The great fiscal stimulus package ... of 1929

By Michael Kitchen, MarketWatch
Last update: 12:01 a.m. EST Jan. 26, 2008


NEW YORK (MarketWatch) -- Lately, whenever the market has a bad day, the reflex among financial-news editors is to compare our current situation with 1987 and wonder if a "Black Monday"-style crash is on the horizon.


But some observers draw a darker metaphor, noting that much of what we are seeing now also took place in 1929. As we know, that meltdown -- unlike the 1987 crash -- was not followed by a happy ending, but rather by a decade of poverty, shantytowns and sporadic famine.
Popular imagination has the Great Depression opening with a bang in October 1929. We forget that even by December of that year, the market had no idea what was really in store. After a period of wild, bipolar volatility, stocks had taken two big tumbles (a 12.8% drop on Oct. 28 and an 11.7% fall the next day) while the top bankers and "captains of industry" rushed to shore up the market. By November, the Dow had hit its low for the year at 198, down from the giddy September high of 381.
But, the financial pundits and government leaders of the day insisted, the economy's fundamentals were still strong. Mass unemployment was, some months after the crash, still just something that went on in Germany and Britain. America was strong and merely needed a push to keep the financial markets from harming the broader economy.
With that in mind, Herbert Hoover -- only nine months into his presidency -- assembled leaders from the public and private sectors to create an economic-stimulus package. Among the measures, Time magazine reported at the time, was a promise from Congress to offer bipartisan support for a tax-cut package. The proposal called for $160 million in tax relief -- only about $22 billion if adjusted against the gross domestic product at the time, and therefore much smaller than the plan under consideration here in 2008. Read Time's original coverage of the plan.
Also on the table was an assurance from the Federal Reserve that it would provide cheaper credit. Granted, the Fed had much less power over the money supply in those days, mainly because the amount of liquidity it could create was limited by the supply of gold it held to back the dollar.
Of course, there were a litany of public-works projects, plans for new corporate investments, and even a promise by Henry Ford to raise wages at his auto plants.
None of this worked. What was first seen as speed bump to the expansion of American finance became something much larger. The Dow continued falling, hitting 157 in 1930, 73 in 1931 and finally a mere 41 points in 1932. It did not reach its 1929 high again until 1954, a generation later.
Certainly, our economy now has far more differences than similarities with the economy of 1929, and few expect a new depression for the decade ahead. But it's also worth remembering that the best laid plans of presidents, chief executives and senators can sometimes come to nothing

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Smoot-Hawley.

stock market of 1929 = housing market of 2007

Interesting bit on 60 minutes last night. Showed the housing deal for what it really was,,, plain old greed by everyone involved. Most of the people are just walking away and are not that bad off. According to the piece a LOT of them got mortgages for 100% of the value, plus extra money for whatever. So in actuallity, some of the buyers may come away from the forclosures with money in their pockets.

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http://online.wsj.com/article/SB120147855494820719.html?mod=opinion_main_commentaries

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-livin' in the terminally flippant zone

Very little similarity to 1929.

Bot already identified one key difference. Another major difference is that the Federal Reserve has at least some inkling of an appropriate response, which was not effected in 1929.

Ol'Gramps,Bless his Soul,told me all about the Crash and the depression.

Initially it seemed a good joke on the speculative rich,took a year or 2 before the extent finally "trickled down".....and affected most everyone.

My Gramps always told me that in 1928 he was having his shoes shined in Alexandria,the shoeshine boy was telling him about some Motion Picture stocks he bought for 25cents on the dollar......So Gramps said,"when I start to hear financial advice from a Goddam shoeblack,it's time to get out of the market"And a good thing he did.

What I meant was that we will see similar declines in values. The original post states that the DOW went from 381 to 41 three years later. Now I don't think we will see a drop of 89% like the DOW did, but as someone else pointed out, on 60 minutes they were showing houses that were selling for %70 lower than their value at the peak. I have seen stories about builders auctioning off properties for %50 discounts.

I was on vacation in 2005 and I stopped in this place.

http://www.harbourisleflorida.com/pricing.asp

You were looking at $700 G's to get a place, that was for a resale, I think they had 2 available, the builder held a lottery because of the huge initial demand and sold the place out in one day. You can get a place there today for $240K or a drop of %66. I have seen other listing in there for $179k or a drop of %75. And this doesn't count the units that might be owned by the Banks, and could go even cheaper.

Didn't good old GWB change the bankruptcy laws so you could no longer walk away from a debt. Doesn't it follow you forever now? Not sure, just asking.

That's great, Carleton. Your gramps surely had a lot of good stories. Thanks for sharing some of them with us.

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" We have nothing to fear but the main stream media itself . . . ."- Adapted from Franklin D Roosevelt for the 21st century

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Congress writes it, President signs it. Or not.

I remember when I was a very little boy my Grandfather gave me some advice taht I have always treasured, "Boy, as you walk around, please don't step on my catheter bag."

Yes good old GWB signed into law a proposal written by MBNA
who at the time was the largest holder of credit card debt, making
it impossible to declare bankruptcy on credit card debt.

Go watch the move called Maxed Out

Thank you
Have Fun
RichC

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When the power of love overcomes the love of power the world will know peace.
Jimi Hendrix

Heeellllo! Chapter 11 and 13 bankruptcy have been the same for years. Can't remember which is which, one is restructuring debt, the other writes it off. Been that way for years. How long it hangs around your neck is up to the people who report your credit. Just because (in theory) a black mark "expires" after a period of time in terms of hurting you, doesn't mean its wiped from the record.

Its like not getting a job you thought you had cinched. You wonder why it went south, you will never know unless you know somebody on the inside. For example:

Guy needs to hire a secretary, has 3 qualified candidates. Can't decide which one to hire so he gives them an honesty quiz. Something like this: "if you accidently got paid too much on a paycheck, what would you do?"

Candidate A: "give the money back"
Candidate B: "keep it"
Candidate C: "invest until the error was discovered, then give money back, keeping any profit"

Which one was hired?

Answer: the one with the big tits.

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MB-less

Answer, a guy will always choose a piece of ass instead of money.......