The Economy's Greatest Depression Downturn Ever Is Now Just A Few Years Away

What really controls the economy? Forget interest rates, forget deficits, forget the Fed, forget IRAQ, forget which party is in office. In fact, forget just about everything that permeates the news. The greatest force that has controlled the long-term trend of the economy for at least the last century doesn't give a fig about any of these side-shows. And just what is this "greatest force" now telling us in 2005? The same thing that it has been telling us for at least the last twenty years - that the onset of a catastrophic depression, unprecedented in history, has been marching silently and steadily towards us, and that it is now just a few years away.

It has long been suggested (and feared) that the 77 million or so US Baby Boomers will tank the economy big-time as they begin to pull their savings out of Wall Street when they start retiring around 2011. Well, first of all there are not 77 million. There are really over 100 million American Baby Boomers because the birth upswing actually began in the late thirties not the, "traditionally" chosen, erroneous, post war year of 1946. This means that whatever problems they might created just got 30% worse, and true earliest Baby Boomer retirement began around 2001. Secondly, the hard evidence of nearly a century shows that people retiring has never been a force in the overall trend of the economy. Let's get back to basics to see why.

It is a well established economic fact that around 60-70% of the GDP (gross domestic product) is simply consumers spending just about all of their hard-earned income. What many people don't know, or at least don't think about, is that it's more than 90% when national and local government expenditures, first taken in from consumers' incomes as taxes of all kinds, are included. The bottom line is that the consumer is always the greatest force in the economy - and it is overwhelming! It's just a simple, hard economic fact. It is therefore only common-sense that the long-term trend of the economy must be controlled somehow by this absolutely massive consumer spending component. In the short-term (1 to 3 years) many factors, such as war, terrorism, oil and corporate scandal can seriously affect the economy, but they are always side-shows to the much bigger "hidden" picture.

The Economy's Greatest Depression Downturn Ever Is Now Just A Few Years Away

To figure out what is happening in this hidden picture we must look at who we the consumers are with regard to our ability to spend. Obviously, a thousand middle-aged men or women earning and spending ,000 a year are going to have a vastly different effect on the economy (GDP) than a thousand 15 year-old teenagers spending an allowance of 00 a year. According to data published by the US Bureau of Labor Statistics the group with the biggest spending by far is the 45-54 year-olds. This makes total sense of course. They are at their peak earnings with huge matching expenditures to support teenage and college kids, their biggest mortgage, their best cars etc. If five year groupings (45-49 in 1920, progressing for logical reasons to 50-54 by 2000) within the 45 to 54 year-olds in the US population is plotted against the Dow Jones Industrial Average (the economy), adjusted for inflation using the CPI (Consumer Price Index) issued by the US government, a breathtaking, near glove-fit correlation covering the best part of a century is revealed. (See the chart within the referenced website). This isn't conjecture. It's a hard economic fact.

The greatest force in the economy can be indisputably demonstrated to be consumer demographics, and within that the 45 to 54 year-olds demographic is just as clearly all-powerful. Things like interest rates, deficits, who is elected, and inflation are followers or consequences of the economy, not the makers of it. The Fed raises or lowers rates because the economy tells it to. Stock market crashes don't cause recessions or depressions. It is the other way around. The DJIA is simply following the 45 to 54 year-olds demographic down to reflecting the new lower value of stocks as the economy declines. For easy to understand, fundamental reasons the economy has followed the big-spending 45-54 year-olds demographic for nearly a century. History shows that the economy always declines when the number of big-spending 45 to 54 year-olds in the population declines, a full 11 to 20 years before they retire. This happened rapidly in the early 1930s, slowly thank goodness in the 1970s, and will happen again from 2013 to 2025, rapidly, relentlessly and catastrophically. This must not be confused with Baby Boomers retiring. They retire 11-20 years after their peak spending years end. While their retirement independently creates major unprecedented problems with social security and Medicare, the inevitable depression they cause by stopping their big-spending, happens first. If you accept their inevitable, later demographic impact on social security and Medicare, you must, for the same underlying reasons, accept their earlier bigger impact on the economy, even though tragically virtually no one is talking about it - yet.

Picture this: The great American economy is an ocean whose total depth is made up overwhelmingly of the combined spending of all the various age groups. The heaving waves on the surface of this deep ocean are always the big-spending of the 45 to 54 year-olds group. These waves produce the peaks and troughs of the economy - the long-term booms and busts. They can and have both raised and sunk ships. We will soon have to man the lifeboats as the greatest demographic wave in history crashes down with a thunderous roar! Like the great Titanic, there will not be enough time or enough lifeboats onboard, and only very limited rescue available.
The USA has just a few more years left of solid economic growth with an accompanying rise in the DJIA. After that, starting no later than 2012-13, and perhaps as early as 2009-10, an economic decline of terrible proportions begins and lasts until about 2025. Unlike their parents, Baby Boomers everywhere are truly not going to have a pleasant retirement. Starting in 2003-2004, the economy resumed its march upwards right in line with the 45-54 demographic, accompanied by the matching rise in the DJIA. The next several years up until 2012 latest represent the last chance for a very long time to make any money by traditionally investing in stocks. From 2013 to 2025 the big-spending 45 to 54 year-olds that control the trend of the economy will only be there in relentlessly declining numbers. Just how big is this catastrophic depression going to be financially? In the US stock market crash from 1929 to 1932, the value of stocks dropped approximately billion. When expressed in year 2000 dollars and adjusted to match the size of the population now versus then (284M vs 123M), this is a drop of about 2.6 TRILLION dollars. It directly affected the less than five percent of the US population who owned stocks at the time. The population at large was affected by job loss and the ensuing poverty. When the 2013 to 2025 decline of the DJIA is converted with simple arithmetic to the loss in the value of all stocks in the same year 2000 dollars, it is a staggering 18 TRILLION dollars. This is seven times as bad as 1929 to 1932. This is all awful enough, but there is a terrible difference this time. This time the loss directly affects the more than fifty percent of the US that now own stocks either directly, or indirectly in mutual funds, pension plans, IRA or 401K type plans. It will be a financial holocaust. This however will be just the beginning.

In the depths of the depression of the 1930s US unemployment reached 25%. With a depression that is financially about seven times as deep as the 1930s, what will unemployment reach this time? As in the 1930s, home values will also plummet destroying much of homeowners' equity, or all of it for those who buy homes in the years leading up to 2012-13. It is rightly said that when America sneezes the world catches a cold. If in a few short years America contracts pneumonia, what on earth will the world contract? Will what is happening in China change things? In a word, no! Our economy is driven overwhelmingly by consumer spending, no matter what we spend it on, including gasoline. Boomers will continue to unavoidably spend until their big-spending age limit is reached. When that happens the depression begins, regardless of China. China will however feel the impact in terms of the plummet in our imports that will then take place.

This catastrophic depression will happen. Our immutable demographics make it absolutely inevitable. It's nobody's fault. It cannot be fixed or wished away. The federal and state governments cannot prevent it anymore than they could prevent 2000-03. It's just as unstoppable as a tidal wave. We have to accept the reality that it is coming, and plan for it as best we can. Imagine it is 1925 and you know with certainty that the crash of 1929-32 and the depression of the 1930s are coming. What will you do? The precious few years that are left before this coming 2013-2025 depression, that will dwarf the 1930s, must be used to their fullest starting immediately. It still won't be enough time for many, but at least forewarned is forearmed.
© Copyright 2005 Daniel Arnold

The Economy's Greatest Depression Downturn Ever Is Now Just A Few Years Away
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Daniel Arnold is a graduate of the Victoria University of Manchester in the UK with Bachelor and Master degrees. After a seventeen year management and consulting career with The General Electric Company in the US, he started and ran a successful manufacturing company in Santa Clara County (Silicon Valley) California for ten years. After being bought out by a larger company he focused on investment and understanding the economy's long-term trends. This work lead directly to his shocking book The Great Bust Ahead, ISBN 159196153X available only through amazon.com with world-wide shipping. http://www.amazon.com/exec/obidos/ASIN/159196153X The book’s own website with charts can be found at http://www.thegreatbustahead.com

Food Prices During the Great Depression

Food prices of the great depression in the 30s, were somewhat of a paradox, when you look back and consider how everything was so cheap, and, yet, at the same time, way too expensive for many people living through those times.

Food prices weren't so much a problem for those who were employed during the great depression, as they could afford the daily essentials, and, perhaps, some extras, like a movie or ice cream; but, for the unfortunate ones who were unemployed, even the every-day, basic necessities were totally out of reach.

Actually, it wasn't that the food prices were high, but it was the lack of, or absence of money that kept most things people not only desired, but needed, at arms length, or on the other side of the shop's glass window.

Food Prices During the Great Depression

Imagine not being able to run to the store and grab your desired food items, clothing, and, if you needed it, medicine; and then not being able to afford the mortgage or rent, or the electricity or gas for cooking. Could you go without?

Who, in our prior affluent day-and-age, could deal with that kind of inconvenience, when we're used to flipping the light switch on in the morning, and turning on the automatic coffee machine to dilute some of those twelve-dollar-a-pound grounds we bought from the specialty coffee beanery-after already enjoying a six-dollar mocha grande with friends.

No such thing for families during the great depression, under their poor circumstances. Imagine buying just a plain (if you can get one today) cup of coffee with cream and sugar, for five cents; a two-egg-bacon-and-toast-with-a-piece-of-pie-and-a-cup-of-coffee breakfast, for 25 cents; or a candy bar for a dime.

It doesn't sound like a lot, except those who were employed might only have been earning or a-day, but when you don't have those few small coins, food prices of the great depression seemed pretty high! For those who had money, life was, undoubtedly, more comfortable even considering the times, but for those who had to scrimp and scrape to put food on the table, their days were filled with worry and strife.

Many mothers often went without food, so their children had more to eat. She didn't spend her pennies foolishly, if she had them, but used them for the things that were vital to her family's survival. She'd account for every cent.

With money during the great depression being so scarce, families frequently ran out of the little bit they may have acquired, from some type of labor, or, perhaps, from hocking something of sentimental value.

And, to make things worse, families lives were often compromised, or drasitically challenged, as the men would set out for other parts of the country seeking employment. Some men, never returned, but, instead, turned to illegal activities in hopes of gain, or to alcohol, only making their own, and their family's problems worse. Some even chose suicide.

At any rate, most people had nowhere to turn, since borrowing from their neighbors or relatives would cause them further problems. Local stores might have extended credit to certain people, but they were rarely let off the hook to pay, as some people were still paying off bills that were outstanding, long after the war, which followed The Great Depression, ended.

Money-or, the lack of it-was the main thing that dominated millions of lives for many years during the earlier part of this century. And, it's no different today. Money, for many people, in one way or the other, still rules.

Tough times are coming again for those who don't think so, as many people world wide, are already experiencing our plummeting economy. I sure notice the presently rising food prices (or, more realistically, decreasing dollar value), as it costs way more for a half-empty grocery bag today, than it did not so long ago.

But, hey! There is hope, and for those who are informed, there's no need to be surprised and led to despair by these coming hard times. We can take precaution, and plan and prepare for our now, and our future lifestyle management, by getting ahead of the game.

We can learn more about food prices of the great depression, and valuable ways on how we can prepare ourselves and our families, for what likely will, in some form or other, depending on our circumstances, be much like, or worse than, The Great Depression of the 30s.

Food Prices During the Great Depression
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