From: jscott@AFIT.AF.MIL (John R. Scott)
Newsgroups: soc.history
Subject: Re: What was the cause of the 1930s depression?
Date: 29 Sep 92 19:30:41 GMT
Distribution: usa
Organization: Air Force Institue of Technology, WPAFB OH

In article <Bv19tD.8JD@apollo.hp.com> nelson_p@apollo.hp.com (Peter Nelson) writes:
>From: nelson_p@apollo.hp.com (Peter Nelson)
>Subject: Re: What was the cause of the 1930s depression?
>Date: Wed, 23 Sep 1992 13:36:48 GMT

>In article <1992Sep21.234530.27085@elmer.is.ussprint.com> dons@is.ussprint.com (Don Stadler) writes:
>>How about both? We are still growing, after all. Once we have worked off more
>>of our debt, we'll be ready to grow again. We are already in "the greatest period 
>>of prosperity the world has ever seen". As long as we keep grwoing this shouldn't
>>change! I don't know about others, but I have paid off all my debt and now have
>>considerable savings. I will be adding to it, too!

>  You own your house free and clear?  Good for you!   Most "others" (above)
>  aren't so lucky, as the debt figures in the Economist this week (US household
>  debt = 102% of income) suggest.   Two weeks ago the Wall Street Journal
>  had an article indicating that early in the recession individuals started
>  reducing their debt somewhat, but more recently it's started to climb
>  again.  The other problem that has ocurred in the US and England is that
>  because of the housing boom of the 80's many people bought their homes
>  when the market was high and have seen huge drops in their houses' value.
>  They now have mortgages that are *bigger* than the value of the underlying 
>  property.   This makes it hard to refinance so they can't take advantage
>  of the current low interest rates unless they have enough cash to buy
>  down the old mortgage.   

>  Getting back to history:  the collapse of Germany's currency in the 1920's
>  and the US Depression of the 1930's represented two opposite apocalyptic
>  economic scenarios.   Germany experienced hyperinflation but the US actually 
>  had slight DEflation for a couple of years during the Depression. 

>  Is there any way to use history as a guide to what kind of a collapse to 
>  expect if we don't pull out of this recession?   The current Economist, and
>  an op-ed piece in Sunday's NY Times both suggest that there's a worldwide
>  shortage of capital just now:  Germany is sucking up lots to rebuild the
>  East; XSSR are sucking up lots for their efforts to rebuild; the US is 
>  trying to service massive government, corporate, and private debt; and
>  Japan, which used to supply capital during the 80's is focussed on
>  internal problems.   The Arab oil states, which also were net suppliers 
>  of capital are not enjoying the high oil prices they were during the 
>  80's, and Kuwait is still rebuilding after the war.    This all suggests
>  a deflationary 30's-style problem, in which it's probably better to have
>  cash, than say, "hard" assets like real estate, gold, etc.  On the 
>  other hand if governments try to deal with this by "reflating" the 
>  economy we could experience massive inflation and cash assets would 
>  be wrecked and "hard" assets would be safer.    Comments?


>---peter





Some "Guru" on CNBC today was talking about reflation of today's economy, he 
seems to think we are in a deflationary economic period.  He suggested that 
it would take a long time to reflate the U.S. economy and the he based his 
conclusion on the current nominal growth in the U.S. money supply as 
indicate by the M-2 money supply measurement.  He says it will take a long 
time because the Fed cannot get the money supply to grow at the current 
prescribed goals.  In my opinion he might be right, and the deflation of 
housing prices in California might be a leading indicator of further 
deflation on national basis.  Added to this can be the attempt to reduce 
the federal budget deficit via spending cuts and possibly tax increases.

John