My take on the coming market crash.

Dollars funnel.

I get more than a few emails asking me if I wrote 1929 because I think we are doomed to repeat another depression. The answer to that is yes and no. Initially, as I watched our stock market tank back in 2008, I started 1929 because I had this vision of Jonathan on his knees in the middle of a busy room and he wouldn’t get up until I sat down at the computer and helped him along. As I’ve said many times 1929 started out a non-fiction how to manual to survive a modern day depression. When other characters entered the picture, they had a different idea and it spiraled off into a genre jumping saga.

I honestly thought that our generation's Great Depression would start in 2009. And for some it did. However with things like QE to the stars and other social services like unemployment, state assistance and the option of bankruptcy, we at least aren’t feeling or seeing it to the degree they did back in the thirties.

Before I go into why I think we are headed for harder times still, let me give you my background in finances and make the disclaimer that I am no expert. I’m a writer, carpenter, jack of all trades that dabbles in whatever interests me at the time. The extent of my formal financial education is college Macro and Micro economics (which I barely survived) two quarters of accounting and two quarters of business classes. And those were taken a while ago folks.

So, do I think we are headed for another crash? You bet. Bigger than the one in 1929? Probably.

The numbers are higher, more convoluted, intertwined globally and there’s a lot more at stake. I won’t dribble on in depth about QE, derivatives, massive subprime loans, gold and silver manipulation and that electronic trading system that makes it impossible for the little guy to do anything but lose in the Wall Street casino. (Though I do watch these things closely) Here is the main crux of why I believe what I believe.

There was a major market crash in 1907. Technically they don’t call it a crash; they call it a “panic” even though the DJIA lost 50% in just under three weeks. Fifty percent!!! That’s something that’s worthy of the front page and some hard times. Honestly, after something like that we wouldn’t expect to see the industrial boom of the teens that led to the overindulgence of the twenties, right? Well, here’s the difference. They did nothing. That’s right, the market crashed and they did nothing. There was no central bank to inject cash back into the market. (Though this crash led to the creation of the Federal Reserve and other banking reforms shortly after) J.P. Morgan did use some of his own money and convinced others to do the same to prop up the banks temporarily. That was the extent of the intervention. And while these few men are credited with preventing further panic, beyond this, they let it bust apart and then started rebuilding again.

Whether or not the crash was organic, (some suspect J.P. Morgan caused the crash in order to be credited with saving it and Theodore Roosevelt had threatened to reign in monopolies shortly before) the recovery was for the most part organic and led to true prosperity. Thus, the teen years were successful. No one talks about that very significant crash because the recovery was swift. Because they did nothing.

After the crash of 1929 we can trace the birth of all our modern social systems and much financial reform. Lots of panic and corrective action. So much corrective action actually that it choked out an organic recovery and plunged us into the Great Depression.

Now, I want you to stop and think about the amount of corrective action taken since the crash of 2008 all the way to the present. It’s staggering and absolutely frightening. History has shown us through two massive stock market crashes what happens when there is too much intervention vs. little to none. It’s on this basis that I believe when our market goes again, despite our social programs and safety nets, it will look more like the grainy black and white images of the past.

I’ll do more posts soon on some ideas to hedge your family against the pain of a crash in the near future. Until then, take care.

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Posted on October 8, 2014 and filed under Stock Market.