Parallels between the 1929 stock crash and now

by Glen Tate on February 12, 2014

I put up this article on Facebook and more than 70 of you shared it in a few hours. That tells me this is s topic people care about.

The article talks about this graph, which shows parallels between 1929 and now:

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We all know the stock market will crash. The record high stock prices today are all artificial: the fake corporate earnings, the Fed pumping $1 trillion a year into the economy (mostly into the stock market, at least indirectly), the fundamental weakness of the economy, and the fact that a significant portion of the money in the stock market is just from people blindly throwing their money into 401(k)s instead of people investing in companies that will actually make an honest profit.  That is, the current high numbers in the stock market are not because the companies are worth it; it’s due to the above-mentioned phony bologna.

There are some big differences between 1929 and now, and they relate to how much more devastating a crash would be now. In 1929, we had a fundamentally strong economy.  It was largely unregulated. There was no Obamacare, no ridiculous taxes, no EPA, etc. In 1929 the Federal Reserve was not pumping any money into the stock market; now it’s a trillion dollars a year.  Another huge difference is that in 1929, very few people were actually in the stock market.  Investors in 1929 were almost exclusively the rich.  Now most of the country has a 401(k).  The destruction of a crash would hit most Americans now, not just a handful of rich people.  In 1929, America was far, far different socially. There was no welfare and people were about a 1,000 times more self-sufficient than now.  Most people in 1929 lived on farms and could grow their own food and there was entitlement mentality.  Now there is violence when EBT cards don’t work for a few hours in a few areas.

Things are different now so I’m not saying things will be exactly the same as in 1929. I note that the scale of the numbers on the graph is different.  The numbers on the left of the graph start at 12,400 and go to 17,200, while the numbers on the left start at 200 and go to 400.  So the graph for the current stock market is only looking at the movements of stock prices in the upper end of the market (12,400 and above); there are lines going up and down for the prices under 12,400 that aren’t on this graph.  Also, the numbers are not adjusted for inflation.  That would change the curves of the graphs.

I am not a stock trader trying to predict when the market will crash.  I focus on the consequences of a crash. What all this means, at least to me, is that the current stock market is much more fake, and the consequences for a crash are much more dire. In 1929, it would have been absurd to think there would be massive riots after a crash.  Now, it is widely accepted.  In fact, the federal government is actively planning for these riots.  Think about that: the government is not only acknowledging rioting after a crash, but is planning on how to deal with it.

I think the graph is important to think about.  If nothing else, it should kick people into gear when it comes to getting ready for the crash that is coming.

 

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