How far through this financial crisis are we?

[drelly]

Take a look at the image below. I realise that this event can't be measured accurately against past events but consider the reasons for them.

The 73 oil crash and the tech crash were both sector-related crises that then went on to affect the wider economy. Whereas the 1929 crash was a economy-wide disaster similar in effect to our current one. When I hear people say there will be a recovery this year, I can't believe it. The problems are too wide-spread and long-lived for things to pick up that quickly.

[donkey]

Anyone who says there will be recovery this year can pretty much be discounted as a idiot, thats a given.
But as to it lasting as long or longer than the former great depression, too hard to call, my gut instinct says another year at the very least before the bottom is reached, but I could be out by 6 months a year, who knows.

[Badger]

20 years plus...with scattered bull trap runs...giving a tempoaray illusion of back to normal = (circa 1990's approach)

[Dean@Massiveaction]

I agree, I think the reality is going to start to be talked about in the next 6 months, that will be the beginning.

The DOW took 28 years to recover to it's 1929 level last time so badgers estimate is historically sound.

[eri]

in another thread it was mentioned that this crash had more similarities to the 1870?-1890? depression than the 1929 one. as far as i understand it cheap farm products from the usa, wheat etc. flooded europe and destroyed the centuries old european farming system. which has never really recovered

certainly this year seems out of the Q, interesting that bob jones seems to think that nz is about bottom now, in which case we may just bob along like the japanese have done since 1990 in an effectively flat market....

[Badger]

1870-1890 was about many factors -

The causes of the Depression are debated, mainly because it was not a production depression; it was only a price depression. The most immediate cause, and the date that is often used as the start of the Depression, was the collapse of the Vienna Stock Exchange on May 9, 1873. Others have argued the depression was rooted in the 1870 Franco-Prussian War that hurt the French economy and, under the Treaty of Frankfurt (1871), forced that country to make large war reparations payments to Germany. The primary cause of the price depression in the United States was the tight monetary policy that the U.S. followed to get back to the gold standard after the Civil War. The U.S. was taking money out of circulation to achieve this goal, therefore, there was less available money to facilitate trade. Because of the monetary policy described above the price of silver started to fall causing considerable losses of asset values.
In America the speculative nature of financing due to both the greenback which was specie issued to pay for the US Civil War and rampant fraud in the building of the Union Pacific Railway up to 1869 culminated in the Credit Mobilier panic. Railway overbuilding and weak markets collapsed the bubble in 1873. Both the Union Pacific and the Northern Pacific lines were center in the collapse; another railway bubble was the UK railway mania.
Because of the Panic of 1873, governments depegged their currencies, to save money. The demonetization of silver by European and North American governments in the early 1870s was certainly a contributing factor. The Coinage Act of 1873 in America was met with great opposition by farmers and miners, as silver was seen as more of a monetary benefit to rural areas than to banks in big cities. In addition, there were Americans who advocated the continuance of government-issued fiat money (United States Notes) to avoid deflation and promote trade. The western US states were outraged--Nevada, Colorado, and Idaho were huge silver producers with productive mines and for a few years mining abated. The resumption of the US government buying silver was enacted in 1890 with the Sherman Silver Purchase Act.

Notice how government starts tinkering with sound money gold and silver and then the mess that unfolds sound familiar?

http://en.wikipedia.org/wiki/Long_Depression#Causes_of_the_crisis

[Perry]

And Talking of Governments, Here's Another's Take (looong - over 3500 words)

The Case for Big Government
by Jeff Madrick
Princeton University Press, 205 pp., $22.95
A Review by Richard Parker

Government Beyond Obama?

Jeff Madrick's The Case for Big Government arrives when
one might imagine that Wall Street has made the case quite
persuasively on its own. By mid-February, the Federal
Reserve's once-gargantuan $29 billion rescue of Bear
Stearns had been dwarfed not just by the government's hotly
debated $700 billion "bailout bill" last fall, or even President
Obama's nearly $800 billion stimulus package, but far more
stunningly by the $7.6 trillion the Fed and Treasury had by
the beginning of 2009 already pledged to contain the ever-
widening collapse of the economy, and the additional sum of
up to $2 trillion that the new administration said it would
raise from public and private sources to rescue banks.
Governments from London to Beijing have meanwhile
rushed to provide vast sums to their own capital markets.

These figures are mind-numbing to voters-and to
sophisticated investors and economists as well, and for good
reason: fifty years ago the United States spent what in
today's dollars would amount to only $115 billion on the
Marshall Plan to reconstruct all of Western Europe; the
1980s savings and loans bailout-at the time the largest
financial rescue operation since the Great Depression-cost
taxpayers a mere $130 billion. But while bailing out the
financial system should urgently concern us, Madrick
argues, what is fundamentally needed is a different
conception of the role of government.

In the midst of this crisis, one can make cases for three very
different kinds of "big government." The first is the rescue
of Wall Street, an immediate but temporary intervention,
already in play; the second is for government to act as a
general contractor in the economy's reconstruction-the
medium-term investment in infrastructure, from roads to
schools, that Obama is now unveiling in his "recovery plan."
But the third possibility, which is the central concern of
Madrick's book, has not yet been the subject of serious
public debate: to use government as long-term guarantor of
America's (and indirectly the world's) economic stability, as
provider of widespread opportunity, and as partner with the
private sector in restoring long-term stable growth. Madrick,
in a nuanced and wide-ranging fashion, makes the case for
that third approach.

The book's logic runs something like this: at the heart of the
US government's economic policies since the Nixon
administration is a set of arguments that may cripple
Obama's ability to carry out more ambitious reforms, and
has, in Madrick's well-documented view, already damaged
the well-being of most Americans when their lives are
compared to those of previous generations and to citizens of
other well-to-do countries. These arguments deride the idea
of "big government" in any form, and are widespread and
deep-rooted in our history; those who make them are well
financed, often fiercely ideological, and committed to
resisting policies that aim to increase the role of government
in the social and economic life of the country.

"Market-based solutions," in this new conventional wisdom,
have become-for every Republican and Democratic
administration since Jimmy Carter deregulated the airlines-
the mantra for solving the big public policy issues of our
times. Ronald Reagan, guided by such economists as Milton
Friedman and Arthur Laffer, declared government "the
problem, not the solution," but it was Bill Clinton a decade
later who, prodded by Robert Rubin and the Democratic
Leadership Council, proudly announced that "the era of big
government is over" before going on to back legislation for a
balanced budget, welfare reform, and an ever-declining
public workforce.

Leaders who have endorsed this bipartisan consensus
running from the right to the center left don't always agree
fully on particulars, but tend to share a uniform enthusiasm
for "market-based solutions," whether the deregulation of
transportation, utilities, telecommunications, and finance;
the privatization of services from trash collection at home to
security services in Iraq, as well as retirement savings and
investment; the provision of vouchers for education and
health care; or so-called cap-and-trade solutions to issues of
the environment such as global warming.

How and to what degree such "market-based solutions" will
end up influencing the Obama administration is much
debated. So far the members of his economic team have not
reassured some of his more progressive supporters.
Announced by Treasury Secretary Timothy Geithner on
February 10, for example, the administration's strategy for
the banking crisis includes the establishment of a Public
Private Investment Fund, or "bad bank," to buy up and hold
as much as $1 trillion in bad assets, as well as further capital
injections in banks and a vast expansion of a lending
program to finance student loans and consumer debt. But it
does not go as far as some economists would like in
imposing conditions on the financial sector of the economy.
Together with Geithner, the appointments of Lawrence
Summers as head of the National Economic Council, Jason
Furman as his deputy, Austan Goolsbee on the Economic
Recovery Advisory Board, and Christina Romer as chair of
the Council of Economic Advisers have collectively
prompted disquiet among such economists as Robert Reich
and Paul Krugman, even as their selection reassured capital
markets-however unevenly and briefly.

Madrick himself is not a declared political partisan. He is a
former economics columnist for The New York Times, the
author of several well-regarded books on contemporary
economic policy, and he writes frequently in these pages.
During the past decade, he has grown increasingly alarmed
about the direction of economic theory and policy, and he
puts forward large-scale alternatives for government action.
But his goal here is not to persuade conservative
commentators such as George Will or disciples of Milton
Friedman, but rather journalists, academics, policy
intellectuals, and politicians who have embraced the earlier
"public marketeering" consensus-as well as members of a
younger generation who may be unfamiliar with past
achievements of government and the potential of the public
sector.

Madrick first provides a short history-a primer, really-of
government's often-forgotten but central role in the nation's
long economic rise from the 1770s to the 1970s. He then
assesses how the economy, the nature of competition, and
living standards have changed over the past thirty years.
Although he completed his book last summer before the
scope of the current collapse became visible, he concludes
that there are deeply worrisome signs of a sharp and
accelerating deterioration in the quality of American life.
The book closes with a prescriptive essay, "What to Do," in
which he outlines how the federal government could
substantially increase current revenues, and where to spend
them to greatest long-term effect.

The book's opening historical essay reminds us that from the
American Revolution to the Great Depression, government's
share of GDP-that is, federal, state, and local public
spending as a proportion of the nation's total income-was
quite small. It was probably about 1 or 2 percent in 1800,
and 7 to 8 percent a century later. Yet its influence was
disproportionately large for several reasons. First, upon
organization of the Northwest Territory in 1789, the federal
government became the nation's largest landowner-a fact
not reflected in conventional GDP calculations. And over
the next century and a half the federal government was able
to shape economic growth through its land distribution
policies: for example, it used sales and leases of its land to
foster small-scale farming, promote free primary (and later
higher) education, encourage forestry and mining, and
finance the nation's vast transportation network.[1] Second,
state and local governments from the beginning of the
Republic actively promoted large-scale investments in
infrastructure, notably in roads and canals, and subsidized
America's primary education system, which made the young
nation the most literate in the world-an enormous
advantage in utilizing the new technologies on which mass
production was founded.

Between the Civil War and World War I, moreover,
governments at the federal-but especially the state and
local-level all steadily expanded their regulatory powers to
meet the challenges posed by the surging immigration,
urbanization, and industrialization that made the United
States the world's largest economy by the 1890s. Although
primarily at state and local levels initially, government
intervened actively and repeatedly in matters of business
organization, consumer rights, working conditions, new
technology, utilities, public health, agriculture, urban design,
and private and public finance.[2] Particularly impressive,
for example, was the construction of large-scale sanitation
systems in cities throughout the nation.

As Madrick makes clear, the effect of all this government
intervention was to enhance the country's overall rate of
growth even as it helped equalize income and wealth
distribution. Government legislation helped create an
educated workforce and build crucial infrastructure,
guaranteed enforceable contracts, reduced corruption,
opened new markets domestically, sponsored scientific and
technological research and development, and globally,
through expanded trade agreements and gradually reduced
tariffs, made America an international economic giant.

The Great Depression began a substantial shift from a
predominantly regulatory state to a revenue state. The
public's demands for economic security meant that
government would need to invest large amounts of money in
the economy to assure stability and near-full-employment
growth. In consequence, the government's 7 to 8 percent
share of GDP at the start of the century tripled over the next
fifty years. As Madrick explains, our vastly overheated
debates about today's "big" versus yesterday's "small"
government rarely focus on that simple fact: since the late
1950s, American government -federal, state, and local-
has annually spent approximately 30 percent of GDP, and
neither Democrats nor Republicans have altered that by
more than a percent or two, upward or downward. Indeed,
the size of government, as a share of GDP, reached its
greatest extent since World War II not under Kennedy,
Johnson, or Clinton, but under Ronald Reagan, and on
average has been higher under Republican presidents. (Long
the champion of "fiscal responsibility," GOP presidents
since Eisenhower have not been able to balance the federal
budget.)

Having carefully established the long-running and generally
beneficial effects of "big" government, Madrick turns to the
intellectual claims of figures such as Milton Friedman,
whose work was central to creating the new "small
government is better government" consensus. In fact,
Madrick writes, the Chicago economist "offered much
ideology but little evidence" that big government
undermined economic growth. Friedman claimed in the
1970s that the corrosive rate of inflation at the time was
caused by rising public spending and the growth of the
money supply. In reality, however, the government's share
of GDP didn't rise during this time, and far larger budget
deficits under later Republican presidents produced no
noticeable increase in inflation. International comparisons
likewise have shown that big government does not
undermine a nation's ability to produce more efficiently.
Citing the economist Peter Lindert, who spent years
compiling his data on the effects of the welfare state on
economic growth, Madrick writes that there is a stark
"conflict between intuition and evidence" on this topic. As
Lindert wryly observed, "It is well-known that higher taxes
and transfers reduce productivity. Well-known-but
unsupported by statistics and history."

Madrick, like everyone else, recognizes that corrupt and
inefficient governments, of whatever size, damage not only
growth but freedom. But he presents persuasive evidence
that

big or small government is not the critical criterion in
economics. To the contrary, government's management of
change is what is critical. And government is a key and
arguably the main agent of change.... In the laboratory of the
real world, the governments of rich nations have on balance
been central to economic growth, and in the process have
retained their citizens' faith in their nations' promise and
social values.... If what we think of as big government is
necessary to manage change, and in a complex society it
may well be, then we should pursue it actively and
positively, and make it function well.

Among the rich nations of the world, he points out, there
really haven't been any "small" governments for nearly a
century. Among the wealthy OECD countries, for example,
the public- sector share of GDP averages roughly 40 percent
(the US's 30 percent is the lowest of the group). It is no
coincidence, in Madrick's view, that the US leads the OECD
in income and wealth inequality, poverty, crime, hours
worked, and infant mortality.

Since the 1970s, Madrick shows, the US economy has
grown more slowly than in the thirty-year period after the
end of World War II, but also very likely more slowly than
in any other period in the nation's history. For many years
economists attributed this reduced growth to a difficult-to-
explain slowdown in business productivity. But as Madrick
points out, even after productivity growth returned in the
mid-1990s, average wages-which had stagnated for twenty
years-continued to stagnate. In fact, between 2001 and
2007, wages grew not at all, something unprecedented in
any previous recorded business recovery.

In the second section of his book, Madrick points to a
number of by now familiar changes that have occurred in the
last three decades. The percentage of women in the
workforce has grown dramatically. Manufacturing has
declined precipitously; and health care costs have tripled as
a share of GDP (and now exceed manufacturing's share).
Consumer, business, and government debt have all soared.
Household debt, for example, has risen from fifty cents per
dollar of family income to $1.20 per dollar. The federal
government's total debt over the same period doubled from a
third to two thirds of GDP. At the same time, the social
safety net, public and private, has deteriorated badly, not
only for the poor but for the middle class and even parts of
the upper-middle class. Pension savings are now largely the
responsibility of individuals, health care premiums are rising
much faster than the overall cost of living, higher education
costs have soared, and mortgage payments have reached an
all-time record, measured as a share of household income.

Two of the most critical factors behind these fundamental
shifts, according to Madrick, are the changing distribution of
income between men and women and the changing
distribution of income by education. From the 1970s onward
women have modestly narrowed the wage gap with men,
although the gap is still wide. The nature of that differential,
however, has changed: in fact women's gains have come in
part because of a perverse convergence. Wages for men
have been deteriorating at the same time that women's wages
have been rising. Among women, all income levels have
made some progress, but below the top 10 percent of female
earners, the progress has been much more slight.

Among men, the effects of stagnating income have been felt
especially by those without a college education, although
even men with college educations have not fared well. The
median hourly wage for all males has actually fallen since
the 1970s-unprecedented in American history-while the
income for college-educated males has risen barely 10
percent, also a new historical low.

The fact that so many women work has, while closing the
gender earnings gap, ironically contributed to widening
inequality among families-especially between households
with two high-earning workers and those with a single
median- or minimum-wage earner. For historical
comparison, the average family income between the end of
World War II and 1973 doubled, in inflation-adjusted terms.
Since then, the gain among two-parent families has risen
only slightly (and almost entirely during Clinton's second
term). After George Bush took office, there were modest
gains only for families with two workers; for families with
one earner, there was no gain whatsoever. As Madrick
bluntly summarizes:

Families now work longer hours-about two and a half or
three months a year more of work on average. They often
live farther from work, thus spending more time commuting.
Kids must take longer to finish college, and borrow much
more to pay their way. Two-worker families have new
expenses that are rarely included in the data, such as a good
second car, baby-sitters, take-out food, and cleaning help.
Good full-time infant care can cost $2,000 per month in
major urban areas. People have to move to expensive
neighborhoods because the schools are better, and they take
on large mortgages. Debt is way up as a result....

Are we now jeopardizing the equality of opportunity
because people cannot afford...good education, good health
care and...good access to jobs and careers? Is the broad,
positive definition of freedom, as discussed by Wilson,
Roosevelt, and Johnson, and I would argue Jefferson and
Lincoln, under assault? In the process, are individual rights
under assault as well?

In the final part of The Case for Big Government, Madrick
outlines what he believes should come next. It is not merely
a matter of policy reform, or shifting leadership from one
party to another. Instead, he argues, we need to rediscover
Americans' capacities for transformational change and the
way "big government" can help achieve that end:

How did the wealthiest nation in history come to believe
it is not wealthy?...

America has no free and high-quality day care or pre-K
institutions to nourish and comfort two-worker families....
College has become far more expensive and attendance is
now bifurcated by class.... Transportation infrastructure has
been notoriously neglected, is decaying, and has not been
adequately modernized to meet energy-efficient standards or
global competition. America has not responded to a new
world of high energy costs and global warming in general.
America has a health care system that is simply out of
control, providing on balance inadequate quality at very high
prices.... The financial system, progressively deregulated
since the 1970s, broke free of government oversight entirely
in the 1990s and early 2000s and speculation reminiscent of
the 1800s was the result with potentially equal levels of
damage.... These facts amount to about as conclusive a proof
as history ever provides that the ideology applied in this
generation has failed.

Madrick calls for new spending programs and new ways to
raise revenue to reverse the consequences of failed ideology
over the past three decades. These recommendations provide
a useful benchmark by which to assess the Obama
administration's current and coming proposals, although the
financial crisis has already redrawn the landscape of the
possible.

For example, Madrick argues cautiously for an annual $400
billion increase in public spending overall. This would
roughly increase government's GDP share by a modest 3
percent, close to the original stimulus package Obama
submitted to Congress (since the $800 billion the President
proposed is designed to be spent over the next two to three
years, not one). The full implications of the House-Senate
compromise on the President's spending and tax- cut
program remain to be examined, as do other administration
proposals. But comparison with Madrick's recommendations
is illuminating.

In the case of health care, for example, it seems unlikely that
Obama will support the kind of single-payer system
advocated by Madrick. Nor should we expect anytime soon
the new president to advocate, as Madrick does, public
financing of elections, in view of the extraordinary fund-
raising prowess he showed in reaching the White House.
Unlike the stimulus package, Madrick also does not
advocate major new tax cuts (although he might now, as a
temporary counter-cyclical measure).

When it comes to public spending on infrastructure,
however, Obama has already announced an ambitious plan
that echos Madrick's emphasis on a "green," jobs-creating
investment strategy (although important details may be very
different, reflecting the legislative alliances he needs and the
persuasive power of lobbyists). Likewise, Madrick's and
Obama's proposals for reregulation of finance, a more
progressive tax system, increased funding of education at all
levels, and large funding for transportation reform all have
much in common. It isn't yet clear whether the policies
Obama gets through Congress on trade, globalization more
generally, and ways to reequalize income and wealth will
converge with Madrick's. The full shape of the President's
own proposals, and what politics makes of them, remains to
be seen.

The book's largest flaw is that it is not as careful and clear-
eyed politically as it is economically. The Case for Big
Government usefully takes aim at the ideological consensus
that emerged among many academics, journalists, policy
advisers, and politicians in both parties. But it devotes little
attention to the rise of religious fundamentalism that
coincided with America's industrial decline, and how the
departure from the Democratic Party by millions of white
Southern evangelicals and Northern, mostly Catholic,
industrial workers-twin pillars of the New Deal-
contributed to the world we face today. In many ways this
shift may have been more consequential to the spread of
"small government" ideology than the intellectual
realignment of academics, journalists, policy advisers, and
politicians.

The book also ignores the effects of American foreign and
military policies on economic growth. Between 1945 and
1975-the period Madrick cites so approvingly in contrast
to the decades that followed-half of all federal spending
was for the military, and significant parts of the rest
(including for education, roads, science, and technology)
were justified as military preparedness. One cannot know
when and how the situation in Iraq will end, or whether the
war in Afghanistan will grow far larger and more costly-
but analysts such as Madrick might consider the effects of
the Vietnam War in helping to destroy the New Deal
consensus.

Still, Madrick is correct to argue that most Americans-
congressional Republicans and broadcasters such as Rush
Limbaugh notwithstanding-seem ready to move past the
thirty years of conservative domination that resulted from
increasing distrust of government. The dismal failure of
deregulated financial markets has now-just as in the
1930s-forced upon the US the most fundamental and
costly sorts of public interventions in markets. The extent to
which Madrick's insightful and persuasive arguments will be
taken up in US policy now rests to a large degree on whether
President Obama and the Democrats can restore America's
basic financial health. For the time being that means
concentrating on government's ability first to save Wall
Street and restore credit, and then to begin rebuilding the
devastation Wall Street's failure has left behind. The
challenge of creating a new era for government as long-term
guarantor of our security and well-being lies ahead.
-February 12, 2009
Notes
[1]Government - federal, state, and local - still controls
nearly 40 percent of all the land in the country. See
www.nrcm.org/documents/publiclandownership.pdf

[2]Morton Keller's Regulating a New Economy: Public
Policy and Economic Change in America, 1900-1933
(Harvard University Press, 1990) and Regulating a New
Society: Public Policy and Social Change in America, 1900-
1933 (Harvard University Press, 1994) provide an overview.

http://www.nybooks.com/articles/22390

[Rainelli]

hello!

based on our economic crisis things are getting worse each day,there are millions of people that are being layoff from their job and who is loosing their homes and property.