is ...

    1. Manufacturing (especially manufacturing exports) are a much smaller portion of the first world economies.

    2. America is the world military hegemon.

    3. All nations use fiat currencies instead of a direct gold standard.

    4. Agriculture is much less labor intensive and much more energy intensive.

    5. The dollar still retains reserve currency status.

    Of these, I think (2) and (4) will end up being most important, in terms of effects over the next decade.

  28. The major difference is: Quantitative Easing.

  29. Just in time delivery.

    Go check the amount of backstock on the shelves at Wallyworld and be very affraid.

  30. Tord Steiro,
    Number 4 : Don't count on it in the least. When (as, I should say...) the meltdown happens, it will be each and every country for its own. The European Union will disintegrate as each individual country fights to keep its economy above water.
    This is already happening, I think in the attitude of Western European countries toward the perilous banking situation in the former Eastern Block countries. But I think that Hell has already posted about this fact here.

  31. (I really should be doing something responsible right now, but this is fascinating)

    1) Global population explosion

    Hmmm. Too abstract.

    1b) Demographics. 1930 had a high % of population that were self-sufficient farmers. The % of US population that had "skin in the game" (stocks) was much smaller then.

    Hmmm. True, but "non-players" were effected too.

    1c) Employment had to be kept in the US since we didn't have the transportation capabilities in 1930 that we do now. Production efficiency is much higher overall so less employees are needed.


  32. The major differences are:

    1) There is no Hitler (yet).

    2) The availability of Everything hangs on the end of a 20,000 km JIT supply chain.

  33. The major difference is deposit insurance and willingness of the Federal Reserve to intervene in the financial system to stem a banking crisis.

    Still think the tax payer will get screwed in this regime but probably better than 25% unemployment and a banking panic.

  34. The difference is:

    Nuclear weapons. The US can destroy anyone it owes money to.

  35. The major difference is the central banks' willingness to monetize government debt--and eventually to purchase equities (to prevent an "unfair" mark-to-market event, lol).

  36. Let me rephrase: Helicopters.

  37. Alessandro for the win, I think. The nature of the debt is different now.

    And yes, many people with basic math skills and an internet connection had sense enough to know when to get out -- or at least got out somewhere that looks genius from where we are now. They are not talking about it much, but I know of at least 3 near retirement boomers that did just that and don't want their newly poor friends to realize it. They are playing poor like everybody else but sitting on their pile of shrewdly kept gains.

  38. Two big differences between now and the 30's are the lack of bank runs due to FDIC insurance protecting depositors and the fact that we aren't simultaneously experiencing an ecological disaster like the dust bowl.

  39. Difference is because now they manipulate all the "official" data to such an extent that it would literally take 50% unemployment and negative 50% GDP to equal the figures of the 25% unemployment and negative 25% GDP of the GD.

  40. The major difference is time to market for new productive business opportunities that don't require bricks and mortar to function.

  41. The Great Depression resulted from the instabilities at the start of the 20th century price revolution while we're now at its end.


  42. 1: Lack of a gold standard allows for the over-leveraging of both the Fed Reserve and Treasury balance sheets. This was certainly not possible under full convertibility pre-1934 and externally after confiscation.

    Interesting times. My vote goes for 1951. The year started off with 0% inflation and ended the year at 9.1% (US), 20% (Germany), and 30% (Sweden).

    Best regards,


  43. The major difference is that in the 30's we were entirely energy self-sufficient and even exported oil. Now we import over 60% of our liquid energy requirements from a declining resource base.

    The fiat/gold standard would be my second choice.

  44. dweama said...
    The major difference is (through this two-year old's eyes) that: the men all wore hats, and they were all sooo serious.

  45. Is it a "vote early, vote often" contest?

    1... television

    2... basic necessities were a much larger fraction of income/savings.

    3... we had a lot less "spare tires" than we have today

    4... birth control

  46. * We had Allen Greenspan steering this ship
    * Debt to GDP is higher
    * Politicians absolutely caving to financiers
    * Complex financial instruments that allowed investment bankers, hedge funds, banks, to create/hoard mass amounts of ficticious wealth that will be bought/paid for by the working class
    * Debtor nation (last I checked the UK was the debtor nation during the GD I, and had a worse go of it)
    * Natural resources stretched
    * Larger sense of entitlement
    * We are armed to the teeth - yet we can't win a war in a country that has been already bombed to the stone age
    * We had a Treasury Secretary that mentioned Martial Law if he did not get $700M to distribute accordingly
    * A greater percentage of people employed in totally unproductive endeavors

    * The Federal Reserve
    * The middle class taking it on the chin
    * Tent cities - we are in the early stages of this crisis and some locations are stretched to provide basic necessities to people


  47. It's 2009 and not 1929.

    No one knows what's gonna happen. It's only just begun.

  48. The major difference is....

    US of 2008 is like Germany of 1920s, and this crisis will be the terminal one unlike 1930s.

    Hell, Remember who shorted oil around $150, don't you? :)

  49. The major difference is the US had a national debt of 16 Billion. Today it's 10 Trillion. Then 60% of the population lived in a rural setting. I don't know what percent does now, but those that don't will starve sooner than those who do.

    I'll bet you didn't know the price of oil doubled 1931-1939.

  50. from my twitter a couple weeks ago: why this isn't USA 1930's: they had a gold standard, a trade surplus, little debt as a nation, no credit cards, and no massive debt.

  51. The major difference is in the great depression the customers did not trust their banks; today, the banks [regardless of how liquid they are] do not trust their customers.

  52. One of the differences that effects the market, other than numerous others mentioned in the comments is the speed of creation and transmission of information.
    We create information and digest information at alarming speeds these days.
    I bet that if there was a "Roubini" in the depression days, many probably did not know about him. I think this will effect the way the bubble of uncertainity is created and destroyed.
    Contrarian indicators are used by sophisticated traders and even in 2001's bear market lot of ordinary investors never discussed these. These days everyone talks about them as if they are market's rules.
    This is one of the reasons why we might not see the capitulation at the bottom that everyone has been anticipating.

  53. The major difference is that in 1930 the world's population was 2 billion and largely rural, and in 2009 the population is now 6.7 billion and tipped this decade to become majority-urban. Any depression now will ultimately be inflationary, not deflationary.

  54. The major difference is ...
    I can get a suit from more places
    with a ounce of gold than i could in 1929 with a ounce of gold...

  55. props for Asterix reference

  56. Today we have a Fed boss who's an expert on the Great Depression, and who will do everything in his power to prevent this recession from degrading into a depression.

    Back then, the Fed adopted a "Let's sit back and let the market fix itself" strategy, which failed miserably.

  57. 1. The printing presses run much faster in 2009.

    2. It's not 1929, 2000 was the analog of the crash. This is 1933 and we have just started the FDR rally.

    3. US is more like Britain in the 1930s. Empire in decline, heavily in debt.

    4. China is the manufacturer that US was in the 1930s.

    5. There is less oil in 2009 and more users.

  58. This time around, we won't plow crops under to maintain commodity prices - Instead, we'll turn them into BEER.

  59. iPods.

    And constant media coverage of the mess.

    That's about it.


  60. Would you say the major difference between the depression of the 1930's and today's is the bailout money? Not sure, that's why I'm not in the contest. Did Warren Buffet really say the economy has fallen off the cliff? I was under the impression that he is still bullish on the stock market.

    Evelyn Guzman (If you want to visit, just click but if it doesn’t work, copy and paste it onto your browser.)