Worse this Time

Many TV pundits, ivory tower economists, and clueless Wall Street permabulls keep trying to make the case that, despite the bursting of history's biggest credit and housing bubbles and the chaotic unraveling of unprecedented excesses and global imbalances, the sharp downturn that is already underway won't be anywhere near as calamitous as the one that took place nearly 80 years ago.

Among the reasons: policymakers are more sophisticated than they used to be, and people have wised up quite a bit since the time when the world was poised on a cliff overlooking a dark abyss.

More realistic types would argue otherwise. In fact, Jim Rawles, an author, lecturer, former U.S. Army Intelligence officer, and publisher of SurvivalBlog.com, sets out some compelling reasons why the current economic downturn could turn out to be far worse than the Great Depression in Letter Re: The Depression of the 1930s--Why No Societal Collapse?"

There are some substantial differences between our society in the early 21st Century, and America in the 1930s. With these differences, our society is now much more fragile and vulnerable to collapse. Here are a few that come immediately to mind:

Consider the Attributes of America in the 1930s :

A largely agrarian and self-sufficient society. (Now, just 1% of the population operating farms and ranches feed the other 99%.)

Not heavily dependent on computing and communications, technology, grid power, and petroleum-based fuels.

Shorter chains of supply. Most food was grown within 100 miles of where people lived.

A very small underclass that was dependent on charity or public welfare.

Lower property tax rates and lower (or nonexistent) license fees, vehicle registration fees, et cetera.

The majority of workers lived near their work.

Most displaced workers were willing to accept lower-paying jobs--even doing hard physical labor.

The entire nation was economically self-sufficient and could carry on without many imports.

Far greater self-sufficiency at the household level (domestic water wells, windmills, wood burning stoves, home vegetable gardens, home canning, and so forth)

A much lower level of indebtedness (public and private). At the outset of the Depression most families had cash savings. (We are now a nation of debtors.)

A sound currency, still backed by specie. (Although FDR's administration seized most privately-held gold in 1933, the currency was at least still fully redeemable in silver coinage until 1964.)

Lower percentage of corporate employment--so there were less risk of huge layoffs that would devastate communities

A significantly more moral society that still had compunctions and a prevalently law-abiding attitude.

A homogeneous population that largely shared common Judeo-Christian values. A much larger portion of society attended church regularly

A simpler, less extravagant lifestyle, with tastes in cooking and entertainment that did not require large outlays of cash.

Most families owned only one car (with proportionately lower registration and insurance costs), and they lived in smaller homes that were less expensive to heat.

In summary, in the 1930s it cost a lot less to live (as a percentage of income) and people were willing, able, and accustomed to "making do" without. When people lost their jobs, in many cases they didn't lose their homes because they were paid for. Many folks could simply revert to a self-sufficient lifestyle and earn enough with odd jobs to pay their property taxes....

The bottom line: If America were to experience a Second Great Depression, given the high level of debt and systems dependence, there would be enormous rates of dislocation and homelessness. And with modern-day immorality and the prevalent "me first " attitude, I have no doubt that riots and looting would absolutely explode.

Comments

[Susan]

Yep, many of us have been seeing this exact house of cards clearly for a few years now. We got out of debt, and started farming for exactly these reasons.

The only thing that scares us, is that not only are Americans now sitting ducks for whats coming. They are the most *heavily armed* sitting ducks in history, and fat and spoiled. It could become a very dark time in world history. One of the darkest in fact.

And if America throws a BIG temper tantrum at our fall from being the #1 consumers, well . . . we still have several thousand active nuclear weapons. And lots of psycho brains who figure if America falls, well, it must mean McJESUS is coming back - so why not push the button!

[roger]

Yes I must concur with the above assessment,taking exemption
with the church thing which is a crutch not a positive'
The dependence on the social net is today total.American
individualism is a fraud how much individualism is there on the
freeway at 9am? or in those little cubicles working the computer.
When I was a kid I killed the chicken,plucked it & gave it to mother
to cook. Now can you imagine a youngster or even a grown up doing that?

[Independent Accountant]

CV Myers, now deceased wrote about this in 1979. Yes, 29 years ago! The book was titled, something like: America's Coming Crime Revolution. If I can find the exact title I'll get it for you.

[Jesse W.]

While I do not think we will go into a second great depression, I do think it will take awhile to get us out of this mess. I also think that delaying the downfall of some of the companies by propping them up is a horrible idea and will only extend our troubles

Jesse W.
http://www.subprimeblogger.com

[Omitted Kingdom]

The British have a great magazine, Permaculture, that details people in cities who have gardens in vacant lots, build composting toilets, and use fire escape stairs for gardening in deep containers.

In the US, there's a woman who's written a book: Gardens Not Lawns. Every season, I buy a few extra seed packets. This summer, as I composted the remains from my Sam's Club cantaloupe, the seeds themselves sprouted so I could grow my own cantaloupes. Sam's Club also sells 25 lb bags of flour and other staples. I advise everyone to re-discover baking bread. soaking white northern (and other) beans overnight, and the glories of relish and chowchow.

My apartment has a working fireplace. I own an SAS outdoor survival manual and have a year's worth of Backwoods Home, Mother Earth News, and other survivalist gear.

[Roubelli]

I think we're already in a second great depression and just don't know it, or won't acknowledge it. Real unemployment, including seasonal workers and those newly "self-employed" who fly under the radar is probably closer to 10% nationally than 6%. Were it not for massive intervention on a grand scale, our banking system would have collapsed. The auto industry is, for all intents and purposes, destroyed. Chrysler will not survive. Ford and GM will not survive without massive bailouts. GE is asking for taxpayer money.

When the market crashed in 1929, life went on pretty much as normal for most folks. They got up the next day and went to work. Six months later it was a different story. A year after that, different still.

Corporate earnings are in the tank across the board. The ominous signs of store closings, factory shutdowns and unemployment on a massive scale are starting to show up. This will lead to another wave of foreclosures.

The collapse hasn't occurred yet. The collapse is occurring now. It may continue to occur for weeks or months. While we are fond of thinking that Black Thursday was the Great Depression, it was merely one factor that contributed to it. Stay tuned. To quote the great Randy Bachman, "You Ain't Seen Nothing Yet."

[Mike Cane]

A month ago I outlined what a collapse scenario could be like:
http://mikecane2008.wordpress.com/2008/09/24/american-gotterdammerung/

[ron]

Katrina showed how dificult it is to provide day to day food, water and other basic services in our very interdependent society. This interdependence is the basic commodity of modern life and in all probablity will be the basis for our survival vs the popular media concept of a Mad Max society. Darwin understood that models do not drive life instead adaptation runs supreme and so whatever awaits we will adapt and move along.

[Rocky]

If the day of reckoning actually comes, I wonder what life will be like on the fabled island of Manhattan. Perhaps like Berlin or Dresden or Hamburg in early 1945? But instead of the destruction being caused by a foreign attack, it will have been fomented by the locals. It is only a couple of miles from the Harlem ghetto to the posh Upper East Side, or from the Western Addition ghetto in San Francisco to billionaire Gordon Getty's neighborhood in Pacific Heights. In the late 1960's, when many US cities were hit by race riots, the country, overall, was more prosperous relative to its major economic competitors than it is today. In 2008, much of our industrial base has been hollowed out, the three American car companies are near bankruptcy, our financial system teeters on the brink of the abyss and the country is a lot less white than it was four decades earlier. In 1913, what Germans would have thought that 30 years later, their country would be going up in flames? Certainly not the prosperous German Jews who were building their mansions in the fashionable suburbs of Berlin and Frankfurt and Hamburg. If much of Manhattan goes up in flames, there won't be much of a market for co-ops at 747 Park Avenue. In all likelihood the destruction will have been caused by the co-op's neighbors now living only a few miles away, not thousands of miles away in the Middle East. Our politicians don't have much time to get the country back on a more even keel. Let's hope that they don't blow it.

[Don]

So what you're saying is that all those bitter hicks who cling to their guns and religion are the only ones who are prepared for the apocalypse those city folks created? Now THAT's ironic.

[The World's Worst Stock Picker]

I read a lot of zombie novels because I am attracted to the end of society scenarios. I must recommend World War Z and Zombie Survival Guide. And yes I believe in zombies, but those zombies were engineered in Wall Street...

I think we will be allright. every one wakes up in the morning and goes to work. Society will adjust quickly.

[Jackson]

Between '30 and '40 there were four closely spaced, severe droughts. By '37, 21% of rural Great Plains families were on federal relief. There was a large migrant work force. As well, employers imported foreign labor and cheap labor from the deep US south in order to force acceptance of low wages and horrendous working conditions. People tend to forget these things. It was the return of normal rainfall patterns and the outbreak of WWII that permitted a return to normalcy and the subsequent economic boom.

[Obamageddon]

And a shit load of that most important of natural resources, Jackson; OIL. Not any more....yet another reason this depression won't be our father's recession. We do, however, have nuclear weapons, which we didn't have in the 30's. Give me your oil...or I'll nuke you. Sounds simple, but that's what it will come down to.

[Bob]

What I find amusing is that people are still using "reasonable measures" to define the actions of both our politicians and business class.

What's the reality?

Their concerted actions are really viscous,cruel and represent a condescension and loathing for bottom 90%. They view us as serfs, who with a bit of gruel and divisive politics will always line up behind the pundits, political parties or oligarchs.

They will ration out assistance because we are about as relevant to the ruling class as those 'brown people in Asia' who die by the tens of thousands in floods and we honor them with a foot-note in the NYTs.

The Ivy League trash have created legacy money and cannot be seriously harmed by the slow motion car crash which is the US economy. And Americans have been turned into such adoring fans of these fascists they'll doubt themselves, before they doubt the system.

[deen]

Life is going on pretty much normally in Iceland. Argentina is still functioning. I think we may see rationing of oil, electricity, water - things like that. I think families may move in together - or take in roomers. People may barter rather than use cash. Victory gardens. But I just don't see the "Mad Max", "Nuclear" thing happening. I think criminals will be dealt with quickly. They aren't building those detention centers for nothing..

[Omitted Kingdom]

I don't think New Orleans after Katrina is the best comparison, perhaps NYC after 9/11. However much the financial centers mourned their losses, they were out the next day in New Jersey looking for temporary headquarters. My next door neighbor worked at the local Verizon shop and stated the NY-ers rigged the telephone lines outside the buildings, strung the wires together until they eventually resurrected telephone lines.

True, sheeple sit on interstates and in cubicles, but don't underestimate what happens when they no longer sit. In my apartment complex, after Hurricane Fran, when the maintenance crew saw the downed hardwood trees, they just shook their heads. Two tenants who for some odd reason owned chain saws actually worked together to clear the trees and open the parking lots. The local privately owned software powerhouse had the power grid functioning within 23 hours and the community and homewners who lived nearby benefited from restored power.

Somewhere I've read that TPTB figured offshoring would be survivable because there is already so much "stuff" in America; there's a cushion of junk to fall back on. Yes, I know food will potentially be a problem, but then the agri-food companies like Archer-Daniels-Midland and the rest have to do something with their assets. The university towns with university agriculture programs may do well, in a pinch. I usually think we have enough resources in America, we just don't deploy them correctly.

[VoiceFromTheWilderness]

I tend to agree that people underestimate the problems we are facing. The author you quoted seems to me to have missed a few important items:

1) in 1930 the US was a net oil EXPORTER.
2) in 1930 the US was a net exporter overall
3) in 1930 we had an established class of workers expert in their fields -- for the last 15 years we have been moving jobs of all kinds to other countries, most importantly manufacturing, and engineering. We don't have any base of real world economic strength as we head into this recession.
4) In 1930 most of the US's resources were still under-utilized (except oil). Agriculture, Mining, Fishing, etc. would all seen huge increases over the next 50 years. Wanna bet we see huge increases in agriculture over the next 50 years?
4) National Debt: I don't know the exact figure, but I do know that as a percent of GNP the US debt has never been higher, by a large margin. The US is going into a massive recession in the worst macro-economic shape it's ever been in, not as in the 30's when we were just hitting out stride in terms of productivity and hence government resources. Further, in the 1930's all of the worlds major powers were in much worse shape than we were. This is not true this time.
5) (basically implicit in the original list) The US in 1930 had a very high level of social cohesion, and a widely shared goal of making the US the place to be relative to the rest of the world. Immigrants came here with hope of a new life, now immigrants come here with hope of getting some of the trickle down. More importantly the society in general is fractured and contentious.
6) Geo-Political standing: in 1930 the US was a relative unknown, with few (no)real enemies, and widely embraced in it's willingness to help others. Now the US is widely hated (at a political level) and is not about to go around helping others, rather it is about to go around taking for itself. The result will be pullback and resistance, as opposed to embrace and enthusiastic support. Meaning? Hard to find new trading partners, hard to sell into local markets, expensive problems related to opposition. Speaking of which...
7) War: 1930 the US was not at war with anyone. Now we have 2 wars going, and new enemies being bred by arrogant policies every day. Those wars are expensive. In 1930 we didn't bear the cost of a ~800 billion/yr defense dept (factoring in all the off-budget chicanery). Where is that money going to come from now?

I'm surprised that Roubini isn't calling for a great depression. Maybe he's tired of being labelled a doomsayer.

[Joe M.]

I fully agree with VFTW. We have no manufacturing base to speak of. We are low on resources. We have a debt burdon that is beyond comprehension. The only thing we have is the world reserve curreny and that is now in jeopardy. If we lose that it will be worse the great depression.

In all honesty, the question we all should be asking is will the US survive as a country. Odds are we will not.

[Joe]

Those that think life is normal in Argentina need to read some of the people's blogs. In fact the reality of Argentina could be quite horrifying to most Americans. No security at all. Robberies anywhere any time. Home invassions etc.

There are a number of leading world economies which are already discussing dropping the dollar. This will have profound impact on our economy.

One other thing people underestimate. Americans are vastly more in debt today then we were in the 30s. Very few of us own our homes. Stop making those payments and even in this depressed world you will eventually lose your home. The roof over your head and the ground for your garden.

[it's worse than you think]

An Argentinian collapse scenario is quite plausible. Bear in mind that the current crop of Wall Street criminals has to be allowed time to shift their money out of the country first.

Perusing zombie-themed literature and movies might be a better use of your time than you think. The defining characteristic of a zombie invasion is, all of a sudden everyone around you is an enemy, or potential enemy. How much do your neighbors know about you? How might that be used against you if they are suddenly destitute?

Also, look at an overhead view of your neighborhood. Are there major roads near where you live? Heavily travelled roads are like arteries for zombies (crime). There's a reason why police stations, and the most crime ridden slums in town, are typically located on main street and very close to each other.

Are you an ethnic or religious minority in your community? Are you unpopular, or simply not well-known enough? Populism will resurge during this era and heaven help you if you're different. Zombies hunt the living mercilessly; they always know.

[it's worse than you think]

Rocky

Fortress Manhattan will be very well protected with all this hi-tech Homeland Security stuff. The bankers are clearly considered more important than the real economy. Anywhere in NYC outside Manhattan, though, is going to be no man's land. Again, you need to be more zombie-literate to understand what it'll be like. Watch Romero's "Land of the Dead". Dennis Hopper's focus on suitcases full of cash in the middle of a zombie apocalypse seems apropos for this economic cycle. Almost everyone will be caught up in a struggle to survive so that Dennis Hopper's cash is allowed to retain its value.

[russell1200]

My wifes grandfather lost a couple of farming properties in the great depression because of the inability to pay taxes on their (at that point) inflated values.

The agrarian self-sufficient lifestyle is not an easy one.