How to survive a depression today

Solutions On This Site - How To Survive A Depression

Comment: My parents lived through the Great Depression. Mom said that they didn't know that there was a depression. They lived on a farm and could raise all their food. Dad said he could live off the land and he could and did. I think you could say there's a couple big clues of how to get through a depression.

Not everybody has a farm, and many people don't know how to hunt or fish. In a second Great Depression, they could be out of luck. Is there anything you could do? The linked website has a few ideas. Frankly, I didn't read through the whole thing. Instead, I followed the link to the Wikipedia site for the discussion on causes of the Great Depression.

I recognize the discussion belonging to Milton Friedman , so it was familiar. Others a bit less familiar, but I have to say that it is pretty clear in my mind on what is causing the distress now. But this discussion on Wikipedia seems to contradict it. It seems to claim that paying down debt increases indebtedness. Likewise, taking on more debt must decrease indebtedness ( by Keynesianism). This looks like a lot of nonsense to me. Paying debt is paying debt. Unless they are talking about something else, I'm not buying that.

The liquidation of debt could not keep up with the fall of prices which it caused. The mass effect of the stampede to liquidate increased the value of each dollar owed, relative to the value of declining asset holdings. The very effort of individuals to lessen their burden of debt effectively increased it. Paradoxically, the more the debtors paid, the more they owed.

They need a better theory than this.

Keynesianism may work to a certain extent- but I think it is like having too much of a good thing. In my opinion, throwing money at a problem is not going to solve it. Rather, I think you have to look for causes and effects. It is not necessarily valid that what happened in the 1930's is the same thing that is happening today. We've seen decades of Keynesianism. None of this has prevented a great recession, none of it will get the economy out of one. As for causes and effects, the current mess started with a failure in the credit markets. That's where you should go to start fixing the problem. That means to fix the housing mess. But that doesn't mean inflating the economy, rather, it means getting a realistic way to determine risk and returns. An unrealistic means of determining risk in credit markets must, by definition, undermine them. If this can be restored, which was lost- causing the credit markets to freeze- then that will restore confidence in the credit system, and it can begin to recover.

There was an attempt to get recovery from the Great Depression through protectionism. I agree that was a bad idea. But here is what I think. The US economy is over consuming in terms of oil- solve that and you improve the trade balance. There are those who argue that this doesn't matter. However, I think it does. It matters a lot. An improvement in the trade imbalance can lead to a stronger dollar. On the other hand, lower interest rates with an already weak dollar will not solve a fundamental competitiveness problem. It will only foster inflation. If this economy uses a lot of energy, then it must produce a lot of energy. At this juncture, that is not the case. The cause therefore, is a lack of oil production at home combined with excessive consumption from abroad. It is a lot like the problem as in the previous paragraph because of a unwillingness to live within one's means. If you buy more than you can sell, you don't have the income to consume.

The previous two paragraphs describe a pattern of living extravagantly without the concomitant means of paying for it. Nothing illustrates this better than the current administration's attempts to foster recovery by massive deficit spending. The government has to live within its means. By setting the example, the government can encourage frugality by demonstrating it in its policy making. If the government encourages extravagance, why should the people behave any differently? The government is supposed to be leading the people. If it is their idea to lead the country to financial ruin, they could not be said to be doing a better job of that than what they are doing now.

The final piece to the puzzle is to encourage savings and investment. For years, the savings rate was much too low. People spent too much and lived too extravagantly. The financial strength of the nation needs to be restored by an appropriate incentive system that will encourage savings and investment. It going to take a lot of hard work, but the right mix of savings, investments, belt tightening, production incentives and monetary policy can get the economy going in the right direction.