THE GREAT MIDDLE

CLASS WIPE OUT

AVOID DISASTER AS ECONOMIC
BUST WIPES OUT AMERICA’S
MIDDLE CLASS

DIRECT EXPRESSIONS
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 Contents

~
Introduction 1

Causes of the Great Depression 3

The Stock Market Crash of 1929 7

Gold and the Great Depression 9

The Difference Between Recession and Depression 13

How to Survive the Great Depression 17

Cures for the Great Depression 19

Stockpiling Food in the Great Depression 23

The Great Depression Unemployment Rate 25

Contact 29

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 Introduction

Things are ugly out there and middle class America is feeling it
most. The combination of excessive debt and rising unemployment
has triggered a cascade of destruction through the economy like an
exploding daisy chain across a battle field. What’s happening is
painfully simple. As unemployment rises, the debt structure that
sustained the middle class is breaking down. The effects of rising
unemployment show up in home foreclosures and bankruptcies.

The guy at the poverty level had nothing to lose to begin with. And
while the wealthy may have had their net worth brought down several
notches, they won’t likely feel the effects of the flailing economy in
their day to day lives. But for the middle class, the guy that schleps
and toils to pay the mortgage, several car payments, and college
tuition...all it takes is a pink slip and several months without a
paycheck and he’s filing for bankruptcy.

When unemployment was low, if you lost your job you could always
find a new one. Even during the last two recessions a little persistence
or perhaps relocating to another region of the country was all it took to
be back in the game. But now there are no jobs to be
had…anywhere. Yet when it will end is anyone’s guess. We suspect
there are plenty of ticking time bombs out there still set to explode.
Colossal middle class debt and rising unemployment are just two of
the many explosions. Some have delayed fuses…like Option Arm and
Alt-A home loan resets, which won’t peak until 2011. And others, like
commercial real estate and government budgets, are blowing up
across the land.

The Great Depression was the seminal financial and economic event
of the 20th Century. Hopes and dreams were shattered. Millions were
ruined. And in its wake was a lost decade of unemployment and
poverty. Regrettably, it’s happening again. Here at the Great
Depression Online we offer the key insights you need to protect your
hard earned savings and family from the unfolding economic
destruction…and we look for opportunities to acquire massive wealth
along the way. Browse through these pages for facts and information
on the Great Depression and how to survive the Great Depression as it
comes to pass.

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 Causes of the Great Depression

Many like to blame the stock market crash of October 19, 1929, as
one of the main causes of the Great Depression. It wasn't. It was just
the triggering event. It was what led up to the stock market crash
that caused the Great Depression.

Let's explore…

There was extensive money supply growth…massive supply build up

by industry…rampant speculation…ending with a parabolic stock
market blow off…all for a presumed demand that was nearly
nonexistent.

How could things have gotten so out of whack?

To answer this question, let's look to John Steinbeck…

"The bank is something more than men, I tell you. It's the
monster. Men made it, but they can't control it." John Steinbeck, The
Grapes of Wrath

That's right, the banks, starting with the Federal Reserve, caused a
massive -- credit induced -- spending binge.

The Federal Reserve Governor at the time, Benjamin Strong,

administered what he called "a little coup de whiskey to the stock
market." He sold the dollar, purchased hefty amounts of Treasuries,
and extended cheap credit to the masses.

Unfortunately this "little coup de whiskey" produced a drunkenly

distorted economy. And when the bills came due the banks could not
recover their loans. And depositors lost their savings forever.

Adolf Miller of the Federal Reserve Board testified to the Senate

Banking Committee in 1931 that this episode constituted "the greatest
and boldest operation ever undertaken by the Federal Reserve System
and, in my judgment resulted in one of the most costly errors
committed by it or any other banking system in the last 75 years."

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 The Great Depression -- including the high poverty and
unemployment -- was just the painful hangover from the irresponsible
banking practices of the roaring 20's.

Yet no one saw it coming…

With the length and magnitude of the Great Depression -- and the
rampant speculation leading up to it -- it is remarkable that no one
saw it coming.

But the fact is... No one did see it coming.

Here are some quotes from the leading economists and authorities
of the time.

1927:

"We will not have any more crashes in our time" --John Maynard
Keynes.

January 12, 1928:

"I cannot help but raise a dissenting voice to statements that we

are living in a fool's paradise, and that prosperity in this country must
necessarily diminish and recede in the near future." --E.H.H. Simmons,
President New York Stock Exchange.

December 4, 1928:

"No Congress of the United States ever assembled, on surveying

the state of the Union, has met a more pleasing prospect than that
which appears at the present time. In the domestic field there is
tranquility and contentment...and the highest record of years of
prosperity. In the foreign field there is peace, the goodwill which
comes from mutual understanding." --President Calvin Coolidge.

September 5, 1929:

"There may be a recession in stock prices, but not anything in the

nature of a crash" --Irving Fisher, PhD, professor of economics at Yale
University.

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 October 24, 1929:

"This crash is not going to have much effect on business." --Arthur

Reynolds, chairman of Continental Illinois Bank of Chicago.

October 25, 1929, "Black Friday":

"There will be no repetition of the break of yesterday... I have no

fear of another comparable decline." --Arthur W. Loasby, president of
the Equitable Trust Company.

November, 1929:

"The end of the decline of the Stock Market will probably not be
long, only a few more days at most." --Irving Fisher.

December, 1929:

"I see nothing in the present situation that is either menacing or

warrants pessimism.... I have every confidence that there will be a
revival of activity in the spring, and that during this coming year the
country will make steady progress." --Andrew W. Mellon, U.S.
Secretary of the Treasury.

May, 1930:

"While the crash only took place six months ago, I am convinced we
have now passed through the worst--and with continued unity of effort
we shall rapidly recover. There has been no significant bank or
industrial failure. That danger, too, is safely behind us." --President
Herbert Hoover.

Notice how these leading economists and authorities failed to see it

coming and failed to appreciate the gravity of the situation during its
initial onset.

Despite what you may hear from today's leading economists and
authorities…

Not only could it happen again; it already is.

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 The Stock Market Crash of 1929

The market, the old timers say, is a forward looking animal. That
means it should start trending upward before the economy begins its
recovery. But when will the economy begin its recovery…and how
much will it stumble before it gets some good traction? Your guess is
as good as ours?

An old Marine told us the other night, “Prepare for the worst; it has
yet to come.”

We liken losing money in the stock market to be the same as a root

canal…we’d rather not suffer such pain.

In fact, we’d rather miss the first 20 percent of the uptrend versus
losing 20 percent because we bought too early. We consider it simple
mathematics – if you lose 20 percent, you must then make 25 percent
just to get back to even.

And if the worst is really yet to come for the economy – a

statement we agree with – then how much more must the market fall
to fully appreciate this?

The point is, stocks go up and then they go down. So, too, they go
down and then they go up. But sometimes times they go down and
then they go down some more. For what’s absolutely the right time to
buy at one time is spectacularly wrong at another. And what’s
spectacularly the wrong time to buy at one time is absolutely right at
another.

From September 3, 1929 to November 13, 1929, the DOW lost 47.9
percent. Then, as rarely noted, it rallied 48.1 percent through April
17, 1930…bringing good money, good optimism, and good people back
to the market. But alas, it was the bear trap of all bear traps…the
market subsequently crashed 89.2 percent from its initial peak along
with the hopes, dreams, and aspirations of a generation.

Caveat emptor – Let the buyer beware.

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 Gold and the Great Depression

If you were to ask someone 100 years ago: What is money?

They would reply: Gold.

If you asked the same question 200 hundred years ago the reply
would be: Gold.

And if you asked the same question 1,000 years ago, you would get
the same answer: Gold.

But if you asked someone today, the question: What is money?

They would generally look perplexed.

And the responses offered would vary widely. One person would
say: Dollars. Another would say: Euros.

Another would say: A promissory note. And still another would

say: Available credit or purchasing power. Are these bad answers?
Are they wrong? Let us explore.

We know that money is an essential part of human civilization. It

facilitates commerce between individuals and businesses, and trade
between nations. It advances markets beyond barter and serves as a
means for the accumulation of capital. William Stanley Jevons, in
1875, stated that money has four functions – it is a:

1. Medium of exchange

2. Common measure of value

3. Standard of value

4. Store of value

Today’s money falls short in its function as a store of value.

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 If you consider just the dollar, it has lost 95-percent of its value in
less than 100-years. And many other currencies that were around
100-years ago, no longer exist. In other words, they became
worthless.

But then the concept of money has been distorted over the last
hundred years too. Rather than cash in hand, it is now cash flow.
Rather than available savings, it is now available credit. Rather than
pay as you go, it is buy now pay later. And rather than wealth
accumulation, it is ability to service debt. In effect, money has lost its
integrity. It is no longer true and honest.

Here is why…

Today’s money is not true and honest because it does not provide a
firm baseline for measuring the price of goods and services.

When a carpenter measures the length of a cabinet as being three

feet, he is certain that the length measured as three feet will always
be three feet. To the contrary, when a shopkeeper prices a 24-ounce
loaf of bread at $3.29, he is not certain that the value of one loaf of
bread will always be equal to $3.29. In fact, in 1971 he would have
valued three 20-ounce loaves of bread equal to $0.89.

Has the usefulness of a loaf of bread, on a per ounce basis, really

changed 826 percent?

Certainly not. Rather, the baseline used to measure the value of a

loaf of bread has changed. It is true that prices of individual goods
and services will fluctuate to account for natural changes in supply and
demand, but when money is anchored to a stable baseline, overall
prices will by and large be stable.

Money, as a store of wealth, is also a store of an individual’s time

and industriousness. When a person goes to work to earn money they
are trading their time for that money. Would not they rather use that
time to be with their family or to engage in hobbies or recreation?

Indeed yes. But they have made the decision to earn money today,
to provide greater security, and to possibly store up some of that time
for use at a later date. When money is not true and honest, when it
loses value over time, it not only robs a person of their savings, it robs

10
them of their time and, in effect, their life. Also, because it is not true
and honest, it spoils the notion of ‘an honest days work for an honest
days pay.’

For money to be true and honest it must be a store of value. In

other words, it must retain its value over time. It must not rely on
governments to fix its price or to determine its circulating quantity. It
must not be borrowed into existence or created out of thin air. And it
must exact discipline from the public, from governments, and from
bankers.

Governments generally abhor true and honest money because it

demands true and honest limits to their size and power. True and
honest money does not allow for massive deficits or the long term
accrual of debt. Because government spending on lofty programs and
wars is primarily financed through debt, true and honest money
imposes strict limitations on government’s capacity to pursue such
endeavors. With true and honest money governments must be funded
through tax revenues and trade tariffs; government overreach of
these, to their disdain, are readily detected and rectified by the
populace.

It was the desire to increase in size and control that led the U.S.
Government, and all governments that followed, to deceive their
citizens and terminate the use of true and honest money.

The foundation was laid in the U.S. when the Federal Reserve Act
was enacted by congress in 1913. This created the central bank for
the U.S. Government – the U.S. Federal Reserve. And once the U.S.
Federal Reserve was in place, the U.S. Government could fiddle with
the supply of money to meet its ends. But it wasn’t until nearly 60
years later that the final trace of true and honest money was
ultimately eradicated. A steady process of deception would have to
first take first place to subdue the public’s understanding of money.

First, in 1933, at the height of the Great Depression, the U.S.

Government, under the Gold Confiscation Act, confiscated gold money
from its citizens and replaced it with paper Federal Reserve Notes. It
became illegal for individuals to own gold, except for small quantities
that coin collectors and dental practitioners could hold. This alone
eliminated the public’s capacity to hold government inflation of the
money supply in check; they could no longer redeem inflated paper
money for gold.

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 Then following World War II the United States had the greatest
market share of the world economy and world power. And, because of
this, they were able to establish the post war monetary system of the
western world on their terms. The Bretton Woods system of 1944,
created a pseudo gold standard where the dollar was backed by gold,
at $35 per ounce, and member countries pegged their currencies to
the dollar.

Nonetheless, the United States progressively increased its money

supply in the years following the Bretton Woods system. And while
member countries were allowed to redeem the dollars they acquired
through trade for gold bullion by the United States, it was unwelcomed
by the dominant world power. Rather, the United States persuaded
these member countries to inflate their money supplies to maintain
their respectively pegged values.

By the late 1960’s, with the seeds of the Great Society and Vietnam
War spending sown, expanding world money supplies bloomed wild
price inflation. And then France, to the aversion of the United States,
no longer played their part in the charade; rather they began
redeeming their dollar reserves for gold. In 1971, President Richard
M. Nixon had seen enough of his country’s gold disappear. Seizing the
unique and exceptional opportunity he had, Nixon defaulted on the
Bretton Woods system, and stiffed the world unconditionally. Dollars
were no longer redeemable for gold; the world’s currencies became
wholly the fiat – paper money – of governments.

Since then currencies have floated like anchorless buoys, rising and
falling on a sea of surging currents. And the imbalances that have
resulted in international trade are astounding.

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 The Difference Between
Recession and Depression

The economic freefall continues. Last Friday [April 3, 2009] the

Labor Department reported that 663,000 jobs were cut in March. With
this, the tally of jobs lost since December 2007 – the official start date
of the depression – hit 5.1 million.

In other words, 5.1 million less people are earning a paycheck than
just 15-months ago…pushing the unemployment rate up to 8.5
percent…the highest level since 1983. Here in the land of fruits and
nuts it’s up to 10.5 percent.

Yet the mainstream press still doesn’t get it. They’re still calling it a
recession – not a depression. Maybe it’s just a matter of semantics.
But we believe we’re in a depression – not a recession.

Here’s why…

In a recession a dose or two of fiscal and monetary policy succeeds

in giving the economy a springboard to bounce off of. Growth soon
returns. And everything’s just fantastic.

In a depression – regardless of how much money the government

and central bankers throw at it – rather than bouncing off a
springboard, the economy lands waist deep in a muddy peat bog. It
then slogs and plods along for years – even decades – unable to return
to its former glory.

Today we’ve yet to hit bottom. But when we do, there won’t be a
cushy springboard to bounce us back to the up and up. Rather there’ll
be a mucky mire of scum and sludge to wade through before finding
solid ground.

The difference between recession and depression stems from where

the economy is in the business cycle. And when so many debts have
been contracted and so much capital has been misallocated to value
subtracting endeavors…the whole structure of the economy breaks
down.

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 Mistakes must be reckoned, marginal businesses must fail, reckless
lenders must be expunged, and the whole economy must be retooled
and restructured so capital is reallocated to productive endeavors.
This takes time. And when the government intervenes to support the
failures, this takes even more time.

By value subtracting endeavors, we mean enterprises that loose

money. Last year, for example, General Motors lost nearly $31
billion. Thus, for their efforts, they subtracted $31 billion in value
from the face of the earth.

Does that mean General Motors should go out of business? We

don’t know. Perhaps they’ll turn things around and retool their
business to meet the demands of the present world. For what worked
in 1970 no longer works today. And what works today will no longer
work tomorrow.

But to do so, they’ll have to make cars that people want at prices
that people will pay…with operating expenses that don’t exceed
revenue. The market will decide if General Motors is successful at this
by allowing people to vote with their money.

Yet General Motors is just one example. Up and down…in and out
of the economy these gross misallocations of capital exist. And some
have existed for years. It just takes a depression to make things so
painfully obvious. For pain is a great motivator for change. And that’s
what depressions are for.

Sure some of you may not be happy with this distinction of

recession from depression. In fact, you may find it wholly
inadequate. But if you’re looking for certainty in an uncertain world
you’ve absolutely, without a doubt, come to the wrong place. We
neither are economists or academics.

We don’t have a definition to fall back on or a criteria sheet to cross

reference. No formulas, tables, charts, or graphs. Rather we have our
conjectures, guesses, and estimations to guide us. And we have our
gut to check things against.

So when we lick our index finger and hold it up to the wind, we feel
a gusty cold gale of depression whipping about from all directions.

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 Still for those of you who want something concrete, we won’t leave
you hanging…

The difference between recession and depression is the difference

between you and your neighbor. In the words of the late Ronald
Reagan: “Recession is when your neighbor loses his job. Depression is
when you lose yours.”

The distinction is rigorous.

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16
 How to Survive the Great Depression

Today we pause from the markets and the countless charades

taking place in Washington to do something a little out of the
ordinary…to offer some advice. We get many requests for it. But
always decline to offer it. For we are human just like you, and thus we
don’t pretend to know any more than our fellow man.

Opinions are what we offer around here. We make certain

assumptions…that water boils at 212 degrees Fahrenheit, you can’t get
something for nothing, and that artificially suppressing the cost of
money distorts an economy. Peering through this prism of natural and
moral laws we interpret what’s going on in the world around us…and
add a little insight and entertainment to the mix.

But we also value our readers…for you are our reason for being.
And after the many inquiries for advice we don’t want to let you
down. So here it is…from the heart…practical, discretionary advice on
what you can do to make it through the economic crisis.

1. Always take what’s yours…plus a little bit more. You’ll

undoubtedly need it with Barack Obama in office.

2. Never shake hands with your right hand, without first crossing
the fingers of your left hand securely behind your back.

3. Always look out for No. 1, save stepping in No. 2.

4. Never give a beggar your pocket change, except when to do so

is to buy them a drink.

5. Know the difference between honesty with yourself and honesty

with others. The former must be rigorous; the later must be
flexible…especially when applying for insurance.

6. Never kick a man when he is down; so too, never hasten to help

him up.

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7. Always stiff your waitress…barring the rare occasion they
actually earn the tip.

8. Never con widows and orphans; all others are fair game.

9. Do not worry about money; what you don’t have should be of

little concern.

10. Never forget that there’s a fool on every corner and a sucker
born every minute. Avoid being one of them when at all
possible; for it is both demoralizing and expensive.

11. Do not take it personal when you lose your job…this economy
stinks; a lot of other good people will have lost theirs too.

12. Remember always that this too shall pass; though never fast
enough. So keep your head up. For even during a depression
the birds still sing, the flowers still bloom, and those of sound
mind and body get through it a little wiser…if not a lot slimmer.

That’s all we have for today. If you would like to share your
experience with us, or any other words of wisdom, please drop us a
line at info@directexpressions.com.

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 Cures for the Great Depression

We here at the GDO are goading gadflies. We don’t deny it. Nor do
we apologize for it. And when warranted, we’re critical of our
government. It’s our civic duty. And yours too.

But when you’re a critic, you’re also a recipient of criticism. It is

how the world works. For when you point your finger at someone or
something, you have three more fingers pointing back at you. And as
we’ve been critical of all the bailouts, stimulus bills, and government
schemes to save the economy from itself, it was kindly pointed out to
us that we’ve not offered an alternative plan.

So today, having sharpened our pencils, and put on our thinking

caps, we humbly endeavor to suggest an alternative economic
recovery plan to the one currently being pursued. In particular, we
propose a modest and responsible alternative to adding several trillion
dollars – or more – of debt based money to the public liability. We
don’t expect the Obama administration to take us up on it…but
nonetheless, in the spirit of constructive mischief, we offer it up free of
charge.

But before we begin, we must clarify our position.

We believe that the business cycle exists. That following a period

of economic expansion, there comes a period of economic contraction.
And then, following a period of recovery, new economic growth
resumes.

Typically, as growth increases, interest rates decrease…borrowing

becomes cheap as asset prices go up. Inevitably, however, the boom
exhausts itself…borrowers become too overextended…and the
economy can no longer support its debt.

The boom then turns to bust…bankruptcies occur…and the market

punishes the imprudent for their reckless mistakes. Asset prices no
longer go up – they go down – and interest rates go up…borrowing
becomes expensive. Economic growth decreases as consumption
declines. Unemployment increases along with savings, furthering the
economic recession or depression.

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 Yet distorting the natural ups and downs of the business cycle is
government intervention. Monetary policy intervenes by controlling
the money supply through the actions of the central bank – in the
United States that’s the Federal Reserve. And fiscal policy intervenes
through taxation and deficit spending to transfer the wealth of the
economy from one hand to another.

This government intervention gives false signals to businesses and

investors. And these false signals result in distortions and
misallocations of capital. One guy may borrow money to expand his
chain of retail electronics stores to meet the increased demand for flat
screen TVs and IPODs. Little does he know that the increased
demand’s being driven by consumers extracting cash from their
homes, whose value has been inflated by artificially low interest rates
courtesy of the Federal Reserve.

What’s more, some enterprising fellow in China has also borrowed

money, to build out his warehouse, and increase production of these
electronic gadgets that are selling with gusto in the United States. Up
and down…in and out…of the economy’s web these distortions and
misallocations of capital go until capacity has far overstretched
demand.

And when the economy turns, as it inevitably does, and credit

tightens, it becomes dramatically clear just how false the apparent
demand has distorted reality. You find, for instance, that out in the
boonies of the California desert, far from the pacific ocean, and the
mediterranean climate, some exuberant developer’s taken the false
signals of the housing boom and the Federal Reserve’s cheap credit to
cover the landscape with a sea of tract homes…which they can’t even
give away at cost. Moreover, the Wickes furniture chain store, that
had gone in at the freshly erected strip mall to serve the coming
demand of the housing development, sits empty as its corporate
officers have filed for bankruptcy.

Regrettably, government intervention is capable of postponing

declines in the business cycle by propping the economy up with cheap
credit. But the longer these naturally occurring declines are put off,
the bigger the bust and destruction when it eventually collapses. This
is where we find ourselves today.

Now that we’ve clarified our position, we’ll humbly offer our
alternative economic recovery plan…

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 “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate
real estate,” were the advice of then Treasury Secretary, Andrew
Mellon, at the onset of the Great Depression.

It’s a shame President Hoover, and later President Roosevelt, didn’t

listen to the callous words of Mellon. For by attempting to bailout the
economy, they succeeded in turning a downturn in the business cycle
into a 10-year economic depression.

Sure this do nothing plan goes contrary to human nature…when we

find problems, we fix them. Yet it takes real wisdom to recognize that
some things just can’t be corrected through government action. It
doesn’t matter if the government passes a law mandating “No Child
Left Behind.” Inescapably, even after piling on the money, some child
in some town or city will be left behind. In fact, lots of them will be.

So too, throwing good money after bad through more and more
bailouts will not somehow suspend the business cycle. Who knows?
Maybe it’ll help cushion the fall. Or perhaps, flooding the globe with
paper money through endless bailouts could exacerbate it. Through
zombifying the economy, the government could stretch the down cycle
into a long, drawn out, slow motion depression. Or, with enough
determination, they could destroy the currency.

And when is enough, enough? The ink’s hardly dried on the latest
stimulus bill and there are already cries for more. Will that do it?

Attempting to halt gravity, and deny the existence of the business

cycle, is arrogant and futile. Particularly in light of the fact that there’s
no historical precedent to support the notion that massive government
stimulus can achieve economic productivity. It was attempted during
the Great Depression and it has been attempted in Japan for the last
20-years. In both instances it has failed.

So there you have it…our alternative economic recovery plan: No

bailouts. No stimulus bills. No government schemes. Let the chips
fall where they may. Get it over with, so the world can get on with it.

The overextended economy must be corrected. And it shall be

corrected – one way or another – regardless of what the government
does.

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 For there’s only one cure for a depression…that is, a depression.
Let it happen. It’s the responsible alternative.

22
 Stockpiling Food in the Great Depression

“If you like to eat, you better save some [food],” was the advice of
one Thelma May Beets in a front page story titled “Depression Lessons
Last for a Lifetime,” in Sunday’s Los Angeles Times.

The 91 year-old widow, who’d come of age during the Great

Depression, was doing her weekly inventory of food she stocks in a
chest by her bed.

Sugar, pasta, soup, oats, crackers, peanut butter jars, ground

coffee, creamers…she “has long kept some food in the chest, but as
the latest recession has deepened, she’s made a point of keeping it
full.”

Another Great Depression ‘survivor,’ Lemuel Arthur Lewie Jr.,

offered some memories from the 1930’s too. His father was a dentist.
And Arthur remembered how he “began to notice that things were
different when patients stopped paying cash. ‘They’d bring hams,
chickens, things like that, for us,”’ he said.

Arthur also recalled that “sections of the lawn were replaced with
rows of tomato plants, cabbage and collard greens.”

After reading the LA Times story, between edging the yard and
cutting the grass, we considered the possibility of having to replace
sections of our lawn with rows of planted vegetables. Anything’s
possible, we concluded.

For when we started this newsletter in fall 2007, we didn’t know if

we were headed for another great depression. But we considered it a
possibility. Like that of getting in a fatal car accident, sure it’s
possible…though not likely.

What we did know, was that we’d just witnessed a decade – or

more – of a world growing increasingly at odds with itself…

…people buying $4 coffees in paper cups.

…college kids driving European luxury cars.

23
 …house prices that doubled, and then doubled again; with median
income earners lining up to buy them like funnel cakes at the county
fair.

…millionaires next door…affluence…granite counter tops…condos in

Vale Colorado.

…day traders…condo flippers…loan brokers…futures speculators…

gamblers – all getting rich, all living the more abundant life.

…the profusion of so called high rollers…the celebration of

excess…of living la vida loca.

Yet while everyone appeared to be getting rich, the national median

income hardly budged. In fact, data from the U.S. Census Bureau tell
us that, when adjusting for inflation, the national median income
increased just $2,568 between 1997 and 2007…from $47,665 to
$50,233.

A 5-percent increase in median income could hardly be the catalyst

for what appeared to be a vast explosion of wealth. This incongruity of
supposed wealth in the appearance of massive consumption verses
individual incomes brought us to the logical question...

Where was all the money coming from?

By now you know, as well as we know, it was all an illusion of

wealth made possible by an ever expanding bubble of debt.

And by the law of must and shall: What must happen; shall happen.

In other words, something had to give…and inevitably it did.

So now that this debt bubble’s burst, and we’re now in the early
days of the Great Depression II, the government desperately
attempting to pump it back up. That’s what these bailouts and
stimulus bills are all about…pumping the system full of more debt.

But as we’ll soon discover, you can’t solve a problem that was
created by too much debt…by piling on more debt. The futility is
painfully obvious.

Yet the blockheads in D.C. go about it like zealot donkeys…they pile

on more and more debt with the pathological stubbornness of jack and
jenny asses.

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 The Great Depression Unemployment Rate

According to the latest announcement from the Bureau of Labor

Statistics released last Friday [May 08, 2009], employers sent out only
539,000 pink slips in April. We say only because this was the fewest
monthly job cuts in six months. President Barack Obama looked away
from the teleprompter for a moment to call this announcement
“somewhat encouraging.”

We agree, in that fewer job losses are better than more. But still,
no matter how you look at it…a half million jobs were lost in April. And
when more people lose jobs than gain jobs the unemployment rate
goes up; not down.

With this latest report, the unemployment rate’s up to 8.9 percent –

from 8.5 percent a month ago. That’s the highest it has been since
1983.

Here in the golden state things aren’t so golden…the unemployment

rate’s up to 11.5 percent. And here in Los Angeles County, things are
slightly better…the unemployment rate’s just 11.3 percent. While over
in Riverside County – ground zero of the subprime mortgage bust –
the unemployment rate’s at 13.2 percent.

That sounds pretty bad to us. In fact, it sounds downright ugly.

Yet how bad are things? And how bad could they get?

To answer these questions, and perhaps find some perspective and

instruction, let’s look to the unemployment rate during the Great
Depression.

In a report titled Compensation from before World War I through

the Great Depression, published by the Bureau of Labor Statistics
(http://www.bls.gov/opub/cwc/cm20030124ar03p1.htm), we find the
following…

“From an estimated annual rate of 3.3 percent during 1923-29, the

unemployment rate rose to a peak of about 25 percent in 1933. The
economy reached its trough in 1933; but although unemployment had
reached its peak, economic recovery was slow, hesitant, and far from
complete.”

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 In 1930 the unemployment rate was 8.9 percent, or equal to
today. By 1931 it was nearly 16 percent. Then, after peaking at
nearly 25 percent in 1933, the unemployment rate slowly abated…yet
it was still nearly 15 percent in 1940.

Good grief…a 25 percent unemployment rate. Today’s economy

would have to get far worse to match that. Or would it?

Before we begin, we must preface what follows: Around here at the

GDO we don’t really know what we’re talking about. You see, often
times we just make stuff up. And often times we get things wrong.
For when we’re not mangling the facts, the facts are mangling us.

Nonetheless, we never let such inconveniences get in the way of

our conjectures. Plus exercises in inductive reasoning, such as that
below, offer us the opportunity to show off the claptrap evaluation
techniques we learned in graduate school…the sort of analysis that has
taken us to extraordinary successes professionally. With that out of
the way, here it is…

Unless you live in a bucket you’ve heard the idiom ‘apples to

oranges’ comparison. What’s more, you’ve likely heard it so often you
no longer consider what it means. Our suspicion is the phrase refers
to comparing two things that – for their intrinsic differences – cannot
validly be compared.

From what we gather, because it’s now calculated differently,

comparing the unemployment rate during the Great Depression with
today’s unemployment rate is an ‘apples to oranges’ comparison. In
particular, nowadays, if a worker that’s unemployed becomes
discouraged after not finding a job, and stops searching for work, they
disappear from the unemployment numbers.

WikiAnswers explains that “…current unemployment numbers would

be between 5 percent and 10 percent higher if calculated in the same
way as in the past; conversely, the numbers from the 1930s and
1940s would be 5 percent – 10 percent lower if calculated using our
contemporary methods.”

(http://wiki.answers.com/Q/What_was_the_unemployment_rate_durin
g_the_Great_Depression)

Five to 10 percent, in terms of unemployment rate, certainly seems

like a broad range to us. But it’s all we have to work with. And, thus,

26
we’ll use it as our ‘rule of thumb’ conversion factor for converting the
‘apples to oranges’ comparison to an ‘apples to apples’ comparison.

Applying this rule of thumb factor to convert today’s unemployment

figures into an ‘apples to apples’ comparison with those during the
Great Depression, we discover that…

…the current 8.9 percent national unemployment rate is actually

around 13.9 to 18.9 percent.

…the current 11.5 percent California unemployment rate is actually

around 16.5 to 21.5.

…and the current 13.2 percent Riverside County unemployment rate

is actually around 18.2 to 23.2 percent.

No, this is not your granddaddy’s depression…yet. For an 18.9

percent national unemployment rate is not quite as bad as the 25
percent national unemployment rate in 1933. But remember, 1933
was four years into that depression. And today, according to the
National Bureau of Economic Research’s start date of December 2007,
we’re hardly a year and a half into this one.

We recognize it’s not likely the timeline of the current depression

will match up with the Great Depression. And we certainly hope this
doesn’t drag on for another two and a half years until it bottoms out.

What’s certain, however, is that many good hard-working people

have lost their jobs…and, regrettably, many more will before this
depression’s over.

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