Saturday, July 29, 2006

Are We There Yet?

If you study the depression of the 1930's, you will find it defined by events like the stock market crash of 1929. But the realization of the concept "This is a depression," didn't become apparent until late 1930 and 1931.

The truth was, foreign commerce was taking away American jobs in the farm sector as early as 1922, the Smoot Hawley Tariff got passed June of 1930 was addressing those problems.

Add to that, the housing boom had started to fizzle in 1928 after the hurricane in Sept 1928 that wrecked Florida's real estate market.

These were major items, but the individual investor had no idea of his perspective to all of these irrelevant events.

Here is a quote from a book on the depression; Quoted from “The Thirties America and the Great Depression” c1967,by Fon W. Boardman, Jr. page 26

Perhaps most ominous of all was the increase in bank failures. In 1929, 659 American banks had failed: in 1930 the number rose to 1,352, and in 1931 to 2,294. Just before Christmas, 1930, the Bank of the United States in New York City collapsed. It had 400,000 depositors, many of them recent immigrants, and its failure, the worst in the country’s history, affected a third of all the people of the city. A bank panic in the Middle South closed 129 banks. As usual, people began to withdraw their money and it is estimated that by 1931 they had taken $1,000,000,000 from the care of the bankers and had hidden it away in everything from safe deposit boxes to old mattresses. And just at the time when the people were losing jobs and money, states and other governmental units imposed new taxes to make up for declining revenues from other sources. Thus the depression was chiefly responsible for the introduction of the sales tax, Kentucky being the first state to have one, in 1930. Other states and cities followed suit.

Whats the prognosis? I believe that there are still two years to go before there is a consensus of opinions that we are in a major depression. Its not that we cannot read the road signs. Everyone in the lifeboat must feel the burden of doom before the perspective of reality hits home and survival mode kicks in.

The people that survive this up and coming event, will be marching to a different drummer.


Anonymous said...

we were too busy starting a new business during the bubble so we missed the boat. in fact we were attempting to buy a house last year knowing it was at its peak but the timing as far as where we were in our lives (one shot only, you see) was perfect! we were bidding $150K over asking many of times but we were still out bid every time (thankfully??). $150K!!!

IN FACT, we only have just one another pair of friends who are renting after another couple bought theirs two weeks ago (i send him your link too but of no avail...)

that said, if the bubble blows (well, more like WHEN or has it ALREADY?), "The Great Depression of 2006" will be shown at theaters near you and we will all be all stuck with the mess they caused...

picture please, a scene after each and every dreaded new year's parade from a point of view of a citizen of the city who does not partake in that nonsense... trash littering for miles!

so either way (the mythical forever 20% YOY housing appreciation or the bust), we will be holding the short end of the stick with them??? you can only enjoy the horrors of "flippers in trouble" so much...

should we just learn to enjoy the parade, trash the scene and go home until the next new year?

then again, our FICOs are beyond the scale of anyone we know who got on the boat recently and cash under our mattress is being added monthly...

oh then again, credit scores are just phantom numbers residing amongst trillions of bits... they won't even give us a framed certificate :-)

and USD is just pieces of paper more being printed feverishly by the honorable government of ours as i type this rant...

i feel like the titanic is sinking and the life boat that we were sitting comfortably in is just going to get sucked in by the toilet bowel swirl of the sinking ship... into the deep, dark and cold ocean.

so, how's life?

Anonymous said...


Nice to see your weblog!

Have you given some thoughts on investments to cope with the coming greater depression? Have you considered investing in previous metals, like gold and silver? There has been very dramatic price increase of precious metals and commodities. Some say that silver can eventually become more precious than gold. And they have very legitimate reason to make that claim.

Ever thought about buying some silver?


Jim in San Marcos said...

Thankyou for the compliment.

I own some silver and gold, but I don't consider them investments. I consider any increase in price, as an indication of the real worth of the dollar. Its taking more and more paper to buy an ounce of gold or silver

It looks like only a matter of time before interest rates take off, cash could be king. Holding cash in FDIC insured accounts would be the way to go, or in 90 day T-bills. The mutual funds and IRA's look the most vunerable to real asset loss.

Anonymous said...


Looks like you really have not studies the issues in depth, otherwise you would not be saying "cash is king". US dollar is a fiat paper currency that is backed up by nothing. The fed can print as many dollar bills as they have papers. And that is a problem. A big problem. You need to read the book by James Turk, The Coming Collapse of Dollar. Buy it from Amazon and you will find this is the best $15 investment you have made in your lifetime.

While I agree with you that gold is largely a mean to preserve purchasing power, you really need to consider buying silver, which is both a monetary metal and a very important industrial material. When I first learned about silver it really shocked me. Search the web using the keyword "Peak Silver" and you will be reading an article which absolutely shocks you. I was shocked and I wished I had read the article 10 years earlier!!!

Do you know how much silver is left on earth, both in above ground stock piles, and in the underground mines? Do some research! I wish I have enlighten a neighbor if you do.

Jim in San Marcos said...

Saying that the US currency is fiat and backed by nothing is a rather moot point. Especially if you can raise the amount of paper you are willing to pay for it and still have people cash it in. The fact that people will trade gold for paper, implies that other items that can be purchased with the fiat currency will have a better return than that of gold or silver.

I really don't see much future in silver since the photography market has dropped out of consuming it. They were 30% of all consumption. Plus, you don't mine silver (in most cases), it's a by product of copper and other metal mining. You have to need the copper in order to validate the extra production of silver.

I referred to cash being king in reference to all of this consumption by the consumer. If the economy tanks, with everyone living paycheck to paycheck, you'll need money to feed the kids and want to sell your $5,000 plasma TV. I'll probably be the only one to bid and offer $300 cash for it.

Every toy imaginable has been bought and not paid for. When these items start coming to market, even Walmart will realized that it is competing against previous customers.

Anonymous said...

Yes I know analog photography is a big chunk of silver application. But it is also a big chunk of recycled silver. Up to 90% of silver used in analog photographic films are recycled. As this part of application drops, so does the corresponding recycled silver. So it does not change the whole picture a lot. Plus analog photography is expanding in third world countries rapidly. These folks can't afford a computer or digital camera, but they can buy a cheap analog camera. And don't forget you still need to bring your digital photos to Wal-Mart or COSTCO to be printed on photo papers. That is a process that uses silver just like the films.

The known mineable silver, at current production rate, really does not last too many years, if you check out USGS data. The production can only start to decline while the demand is still there. Thus I think silver is an excellent investment.

Jim in San Marcos said...

I agree the known mineable silver deposits are few and far between. But as I mentioned before, most silver production is a secondary byproduct of copper production. There may be very few real silver mines left, but there is a hell of a lot being produced in copper mines--the ratio is less than 10 to 1 --copper to silver.

Recycling of silver is pretty efficient at medical labs, other than that, its almost non existent. Look at the scrap recycle vs the photo consumed. Its nowhere near 25% recycled even if you credit the photo industry with all of the recycled silver.

The other thing that use to consume 30 % of silver production was silverware and other assorted dinner containers. That also is gone. When was the last time you went to a dinner with real silver ware?

Another thing that I failed to understand about silver in 1985 was the tremendous amount of hording by India and China. Banks are a luxury in those countries, reality is in your own back yard, you can always dig it up.

Jim in San Marcos said...

I was trying to edit my last comment which I found rather unorganized and I accidentally turned on an edit feature, to enable comment moderation. So if you made a post, I didn't delete it--it went to the great bit bucket in the sky sorry.

What I meant to include in my last rambling,(I missed a paragraph when I copied and pasted) is that there is a lot of silver being horded. And yes, silver will go up in price. Remember when silver was part of our currency? A silver dollar bought 4 packs of cigarettes and it just about does today also.