Are We In For a Greater Depression? 1929 vs 2008 DJIA

As we all know, the US economy is in all types of turmoil. The Dow Jones continues to plunge and financial institutions continue to fold. Even the mouthpieces in the MSM are getting concerned. There are some that would still argue that we are not in a recession and that we absolutely will not go into depression. I don't have as much faith as these folks, but I certainly hope that we can get out of this period with the shirts on our back.

Anyways, I was looking at some stats from the crash of 1929 and it has gotten me somewhat depressed. Take a look:



This is based on the assumption that the Dow will close at 8000 today (Friday). It looks like we are on a steeper slope than 1929. Perhaps we will see an increase next week, as they did in 1929. But even so, will the Dow only end up slipping further?

It seems like the problems we are facing today are very different than in 1929. Does this mean we will be able to bounce back with more ease? Or will we tumble even further than before?

[edit on 10-10-2008 by kawz1]

Very interesting chart. Where did you get it ?

I just threw it together myself based on the stats.

Hopefully, the Dow Jones won't follow the pattern that we saw in 1929. It looks like we are bouncing back for the day, getting close to break-even, which is a good sign, kind of, I guess?

Thanks for spending time on that for us. Star and Flag for you my friend.

reply to post by kawz1


Great work. Starred and flagged.

A chart can say as much as a thousand words when it comes to economics. I hope you update it here from time to time, (even if it does mean bumping your own thread).

Incidentally I'm still hoping this forum might be provided with some official charts relating to global market data, although there hasn't been a great deal of support as yet:

Global Meltdown Forum Needs a Market Data Graph

If you've got time, maybe you could post a graph showing the medium & long term progress of the Great Depression, using the same chart? It would provide an interesting point of reference.

i could log in for some reason (cpdaman) but i can say that some economist's prefer to look at the coming recession/depression as similiar ot the "greatest depression" of 1870.

seems most economic forums see BIG trouble's looming (duh!)

from scanning these forums the big things to watch for are when

1, the short term credit markets unfreeze . look at overnite libor and short term libor rates also the Ted spread. This first issue is something that causes imminent trouble to our economy i.e payroll being met , food , supply's being shipped. Massive unemployment being scheduled


2. A competitive devaluation in currrency's by the majority of world nations.

this was coined the "death spiral" by john rubino in an article a year ago and this week he thinks it has started. as bailouts of the financial sector (which holds increasing leverage of the govt's of this world) continue due to the debt deleveraging currency's " money" MAY become closer in value to the paper it is printed on = 0

at first as hedge funds have to sell sell sell, precious metals will fall, this is because alot of hedge funds have had to unwinds short positions in the u.s dollar as well as long positions in metals, oil, and agriculture to get cash. Depending on the amount of "printing press money" that is thrown at the financial institutions we could see gold and silver go back up when the flight to quality stops going into both U.S treasury's and gold and instead (just gold). There are lots of different economist's who argue about how this will turn out deflation then inflation, disinflation then inflation, deflation (*and a lot of the arguments are simply based on different definitions of the very terms*)

3. Foreign country's no longer purchasing U.S debt (financing the U.S.A after a loss of trust in u.s financial institutions) this would be seen by rising yields on the gov't debt i.e 1, 10, 30 year bonds. This would exasperate the recession/depression. In recessions this pattern seems to be consistent and as of july (latest data) foreign net purchases of U.S govt' debt dipped will below the 12 month moving averages.

4. losing the world reserve currency. This seems inevitable at some point soon to many. I can't kid myself to know for sure what the "elite" are thinking/planning/panicking but this would lead to much higer prices for consumers in the U.S.A . This would be heard in the news as "opec shifting to a basket of currency's". Also the current dollar denominated system has the IMF and World Bank using $ as well, also global central banks have a boat load of dollar reserves they are sitting on, so there would need to be changes in these conditions. (G7 meeting i believed discussed using dollar reserves as a means for recapitalizing banks), so that would be one step in this direction.

5. Gov't spending on massive job's program. The gov't is so pathetic and cowardly, the majority are held captive/paid off to represent the intrest of wall street and the "rescue packages" are not aimed at MAIN STREET at all, at all , at all lol. Gov't bailout packages should be used to CREATE JOBS as well as possibly help those reduce there house hold debt by restructuring there mortgage payments to reflect the new value of there house. The financial elite and there MSM cheerleaders (who love to convince mainstreet there problems are too complex for us to understand LOL) rewrite the rules all the time to put themselves in better financial positions (to "help the economy" ) now it's time to rewrite some rules for the little guy, because the situtation is getting dire.

reply to post by kawz1


That's really scary...how come no-one thought to represent it like that before? Well done....it's hard to argue with what it shows so far, although I see that it could go anywhere from here. I will be watching this thread closely and I'm sorry I can't contribute more.

Thank you again...

Cait

I sort of disagree with the representation above, so I made my own. I think it better shows what is going on in a "bigger picture" sort of way.

I made another one with the crash of 1987 on there. Its a bit harder to read with all the overlapping, but still interesting.

reply to post by MrSparkle


I was going to post the same comment. The Dow has been declining for a year now. It appeared to be a healthy correction until the reports began that the market was crashing (it wasn't). We can now see the panic sell off. The fulfillment of a self fulfilling prophecy.

reply to post by kawz1

That's a good research.

I believe that the question is whether the present downward movement can be steeper than the one that took place in the fall of 1929 where the market lost 40% of its value within 35 calendar days. The colored area bellow marks what the economists believe was The Crash of '29.



At this moment, it's not happening yet, but there is no reason to believe that the market has bottomed out. Would there be a period of 35 days where the market will have lost 40% of its value like in 1929?

Your chart takes into account a broader time period, and its trend suggests that within this time period "The Crash of 08" will venture deeper down the financial abyss than the market crash of 1929.

Are We In For a Greater Depression? 1929 vs 2008 DJIA

The problem with this is that the answer to the question does not follow. What caused the great depression was not just the stock market crash - many other events contributed that had nothing to do with it. These same events cannot occur again. For example, bank runs happened because there was no FDIC insurance. FDIC insurance prevents most rational people now from running on banks. Bank runs still happen, but its not going to happen en masse because of FDIC.

There have been many other times where the stock market has had a more dramatic drop from its peaks that were not followed by depressions - in fact, every one except for 1929.

Also, the Dow Jones Industrial Average is probably the worst possible average to use to measure the health of the economy. The DJIA is ONLY used because it has a high numerical value and thus presents the most dramatic results for the media to report on when it goes up or down. In reality, it consists of too few stocks and is not diversified enough to give any real signal about economic health. A better index to use is the S&P 500, however, that doesn't give as much gloom and thus its never used.

Bank runs are happening, they just aren't being reported. We have banks failing, on the verge of failing. Credit markets froze, the DJIA is dropping massive unemployment.

yeah your right LowLevelMason the only difference between now and 1929 is the frozen credit markets. the same events can not happen again???? look around my friend they are happening. all the regulations put in place to prevent another great depression have been removed by congress.

FDIC insurance...yeah that won't really last to much longer when more banks collapse. eventually the FDIC will run out of money

[edit on 10/12/2008 by Mercenary2007]

[edit on 10/12/2008 by Mercenary2007]

reply to post by Mercenary2007

That's certainly true. Stock market has not been a sole function of economy as a dependant variable. But the OP offers an interesting proposition regarding market performance in its historical prospect; it goes around and avoids all the guesswork designed to institute sensational catastrophism.

Originally posted by Mercenary2007
Bank runs are happening, they just aren't being reported. We have banks failing, on the verge of failing. Credit markets froze, the DJIA is dropping massive unemployment.

This just isn't based in reality. The media would love to report bank runs, but they aren't occurring. There is no reason to, as anyone above the FDIC limits have spread their money around and everyone else is under the FDIC limit. That is not to say no one is withdrawing their money and not keeping it in banks - but they are in the minority and they tend to be those who don't have serious deposits to begin with.

Originally posted by Mercenary2007
yeah your right LowLevelMason the only difference between now and 1929 is the frozen credit markets. the same events can not happen again???? look around my friend they are happening. all the regulations put in place to prevent another great depression have been removed by congress.

Except the problem is that the credit markets aren't frozen, and credit markets weren't an issue in 1929. There was nothing in terms of credit that we know of today.

I have looked around, and I see a bunch of people fear mongering and acting hysterical for no reason. Your government thanks you, as thats what they want you to do There will be no great depression, but that won't stop people from believing everything they are told.

Originally posted by Mercenary2007
FDIC insurance...yeah that won't really last to much longer when more banks collapse. eventually the FDIC will run out of money

More fear mongering not based in facts. In fact the FDIC cant really ever run out of money, since with their power they get all the money they like. And the FDIC has more than enough money and credit lines to handle quite a few bank failures, more than are ever going to occur. If the FDIC fails then you have no reason to run on the bank now, since all your cash would be worthless as it would be the economic apocalypse so many on ATS are hoping and praying for.

i've dug in to the current melt down more than i care to admit. i was being a smart ass to lowlevelmason because he seems to think the present is nothing like the past.

yes you can't just base it on the DJIA but when you add in everything that's going on right now including the government stepping in we are headed down the same road as they did in '29. only faster at the moment.

when you look at whats happening today. the unreported bank runs, banks failing, the massive unemployment that's even higher than the official 6.1% credit markets frozen, the government throwing ungodly amounts of money at the credit markets trying to free up some credit. 31 states close to bankruptcy, companies that had nothing to do with the housing boom close to bankruptcy.

the public is panicking because they see banks in trouble, Bush , paulson and Bernanke going to congress and telling them to pass the bailout bill but at the same time telling the public things are ok then reversing course overnight and saying we're pretty much screwed but we are working hard to keep it from happening.

those of us that are old enough to remember the S&L crisis from the 80's was caused by the housing market. and that caused the 87 crash.

history repeats itself for a reason, and that reason is because we haven't learned our lesson. we can't unregulate a bunch of crooks and think everything will be ok for ever.

anyone that thinks what happened in 1929 can't happen again needs to really look around at whats happening today. because it is happening again.

OP thanks for the graph i know you put some work into it and it should wake people up and drive home the point, they need to be ready for whats coming at them. i really do hope myself and everyone that's even hinting we are headed for a depression are wrong, but the deeper i dig the more i see what the markets are doing, the more interference from the government trying to stop it. the more i see we are more than likely going to see a depression worse than what they saw in the great depression.

everything that's being done right now to stop this mess isn't working and everything they are trying now is out of desperation. they've been playing the recession playbook, and nothing in there worked, they moved to the depression playbook and nothing in it is helping. they last few things they got left is to nationalize the banks, drop the prime interest rate to zero and rewrite the rules. 2 of those 3 they said they are considering just in the last couple of days.

reply to post by LowLevelMason

This just isn't based in reality. The media would love to report bank runs, but they aren't occurring. There is no reason to, as anyone above the FDIC limits have spread their money around and everyone else is under the FDIC limit. That is not to say no one is withdrawing their money and not keeping it in banks - but they are in the minority and they tend to be those who don't have serious deposits to begin with.

so i guess that the $16+ billion BANK RUN on WAMU didn't happen? The media is trying to help prevent a mass panic and bank run thats why they aren't reporting it.

The FDIC is not an unlimited supply od insurance. once they cash in the last of their bonds to cover the banks that's it. the fed can print money and lend it to them then you have massive inflation. which won't help.

Except the problem is that the credit markets aren't frozen, and credit markets weren't an issue in 1929. There was nothing in terms of credit that we know of today.

I have looked around, and I see a bunch of people fear mongering and acting hysterical for no reason. Your government thanks you, as thats what they want you to do There will be no great depression, but that won't stop people from believing everything they are told.

the credit markets are frozen. banks aren't even lending to themselves! i run my own business and have damn near perfect credit. i had a $100k open line of credit until 4 weeks ago when i was notified by my bank that they were closing that line of credit.

Bush and et al have even said they are frozen! really man you should research things before you speak. your right people are scared and they have good reason to. they aren't blind they can see their pay checks getting smaller and the cost of food getting higher. they can also see at work that they aren't as busy as they were 6 months ago.

More fear mongering not based in facts. In fact the FDIC cant really ever run out of money, since with their power they get all the money they like. And the FDIC has more than enough money and credit lines to handle quite a few bank failures, more than are ever going to occur. If the FDIC fails then you have no reason to run on the bank now, since all your cash would be worthless as it would be the economic apocalypse so many on ATS are hoping and praying for.

contrary to what you think the FDIC does not have an endless supply of money!

A March 2008 memorandum to the FDIC Board of Directors shows a 2007 year-end Deposit Insurance Fund balance of about $52.4 billion, which represented a reserve ratio of 1.22% of its exposure to insured deposits totaling about $4.29 trillion. The 2008 year-end insured deposits were projected to reach about $4.42 trillion with the reserve growing to $55.2 billion, a ratio of 1.25%.[13]

As of September 2008, the DIF had a balance of $45 billion.[14] Bank failures typically represent a cost to the DIF because FDIC, as receiver of the failed institution, must liquidate assets that have declined substantially in value while at the same time making good on the institution's deposit obligations. In July 2008, IndyMac Bank failed and was placed into receivership. The failure was initially projected by the FDIC to cost the DIF between $4 billion and $8 billion[15], but shortly thereafter the FDIC revised its estimate upward to $8.9 billion. Due to the failures of IndyMac and other banks, the DIF fell in the second quarter of 2008 to $45.2 billion.[16]. The decline in the insurance fund's balance[17] caused the reserve ratio (fund's balance divided by the insured deposits) to fall to 1.01 percent as at 30 June 2008, down from 1.19 percent in the prior quarter. Once the ratio falls below below 1.15 percent, FDIC is required to develop a restoration plan to replenish the fund, which is expected to involve requiring higher contributions from banks which deal in riskier activities.[18]

source

they don't even have enough to cover the deposits if one of the top 4 banks fail.

educate yourself my friend because right now you have no clue.

Originally posted by Mercenary2007
i've dug in to the current melt down more than i care to admit. i was being a smart ass to lowlevelmason because he seems to think the present is nothing like the past.

I don't think. I know. However, I'm not going to flail around listing credentials and degrees on the matter since I also KNOW unless someone fits the "sky is falling" story on here no ones going to listen anyways.

Originally posted by Mercenary2007
yes you can't just base it on the DJIA but when you add in everything that's going on right now including the government stepping in we are headed down the same road as they did in '29. only faster at the moment.

Completely different situations. About the only thing is the same is the fear mongering, hysteria, and panic - but that happens every time the stock market drops a lot. Which has happened quite often since 1929, I might add.

Originally posted by Mercenary2007
when you look at whats happening today. the unreported bank runs, banks failing, the massive unemployment that's even higher than the official 6.1% credit markets frozen, the government throwing ungodly amounts of money at the credit markets trying to free up some credit. 31 states close to bankruptcy, companies that had nothing to do with the housing boom close to bankruptcy.

The problem is that these things aren't happening. There are no "unreported bank runs" - as we've seen with real bank runs, the media loves nothing more than to create hysteria by reporting on them 24/7. Also, UNLIKE 1929, there is the FDIC. Which is why most people are not panicking.

As almost all states require that their budgets be balanced, 31 are not even close to bankruptcy. In fact, 0 of them are close - although many states are still plagued by an inability to manage finances that might make you want them to declare bankruptcy.

The problem is you believe all of this without proof. 6.1% unemployment is only 1.1% above full employment, which is considered to be 5%. Its completely nothing like the 20-30% unemployment of the great depression.

Originally posted by Mercenary2007
the public is panicking because they see banks in trouble, Bush , paulson and Bernanke going to congress and telling them to pass the bailout bill but at the same time telling the public things are ok then reversing course overnight and saying we're pretty much screwed but we are working hard to keep it from happening.

The public is panicking because the public enjoys panicking ("I was there during the economic collapse") and because the government and media are encouraging it. They want you to be terrified so they can get away with all sorts of stuff. And they are being VERY successful.

Originally posted by Mercenary2007
those of us that are old enough to remember the S&L crisis from the 80's was caused by the housing market. and that caused the 87 crash.

Then you would also remember the 600+ banks that failed during the S&L crises, that the FDIC covered it all, and that it didn't cause a great depression. So far, what, 15 banks have failed this year? And your ready to declare the economic apocalypse?

Originally posted by Mercenary2007
history repeats itself for a reason, and that reason is because we haven't learned our lesson. we can't unregulate a bunch of crooks and think everything will be ok for ever.

Not really, the economy is very different every time financial distress happens. And its a government lie that "deregulation" caused this crises - they want you to believe that so they can regulate you more. As Ron Paul has noted, it is regulation which caused the problems we are in now.

Originally posted by Mercenary2007
anyone that thinks what happened in 1929 can't happen again needs to really look around at whats happening today. because it is happening again.

Not even close. Although I do agree that lots of people WANT 1929 to happen again because they get some sort of sick pleasure out of watching those with more money than them lose it.

Please get some education on this. You have no idea what your talking about.

[edit on 12-10-2008 by LowLevelMason]

Originally posted by Mercenary2007
they don't even have enough to cover the deposits if one of the top 4 banks fail.

educate yourself my friend because right now you have no clue.

And this is why YOU need to get an education. I'll give you a hint: the authorizing legislation for the FDIC gives them the ability to get their hands on money and utilize treasury lines of credit that would obviously not be on their current balance sheet as they have not yet had to use it.

They are not going to run out of money, no matter how much you may want them to.

There are two parameters that help to define the Great Depression -- one is economic and the other is financial. During those bad times, 25% of work force was unemployed and about 600 banks failed each year. Both parameters are interconnected. It's too early to say that the USA is heading for these figures; there is no statistic yet to show the increasing unemployment rate destined to hit 25% with an acceptable degree of certainty, and the bank failure figures must be adjusted, because there were plenty of small banks in those times.