NCPA - National Center for Policy Analysis

A REPLAY OF 1929? DON'T COUNT ON IT

October 6, 2008

Those who don't know history are destined to repeat its serious mistakes. Today some have questioned whether we could have another 1929-style Depression. The answer is no -- at least, it shouldn't happen, says Investor's Business Daily (IBD).

For example:

  • Then we had over 25 percent unemployment; now it's 6 percent and could move somewhat higher, which is typical for economic corrections.
  • Then, by 1934 about one-half of mortgages were in default, today it is only 6 percent; nearly 94 percent of homeowners are still making their monthly payments.

America is far bigger today, more diversified, productive, innovative and resilient and the government's rescue package will help stabilize our banking credit system and economy for the benefit of all Americans.  The price of oil and other commodities has topped, so interest rates can and should be lowered, helping all consumers, says IBD.

The reason we shouldn't have another 1929:

  • Our Nasdaq composite (the stock index that includes America's modern-day entrepreneurial leaders) already had its 1929-like break in the three years from 2000 through 2002.
  • Since then it put in a strong five-year recovery up to last November; that recovery was due to the broad-based, and highly successful, tax cuts pushed through by President Bush in 2001 and 2003.
  • We are now in the midst of a normal cyclical market correction, with the economy having created 9 million jobs since the 2003 tax cuts.

The Nasdaq's price action since the 1990s, like clockwork, closely parallels, tracks, and eerily replicates the Dow Jones Industrials' wild speculative run-up to its 1929 bubble peak, the ensuing three-year, 88percent collapse to the Depression lows in June 1932, followed by the recovery run-up to 1937 and the ensuing sharp correction.  Based on historical data, today's market is likely to be a repeat of 1938 -- not 1929, says IBD.

Source: Editorial, "A Replay Of 1929? Don't Count On It," Investor's Business Daily, October 3, 2008.

 

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