October 29th,

[The Scholar]

1929...the day the bubble burst!

The roaring twenties came to an end and the Great Depression of the thirties began shortly afterwards.

Since this day, there have been several times where stock markets took major tumbles over a period of time or suffered a one day severe correction. Yet, an economic depression did not result, but we have suffered through several serious recessions. Many of you may remember the 1981/82 recession in Canada.

However, is it possible that October 29, 1929 could happen again? Would it be possible given the controls imposed on stock exchanges by legislation and exchange regulations?

Your thoughts.

Regards.

 

[Cardinal Fang]

Can't we just make fun of The Doctor instead?

 

[Cobra1]

However, is it possible that October 29, 1929 could happen again? Would it be possible given the controls imposed on stock exchanges by legislation and exchange regulations?

Regards.

IT is possible, if the conditions that preceeded 1929 returned - while we have a debt driven economy, it is doubt ful that we could be as overleveraged as in 1929. See Japan in 1989 - leveraged asset pledged against leveraged asset etc - while the economy carries alot of debt, our cashflow to service it is fairly strong and growing. The biggest risk currently sits with Fannie Mae - who may have a mismatched lending book - but it wont repeat of 1991. The 1991 recession could have lingered for years - but the US was so smart in packaging all the dead real estate loans into Resolution Trust, and allowed bansk and S&Ls to clear up their books and drive on. Compareed to Japan, which chose instead to linger under the burdens of "honour" and interconnectedness for 14 years etc.

The Hoover govt did exactly the wrong thing in 1929. Instead of injecting liquidity into the system, like Greenspan has done for the ASian crisis, Russian crisis, y2k and 9/11 - they actually reduced money suppy which only made it worse and prolonged the recession/depression. The Fed wont make that mistake ever again. What the Fed needs to do now, post 9/11 is gradually withdraw liquidity fromthe system and also increase interst rates to put ammunition back in their hands in order to deal with another crisis should it happen again. Looking past this US election, expect the economic growth to slow alittle as a result.

When Robert Rubin made his 2 minute speech when Long Term Capital blew up - that was a pivotal moment as we could have been pitched into a global recession, instead the Fed and Dept Comm turned on the taps, and the world was calmed. His 2 min speech allowed people to leave assets in place.

Our banking systems are better now also in Na. But recall they are leveraged instruments. The US banks were probably as leveraged in 1929 as China is now - with very little equity, huge non performing loans on assets that are over valued. If your concerned about a 1929 melt down, it wont be here, China is where is has the highest risk of happening - we will feel impacts to resources etc - but it wont take us down.

 

[langeweile]

Re: Re: October 29th,

IT is possible, if the conditions that preceeded 1929 returned - while we have a debt driven economy, it is doubt ful that we could be as overleveraged as in 1929. See Japan in 1989 - leveraged asset pledged against leveraged asset etc - while the economy carries alot of debt, our cashflow to service it is fairly strong and growing. The biggest risk currently sits with Fannie Mae - who may have a mismatched lending book - but it wont repeat of 1991. The 1991 recession could have lingered for years - but the US was so smart in packaging all the dead real estate loans into Resolution Trust, and allowed bansk and S&Ls to clear up their books and drive on. Compareed to Japan, which chose instead to linger under the burdens of "honour" and interconnectedness for 14 years etc.

The Hoover govt did exactly the wrong thing in 1929. Instead of injecting liquidity into the system, like Greenspan has done for the ASian crisis, Russian crisis, y2k and 9/11 - they actually reduced money suppy which only made it worse and prolonged the recession/depression. The Fed wont make that mistake ever again. What the Fed needs to do now, post 9/11 is gradually withdraw liquidity fromthe system and also increase interst rates to put ammunition back in their hands in order to deal with another crisis should it happen again. Looking past this US election, expect the economic growth to slow alittle as a result.

When Robert Rubin made his 2 minute speech when Long Term Capital blew up - that was a pivotal moment as we could have been pitched into a global recession, instead the Fed and Dept Comm turned on the taps, and the world was calmed. His 2 min speech allowed people to leave assets in place.

Our banking systems are better now also in Na. But recall they are leveraged instruments. The US banks were probably as leveraged in 1929 as China is now - with very little equity, huge non performing loans on assets that are over valued. If your concerned about a 1929 melt down, it wont be here, China is where is has the highest risk of happening - we will feel impacts to resources etc - but it wont take us down.

Wouldn't the fact that China holds a huge amount of US bonds affect the USA negatively?

 

[Cobra1]

Deficits

would be affected, balance of funds flow and trade - but would the US enter a depression aka 1929, not likely pertaining to liquidity and lessons learned.

 

[danmand]

The $US has already lost 30% of its value without causing panick. It will likely loose another 20%.