Resolved: Stop All This Depression Talk
December 30, 2008
Ive always loved the start of a new year. A new year fills me with that warm, fuzzy fresh start sensationfor a few sweet weeks, I believe that all those things I didnt accomplish the year before will be done.
Magically, I will become that person who finishes personal projects and goes to the gym four times a week and does The New York Times crossword puzzle and volunteers at the animal shelter and actually sends a bloody birthday card on time.
Then February rolls around, and Im still me.
So since weve all had such a rough 2008, and the financial markets remain skittish about 2009, lets begin the year with a very reasonable resolution we can manage if we try. Lets all agree to stop talking about depression unless we are referring to the kind you take Prozac for.
A recent CNN poll found that 60% of those interviewed felt an economic depression was likely. Of course, most of these people werent financial professionals with MBAs or economics degrees. Theyre average folks who only know what they read in the newspaper and see on television. But this illustrates how far irrational fear has spread, and furthermore, these average folks buy things. They buy things from companies that will not be able to pay back the debt they owe if customers stop buying.
Which is why I believe that financial journalists and the experts who talk to us need to shut up about our heading into another depression. And if my request isnt enough to get the rest of you on board, check out this compelling list of reasons why we shouldnt fear a depression, from our friends at Savant Capital.
1.) Government reaction time. The U.S. government was very slow to acknowledge the onset of the Great Depression, while in the face of the current recession, a rescue plan was quickly passed and put into place.
2.) The Federal Reserve. When the Depression set in, the Fed failed to lower rates quickly. This time around, the Federal Reserve acted swiftly to lower rates, injecting more liquidity into the system.
3.) FDIC insurance. This government safety net for bank customers did not exist in 1929.
4.) Corporate earnings. The Great Depression saw a broad-based decline in earnings. In 2008, corporate profits are still relatively high, excepting the financial and auto sectors.
5.) Lending. In 1929, banks were overleveraged in stocks that were worthless or nearly worthless. In 2008, banks found themselves overleveraged by investments in mortgages backed by houses, which are tangible assets and still retain about three quarters of their value.
6.) Mortgages. During the Great Depression, a record 44% of all first mortgages were in default. In 2008, just 6.4% of all mortgages were at least one payment behind, according to the most recent reports.
7.) World trade. In 1929, intense protectionism prevented countries from working together to trade freely and respond to the economic crisis. In 2008, nations around the globe are working together in an unprecedented fashion to address the financial downturn.
And there you have it. Happy New Year to all! Now shut your pie hole.