The world, the press, and families everywhere are talking about the economy. But what I wonder is this… what will happen to the proud Americans who cannot find jobs if another depression comes our way. Will unemployment skyrocket up to 25%? Will there be tent towns (we can starting calling them Paulson towns now) around this nation? And what event would once again awaken the great nation?

Since I have no ability to provide my own, first hand, account of the Great Depression what better why to obtain a sense of the period than through pictures.

Well, award winning Film Producer Frank Thomas (Angels on the Backroad) asked if I would embed his new movie, a short film that gives you a dramatic sense of the great depression with the visuals presented.

As Frank wrote “This is not meant as a political statement, but rather as an attempt to put a face on something that so often appears academic.”

This was an honor for me to post, Frank, thank you for the offer. While no one knows what is going to happen to our economy, putting a face on the past helps us remember what could happen. Your work is amazing.

It is now up to me, and the readers, to getting the message out. Please email your friends, all of your friends, with a link to this post to remind them that the world can change in a heart beat.

Please visit Frank over at Pennyland.

About three weeks ago I wrote the following:

I see the impact of economic conditions every day – people out of work, making hard decisions from one day to the next due to income related concerns – but this is nothing compared to about 30 years go, let alone the great depression.

It’s really scary how much can change in about 18 days.  Really scary.  During the time that has passed the following information became public.

• Housing starts were significantly less than expected
• Consumer prices dropped by 1%, the most ever in the 61 years of tracking pricing data 
• Jobless Claims are close to 1982 levels and unemployment is expected to hit 7.6% in 2009 
• The survival of GM, Ford, Chrysler and Citibank have all come into question (Granted, the big three have been in question for some time but their losses became massive in the last three months)
• The use of funds in the TARP switched from buying bad assets to purchasing stakes in banks providing no floor for bad mortgages
• Interest Rates are expected to go to 0 by mid January
• The TED spread, the difference between the interest rates on interbank loans and t-Bills, is showing signs that volatility is increasing again

All of these events point to more potential danger.  

What bothers me, aside from how quickly things are changing in the economy, is how this downturn reflects the great depression.  No, I am not talking about the Great depression that started in 1929 but the “Real” great depression (also known as the Long Depression) that started with the Panic of 1873.

In the Great Depression of 1929, economies of the world suffered huge drop in output and massive rise in unemployment all while deflation began to set in.  The root of the great depression can be traced to a number of things but a hyper stimulated economy, bank and political policies, plus the rise of income taxes are the overriding factors in causing events to unfold.

Sure, the U.S. (and the world) has seen a booming economy for some time, as well as poor bank and political decisions but the Long Depression of 1873 started with, of all things, mortgages.  

In the 1870s, much like the last several years, mortgages were quite easy to obtain and as a result a building boom took place.  The value of property seemed to skyrocket and borrowers took on significantly more credit than they could afford. Once the economies of the world realized that fundamental economic forecasts were overly optimistic a sudden market correction started to take place. 

Financial institutions started to collapse under the weight of bad mortgage debt, banks started to hold back credit, and interbank lending rates (what is called the TED today) skyrocketed.  The waves of the financial collapse caused small factories to shut their doors, unemployment rising to almost 25%, riots taking place in all major cities, and people roaming the nation looking for work.

Understand, I am simply drawing parallels here, I am not implying that this is our future.  I am not on some fatalistic kick that says the nations of the world are set to replay the past but the comparison of the current economic climate is scary with you look at what took place in 1873.

Assuming the actions take by economic powers worldwide hold off another depression, the environment is now set for deflation followed by massive inflation. While I don’t expect another great depression today, I think we will witness something the US has not seen in roughly 80 years – a falling standard of living and a declining middle class

Simply put, no one knows what is going to happen next.

People are saying the stock market is in “uncharted” territory these days.  That isn’t exactly the truth.  Take a look at this chart from dshort.com:

The last 3 major bear markets all dropped from 48% to 89%.  Add in our current market and one will see that we are at, roughly 51% as of 11/21/08.  

On another note, the stock market, and the performance of the market, was not the cause of the Great Depression, nor is it the reason our economy is in the current place it is.  I simply want to point that out as I’ve heard three stories within the last 48 hours that implied such a correlation.  

I will have more on the bear market later today…. if you are a true fan of history, you know what I am researching… but if you do not have a background in history / finance… the “Great Depression” you think of that around the crash of 1929… yea, that wasn’t the “Great Depression”.  I’ll show you the 1st Great Depression and let the echoes of the past haunt you as you come to realize the largest depression could be happening all over.