As we begin what might become a trade war with China, it might be a good time to re-examine the causes of the Great Depression and compare what is happening today with the events of the 1930’s.
The similarities are striking, not that people agree on either the causes of the Depression or what is causing today’s poor economic environment.
Reuters reported that the U.S. Senate bill intended to pressure Beijing to allow its currency to rise will, if it becomes law, result in a trade war with China, further damaging U.S.-China ties.
“The U.S. legislation, which calls for tariffs on imports from countries with deliberately undervalued currencies, will head toward a final Senate vote on Tuesday…”
The stock market crash of 1929 is something we know a great deal about and, yet, our government might be continuing similar failed policies that both led to and continued the Great Depression.
Hoover and FDR should both bear blame, Hoover for the onset and FDR for its continuation, though his New Deal was effective and put 10% of the unemployed back to work.
The stock market crash occurred on October 29, 1929, Black Tuesday, and was one of the major causes of the Great Depression, but only one of the reasons. Within two months, stockholders lost more than $40 billion dollars and the gains they made back by the late 1930’s weren’t enough to keep us out of the Great Depression.
Currently, our stock market is roller coasting up-and-down. We are also seeing the effects of derivatives on the market. Think of the market as a casino, the difference between the two being the market has some almost sure bets while the casino does not, however, they both have high risk ventures. The market has high risk derivatives, which exist to avoid government regulations, regulations which limit opportunities the market thrives on.
Banks failed during the Depression, over 9,000 of them. Bank deposits weren’t insured at that time, a safeguard we now have. The banks were unwilling to give loans, further worsening the situation. Banks today are reluctantly making loans because of uncertainty caused by government regulations and healthcare.
Fear drove everyone to stop purchasing, with the corresponding reduction in items produced and a reduction in workforce. The inventory accumulated, and the unemployment rose to 25%. FDR’s infrastructure program brought the unemployment rate down to 15%, but it wasn’t enough, and the Depression did not end until 1941, when Americans were put back to work in munitions factories.
Gallup finds our real unemployment at 19%.
A drought in Mississippi Valley in 1930, was so devastating that many could not pay their taxes, and had to sell farms without making a profit. The area affected by the drought was called the Dust Bowl.
Dust Bowl conditions caused an exodus of homeless from Texas, Oklahoma, and the surrounding Great Plains to adjacent regions. More than 500,000 Americans were left homeless. 356 houses had to be torn down after one storm alone. Many Americans migrated west looking for work.
Some residents of the Plains, especially in Kansas and Oklahoma fell ill and died of dust pneumonia or malnutrition. (Wiki)
Today, weather conditions such as flooding, possible terror attacks and numerous other natural and unnatural events are extremely dangerous to us with this weakened economy. Our housing market is as weak as it was during the Depression, and we are not well-situated for catastrophes.
The other major cause of the Great Depression was the Smoot-Hawley Tariff of 1930. Meant to protect U.S. companies, it charged a high tax for imports thereby leading to less trade between America and foreign countries along with economic retaliation.
The new Senate Bill and it’s possible introduction of a trade war, should be a concern. It could be our Smoot-Hawley.
Many today will argue persuasively that government intervention, not laissez-faire caused the Great Depression. Check this out from The Freeman It explores derivatives as a factor. Links between China and the U.S. continue to grow, and both country’s export sectors rely heavily on the other.
From Business Insider: In 2010, American exports to China, including Hong Kong, reached $118 billion. So, we took data from The US-China Business Council to see how individual states shaped up. One example: China imported a historic 54.8 million tons of soybeans from the U.S. last year alone. But some states are more reliant on China than others. Oregon has seen its exports to China jump 1,227% and total about $4 billion last year. But which state continues to take the lead? Click here for the ten states that would be crushed in a trade war with China.