At the height of the Great Depression unemployment was at a rate of 25% accross the country. Wages for those with jobs were cut by 43%. This situation lasted for 10 years. FDR tried to improve the situation by creating government based jobs and trying to control the economy through federal means.

What started the depression?  Was it the plunging stock market?  Was it the bank run?  Was it the dust bowl?  Maybe those things were the result of the depression not the cause.  Historians and economists alike will debate what was cause and what was effect.  What we do know is that a complex series of events happened that caused great turmoil in our economy.

This topic could center on doom and gloom.  Many newspapers and other news sources have been having a party posting tragic headlines.  What would you think though if I noted that unemployment currently, on average, only 4% higher than it was durring some of the best periods in our economy?  Unemployment typically will only drop to 3-4% no matter what the economic situation is.  Right now it sits at 8.1%.  This is MUCH less than what was seen in the Great Depression.  It isn't even HALF of what was seen in the Great Depression.  Right now the unemployment matches that of 1983.  This is great news.  We do not call the 80's the Even Greater Depression.  This means that we are still able to pull out of this.

Some people will point out that unemployment is only one piece of the picture.  They are correct.  So, one needs to look further.  The Consumer Price Index is up .4%, average hourly earning are up .03%, and the Producer Price Index is up .1%.  These are tiny numbers but it is important to note that the word up precedes each of the statistics.  In the Great Depression NONE of these would have been going up.  Deflation was rampant and income was down.

That was a trick subtitle. Study after study has concluded that FDR prolonged the Great Depression. I appreciate the National Parks and some of the other projects that occurred during this time. The WPA program employed my grandfather. FDR believed that greed and competition fueled the Great Depression. He enacted laws to cut competition in business. Companies found themselves dealing with price caps and restrictions. Companies that were doing well were not able to take charge of their finances due to FDRs economic controls. If your company could make an item for less money it still had to charge the higher price. This kept inflation up and made it difficult for the common man to afford goods. Policies like these are estimated to have prolonged the depression by 7 years.

There are many banks that are a mess.  There are also many small, independent banks that have steered clear of the disaster and are continuing business as usual.  Many credit unions are celebrating their choices to be cautious in the sub prime lending and the loan sale markets.  Also, there is still lending.  In the market that I work in, auto sales, loans are fine.  Interest rates are up about 2% from a year ago and lenders are not interested in carrying negative equity from a previous car loan.  Otherwise, my customers come in and I get them a loan.

It is important to remember that bank failures are not unique to the Great Depression.  Between 2000-2004 (our last recession) 24 banks failed.  The numbers are larger now but the failures are not unique.

The economy goes up and down.  Every few years it will reset itself.  When prices and lending grow too much, it snaps back, bringing with it lower stock numbers and prices.  Every person has a point when they say "this just isn't worth that much to me".  When we start saying that to large numbers of items that is when a recession can start.  Right now car prices, house prices, and gas prices are some of the most notable resets that we are seeing.  Resets are seen in most phenomena.  Forests with lots of old growth are prone to forest fires.  These fires put nitrogen and other chemicals back into the dirt and clear the way for healthy crops of baby trees to start the new forest.  Without the fire, the forest would not regenerate as effectively.  This is our balancing act and our time to reset.

One of the things that FDR did to try to stabilize the market was to declare a "bank holiday".  This was a 4 day period in which all banking institutions closed.  The goal was to pass a banking act and to give people time to cool down.  The banks were having trouble because everyone was pulling their money out at one time.  Banks operate by borrow our money (that is what our accounts essentially are) and by lending it out for a fee.  Banks do not possess all the money to pay out every customer on one day.  When the stock market crashed people all tried to get money out.  Some banks ran out.  People heard that the banks were running out and went into a frenzy withdrawing money and closing accounts.

In more recent times the stock markets have been closed for similar reasons as the banks in the 30's.  Around 911 it shut down so no more trading could occur.  This let people cool down and stop their frenzied panic attacks.  When the markets reopened people were calmer.  The markets were not great after reopen, but it was much slower, calmer, and controlled.

While our economy has been having huge challenges, we have not had a frenzied withdrawal of monies.  There have been many times that COULD have happened.  When Freddy and Fannie crashed there very well could have been wide spread panic.  We have seen stocks fall on the "panic" days.  Also, there have been more withdrawals from banks.  These withdrawals have killed stocks at some institutions.  In some cases he stock dives were a response to panic and rumors rather than true fiscal problems.  After a bank has their stock fall and has their deposits depleted from withdrawals they will become unstable.  At this time, although some banks are on rocky straits from "innocent crashes", it seems that the banks that have failed are, for the most part, ones that were dancing too close to the precipice with their credit lines.

As the economy is failing in a pattern of constant decline rather than a straight leap off of the edge I don't feel that a bank holiday would work.  If we get some news or have a terrorist attack that sets people into a tailspin we may need a bank holiday.  Right now though, if banks closed for four days two things might happen: 1. people would panic more and when the banks reopened there would be a real bank run similar to the depression.  2. The slow, constant decline would pick up where it left off before the holiday.

If you raise a bright, brilliant, kind child and every day tell him that he is no good and bound to fail, probability is that the child will fail.  If you have a delayed child and you praise that child on the small accomplishments and respect him for that growth he will excel.  This has been studied in psychology many, many times.  As we hear that the economy is failing, we spend less.  We worry that our jobs and banks will be gone so we hide at home and try to stay safe.  We also become psychologically depressed.  Depressed people do not go out to eat, to movies, to shopping.  Between the safety nesting and the depression our spending drops.  These drops encourage the depression further.

What would happen if we took away the negative news headlines and replaced them with stories focussing on the statistics in a different light?  What if you stepped away from news for a while?  I had a customer come in who didn't pay attention to the news.  This customer wanted to know why car prices were still down so much when gas prices had finally dropped.  The answer would have taken hours.  This customer wanted to buy and buy now.  Prices were down and without news there was no sign of impending doom.

A large start is a change in outlook.  Let us focus on the positives and stop claiming that this is the 1920s.  Recognize the numbers and where they are coming from.  If you have a job and security, then participate in life so that the cycle can come to a halt.  Read history and see where our mistakes have been in the past and where the statistics were.

The government needs to be positive.  Like a parent cultivating the confidence of a child, the government needs to announce the good deeds and success.  Let us hear about the companies that are working and thriving.

Do we need the FDR type stimulus?  No.  7 extra years is too much to add to this recession.  Will a bank holiday fix things?  Banks are slowly crumbling from past mistakes.  If people hear from the news that they need to panic and go get their money then we might need a bank holiday.  For now let us carry on.  Stimulus packages should include tax cuts to those who will spend their money.  Every year tax return season ups spending in the car market.  This is one sign of what tax cuts can do.  If the government wants more businesses to come in, try some tax abatements to tempt the companies to open.  Let us foster a sense of success and safety and then we can see where the economy has gone.