The following are exerpts from an article on MSN's Encarta Encyclopedia site. It discusses various conditions leading up to the Great Depression of the 1930s. As I read the article I was struck by similarities to conditions today:
The depression was caused by a number of serious weaknesses in the economy. Although the 1920s appeared on the surface to be a prosperous time, income was unevenly distributed. The wealthy made large profits, but more and more Americans spent more than they earned, and farmers faced low prices and heavy debt. The lingering effects of World War I (1914-1918) caused economic problems in many countries, as Europe struggled to pay war debts and reparations...
Today: this decade appears on the surface to be a prosperous time, but income is unevenly distributed. Many Americans spend more than they earn. United States is paying heavily for the Iraq War (nearly a quarter of a trillion dollars so far – http://www.costofwar.com ).
As is typical of post-war periods, Americans in the Roaring Twenties turned inward, away from international issues and social concerns and toward greater individualism. The emphasis was on getting rich and enjoying new fads, new inventions, and new ideas.
Today: Americans are apathetic about global public opinion, and pay little attention to world news events. The emphasis is on getting rich and enjoying new fads, new inventions, and new ideas.
The self-centered attitudes of the 1920s seemed to fit nicely with the needs of the economy. Modern industry had the capacity to produce vast quantities of consumer goods, but this created a fundamental problem: Prosperity could continue only if demand was made to grow as rapidly as supply. Accordingly, people had to be persuaded to abandon such traditional values as saving, postponing pleasures and purchases, and buying only what they needed... The resulting mass consumption kept the economy going through most of the 1920s.
Today: we're producing vast quantities of consumer goods, but prosperity can continue only if demand grows as rapidly. Personal savings are at nearly zero, impulse purchases for unnecessary items high. Mass consumption keeps the economy going.
But there was an underlying economic problem. Income was distributed very unevenly, and the portion going to the wealthiest Americans grew larger as the decade proceeded... Corporate profits shot up by 65 percent in the same period, and the government let the wealthy keep more of those profits. The Revenue Act of 1926 cut the taxes of those making $1 million or more by more than two-thirds.
Today: income is distributed very unevenly. Tax cuts have been made in the top income-tax brackets. Corporate profits are breaking records.
...This meant that many people who were willing to listen to the advertisers and purchase new products did not have enough money to do so. To get around this difficulty, the 1920s produced another innovation—”credit,” an attractive name for consumer debt. People were allowed to “buy now, pay later.” But this only put off the day when consumers accumulated so much debt that they could not keep buying up all the products coming off assembly lines. That day came in 1929.
Today: credit rules. 'Nuff said.
The rising incomes of the wealthiest Americans fueled rapid growth in the stock market, especially between 1927 and 1929. Soon the prices of stocks were rising far beyond the worth of the shares of the companies they represented. People were willing to pay inflated prices because they believed the stock prices would continue to rise and they could soon sell their stocks at a profit.
Today: there is a nearly universal belief that markets will continue to expand.
The widespread belief that anyone could get rich led many less affluent Americans into the market as well. Investors bought millions of shares of stock “on margin,” a risky practice similar to buying products on credit. They paid only a small part of the price and borrowed the rest, gambling that they could sell the stock at a high enough price to repay the loan and make a profit.
Today: day-traders, many unknowledgeable, are controlling up to 10% of the Nasdaq stock index. Many of them trade on margin.
...But the stock boom could not last. The great bull market of the late 1920s was a classic example of a speculative “bubble” scheme, so called because it expands until it bursts. In the fall of 1929 confidence that prices would keep rising faltered, then failed...
Today: there is concern about a possible housing bubble, the bursting of which could severely impact the economy.
...The credit of a large portion of the nation’s consumers had been exhausted, and they were spending much of their current income to pay for past, rather than new, purchases. Unsold inventories had begun to pile up in warehouses during the summer of 1929.
oday: Americans are spending much of their current income to pay off credit card and mortgage debts. Recent legislation increases the minimum payment and makes filing for personal bankruptcy more difficult.
The article goes on from there, describing life during the Great Depression and the era's eventual conclusion. It's a good read. There are indications of some of what might be in store for us, including an item of special interest:
The depression also played a major role in world events. In Germany, the economic collapse opened the way for dictator Adolf Hitler to come to power, which in turn led to World War II.
Imagine a situation as devastating as the Great Depression... with Peak Oil added as icing for the cake and a few wars thrown in for good measure. I believe that Peak Oil will in fact be the catalyst for the collapse. When the Peak becomes common knowledge, our great economic overreach will become apparent in an instant. But it will be too late. If we were to act now, before the Peak... but obviously, the political leadership just isn't there. Soft landing? I just don't see it happening. We're in for it, guys and gals. Best get ready.