Home > General Comment > Can we survive another Great Depression?

Can we survive another Great Depression?

That would seems to be the question of the moment as the Congress reconsiders a bailout for the bloated carcass of Wall Street.

And, indeed they should, since Wall Street, as we know it, is the creature of Washington, not the other way around.

(Consider if you will, the history of Fannie and Freddie)

It won’t work, and eventually the wheels are going to come off as international investors, central banks, and sovereign wealth funds begin to withdraw their assets from the United States.

The inflows of their money is our lifeline, our feeding tube – one end in Beijing, the other in New York, from which the debt factories of Wall Street have spun off terrible instruments of debt to ensnare working families in an unending condition of involuntary servitude.

As sharecroppers found each harvest season they had only deepened their financial obligations to the planter class, so our modern sharecroppers – that would be us – find with each monthly cycle of bills ever greater need for the lifeline of credit to enable us to enter once again into the obscene relationship whereby we sell ourselves a day at a time to men and women who use phrases like, “Balance sheet going forward,” and, “Reach out to your co-workers for input.”

One would think with all our modern conveniences the answer posed by the title of this piece would be yes, but consider:

1. 85 percent of working individuals in country make nothing – NOTHING. And, unlike the Great Depression decade, are so far removed from the instruments of life – land, implements, raw materials – we hardly know what a chicken looks like with its feathers on, much less how to raise, kill and clean them. We know only how to buy them at the grocery store, prepackaged and ready to bake in our electric ovens.

2. Even if we had access to the actual instruments of life, unlike the 1930s, those instrument can only be put into motion by large masses of individuals working in common. Gone are the day when a cobbler – or whatever – sat in his tiny shop producing puppets. Just try running an oil refinery on you own!

3. Katrina.

4. I know the above does not appear to be a reason, but how long did it take for New Orleans to completely break down into chaos in the absence basic minimal requirements for modern life. How many days worth of food are available at the local grocery store in event of an economic dislocation – in your home, how much gas in your car, what difficulties would you have in the absence of electricity.

It is at times like this we may want to ask the Iraqis how they do it.

UPDATE: We got caught up in discussion on shorter working time as a potential solution to the coming (present?) economic downturn, and forgot an additional point which is the flip side of Katrina:

5. Leverage. In 1930 the number of family farms meant a large swath of people were fairly self-sufficient and could maintain their basic requirement in face of a downturn. Today, one farm worker supports about 150 persons. We call this economies of scale, but, we should also call it fragility of dependence. Farm output is heavily dependent on a thirving consumer market.

As it was, the 1930s led to wholesale destruction of agricultural products to maintain prices – and, we must emphasize again, this was despite the fact millions of Americans produced their own food. Profitability today depends on each of those 150 persons being there to absorb the output of the farmer. Even a small reduction of demand could expose large numbers of commercial farms to bankruptcy.

A similar example can be found in the auto industry which yesterday announced it had suffered reductions of 30 percent in purchases.

As we have seen in the financial sector leverage produces fantastic profits on the way up, but it leaves corporation extremely vulnerable to horrendous losses on the way down. A slight downturn will devastate agriculture, and most other industries – producing unheard of levels of bankruptcies as productive capacity is literally plowed under in a vain attempt to support prices.

We already have a word for this: Rust Belt.

  1. October 2, 2008 at 12:34 pm

    Warren Buffett was interviewed by Charlie Rose. Buffett said, “The patient that’s on the floor with the cardiac arrest is not Wall Street. It’s the American economy.” Here’s a post on the key points he made and links to the entire video and transcript: http://mathoda.com/archives/433

  2. charley2u
    October 2, 2008 at 4:38 pm

    Very good read. Thanks for your work on this – an important interview.

    However, Mr. Buffet’s words, which I have followed in the past, as in my purchase of Petrochina a few years back, are, in this instance, quite those of a false prophet.

    The future begins not with the rescue of the credit market, but with its collapse – and the collapse of the dollar, and, with it, the American Empire.

    As insane as that sounds this crisis may be the last we experience as a mass of economic actors.

    I would not have liked it to happen this way, but absent this catastrophe it seems nothing would have changed.

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