February 4, 2009, 6:00 am

Comparing The Right Economic Crisis

by: The Financial Blogger    Category: Investment, Market and Risk
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I can’t believe that people are saying that the current economic crisis is like the great depression of 1929. As soon as we get something big, it’s the end of the world. As if humanities never face what is happening before…

The current market drop will surely be highlighted in our children history books as an important year where several investors lost money. However, we are nothing closed to the great depression of 1929 and here’s why:

The Unemployment rate

Did you check what the unemployment rate was during 1929 to 1934? It was between 25% and 35%. We are currently surfing between 6 and 7%. Therefore, people are still working, still paying their bills and still eating. So there is no panic on this side.

Many Government interventions

This part is actually quite interesting. Back in 1929, the government believed in the force of a free market and decided to stay on the side and watch the game. They actually increase the interest rate to stop the inflation which killed several companies and increase the size of the actual recession. Today, we have Obama with is XG$ plan to inject money into the economy and invest in several industries. All governments are acting much quicker this time.

We are not even closed to a depression

By definition, a depression is a huge recession. Our economy is actually slowing down by about 1% which is minimal. So we are “technically” in recession but the bottom line is that there is a good chance we get out of this quite easily. Why? Because interest rates are low and that there is a huge amount of money sitting on the side line into money market funds. Investors are waiting for “the good sign” before coming back into the market.

The real question is “if you know when is the best time to get into the market, why didn’t you do it in the past?” or “why were you in the market when it went down if you knew all of this?”. Nobody knows. However, I can tell you that if you are sitting on the side, you will definitely watch the parade and not be part of it!.

In the end, I really don’t think that we will get into a great depression. I also think that we are in the middle of a real and important economic crisis. However, there are several reasons why we can get out of this market no latter than this year! I still wonder; Why the hell it has to be different this time? Why isn’t this just a normal bear market after a very bullish one?

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As for when it is a good time to invest, I’ll let you know 2 weeks after I do because I want to make sure that was the best time. 🙂

To be honest, and I know you know this, one should never have gotten out of the market. Notable exception being those in retirement with out guarantees and those within 5-10 years of retirement. They should have already been moved to more conservative stances.

As for why this happened…. GREED.

Companies created securities out of debt that was given to people who did not have the ability to even pay it. Granted it was time for a correction anyways, but those greedy bastards helped push it over the edge into this “great depression” we are in.

Which reminds me, I’ve lived through several recessions, and this doesn’t even feel like one of those.

“Did you check what the unemployment rate was during 1929 to 1934? It was between 25% and 35%. We are currently surfing between 6 and 7%. Therefore, people are still working, still paying their bills and still eating. So there is no panic on this side.”

Are you comparing the same metric? I thought back then the unemployed rate was simply the inverse of the employed rate, which is not the case today. These days they remove all the not working people to show unemployed as only a very specific set of people who are looking for work.

by: The Financial Blogger | February 4th, 2009 (11:37 am)


I didn’t think of this… I would have to check the numbers back in 1929 and see how they were calculated compared as today. very good point!

The Wall Street Crash of October 1929 may have provoked a financial economic crisis, but most economists agreed that it was trade protectionism and higher taxes which followed that turned the crash into the Great Depression. High deflation caused a further deepening of the depression.

Yes, there are some similarities between today’s headlines and the 1930s. But today, we have some understanding of what happened before and hopefully we have “learned from the past”. We can observe a change in the Government and the Fed’s response. However, their responses are critical determinants of the speed and vigour of the recovery. Don’t bring a knife to a gunfight! I prefer to watch the parade, cause it’s early to tell if it’s just a normal bear market after a very bullish one!

Interesting points, and I think there are always opportunities, they are simply a bit more difficult to find in such environments. I’ll say that 2008 was a tough year for almost every investment (except government bonds perhaps), but I think 2009 will provide great opportunities!!

Given that I’m unsure about the direction of the market in the next few weeks, I’m concentrating on long/short picks!

[…] The Financial Blogger has a good post about why the current economic crisis is NOT like the great depression of 1929. […]