Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21
UK Covid-19 Booster Jabs Moderna, Pfizer Are They Worth the Risk of Side effects, Illness? - 22nd Nov 21
US Dollar vs Yields vs Stock Market Trends - 20th Nov 21
Inflation Risk: Milton Friedman Would Buy Gold Right Now - 20th Nov 21
How to Determine if It’s Time for You to Outsource Your Packaging Requirements to a Contract Packer - 20th Nov 21
2 easy ways to play Facebook’s Metaverse Spending Spree - 20th Nov 21
Stock Market Margin Debt WARNING! - 19th Nov 21
Gold Mid-Tier Stocks Q3’21 Fundamentals - 19th Nov 21
Protect Your Wealth From PERMANENT Transitory Inflation - 19th Nov 21
Investors Expect High Inflation. Golden Inquisition Ahead? - 19th Nov 21
Will the Senate Confirm a Marxist to Oversee the U.S. Currency System? - 19th Nov 21
When Even Stock Market Bears Act Bullishly (What It May Mean) - 19th Nov 21
Chinese People do NOT Eat Dogs Newspeak - 18th Nov 21
CHINOBLE! Evergrande Reality Exposes China Fiction! - 18th Nov 21
Kondratieff Full-Season Stock Market Sector Rotation - 18th Nov 21
What Stock Market Trends Will Drive Through To 2022? - 18th Nov 21
How to Jump Start Your Motherboard Without a Power Button With Just a Screwdriver - 18th Nov 21
Bitcoin & Ethereum 2021 Trend - 18th Nov 21
FREE TRADE How to Get 2 FREE SHARES Fractional Investing Platform and ISA Specs - 18th Nov 21
Inflation Ain’t Transitory – But the Fed’s Credibility Is - 18th Nov 21
The real reason Facebook just went “all in” on the metaverse - 18th Nov 21
Biden Signs a Bill to Revive Infrastructure… and Gold! - 18th Nov 21
Silver vs US Dollar - 17th Nov 21
Silver Supply and Demand Balance - 17th Nov 21
Sentiment Speaks: This Stock Market Makes Absolutely No Sense - 17th Nov 21
Biden Spending to Build Back Stagflation - 17th Nov 21
Meshing Cryptocurrency Wealth Generation With Global Fiat Money Demise - 17th Nov 21
Dow Stock Market Trend Forecast Into Mid 2022 - 16th Nov 21
Stock Market Minor Cycle Correcting - 16th Nov 21
The INFLATION MEGA-TREND - Ripples of Deflation on an Ocean of Inflation! - 16th Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Three Lessons from the Great Depression

Economics / Economic Depression Mar 26, 2008 - 11:33 AM GMT

By: Money_and_Markets

Economics

Best Financial Markets Analysis Article Sean Brodrick writes: A huge bull market in commodities takes a downturn. Equities are getting clobbered. The nation is groaning under insurmountable debts after the banks throw caution to the wind.

It's an election year, and some people say the market is over-regulated — others that it's not regulated enough. All the while, weather is making headlines — in fact, some people believe the weather could herald the beginning of the end.


Does any of this sound familiar? It may sound like the U.S. in the 21st Century, but it's also an accurate description of our country on the brink of the Great Depression. It's a story told in the book The Worst Hard Time by Timothy Egan. I highly recommend this National Book Award winner to you, especially because it offers great insights into today's markets and economic climate.

Until you can get down to the bookstore and pick up a copy, let me give you a brief overview of the story, and tell you three investment lessons that can help all of us today.

Like many bold endeavors, the story starts with immigrants taking …

A Shot at the American Dream

Egan's story starts in the last free land in America — the Oklahoma panhandle. After the original (native) inhabitants were chased off, settlers could stake out up to 640 acres and take their shot at the American dream.

That part of the country — including surrounding areas of Texas, Colorado and Kansas — was marginally farmable land that marketers palmed off on unsuspecting new arrivals, the kind of folks who believed in tomorrow because it was all they had in the bank. As Egan explains ...

“Hope died the first time people laid eyes on Boise City, Oklahoma. It was founded on fraud. Even the name itself was a lie ... from the French word le bois — trees. Except there was not a single tree in Boise city. Nor was there a city. On Boise City's imaginary streets, the buyers found stakes in the ground and flags flapping in the wind. No railroads. No tracks. No plans for railroads. No fine houses. No businesses. Worst of all, the company did not even own the land that it sold.”

Despite this inauspicious start, people did scratch a living from the land in Boise City and other hamlets. Home was often a hole dug out of the sod, covered with boards and shared with tarantulas, snakes and so many centipedes that they crunched underfoot.

“The flattest, driest, most wind-raked, least arable part of the United States was transformed by government incentive, private showmanship, and human desire from the Great American Desert into Eden with a haircut. Settlement was a dare, on a grand scale, to see if people could defy common sense.”

But it was a life, and for many, the only home they knew. And for a while it seemed that heaven smiled on this venture — a decade of wet years made farming in the panhandle a breeze.

Farmers Prospered as Wheat Prices Boomed

Wheat famers made huge money as grain prices soared!
Wheat famers made huge money as grain prices soared!

New technology reshaped the world of the 1920s — for farmers, the ride of choice was the tractor. In the 1830s, it took 58 hours of work to plant and harvest a single acre. By 1930, it took only three hours for the same job. A tractor did the work of 10 horses and took a lot less maintenance.

In their eagerness to reap as much of a profit as they could, the farmers plowed the tough prairie grass under and planted wheat. With the price of wheat at 80 cents a bushel, they reaped profits.

The problem started in 1915, when, with a war in Europe raging, the government guaranteed the price of wheat at $2 a bushel. The person in charge of this program was named Herbert Hoover. You may have heard of him. Thanks to Hoover's government largesse, soon every idiot who could scratch a stick in the ground was trying to wrest his fortune from prairie soil.

This was no flash-in-the-pan bubble. It lasted 14 years!

By 1926, the self-described Wheat Queen of Kansas, Ida Watkins, told everyone she made a profit of $75,000 on her two thousand acres — bigger than the salary of any politician, and more money than any star athlete but Babe Ruth himself.

“Life in America in September 1929 was almost too sweet, too bountiful, too full of riches,” Egan writes.

Before the wheat boom, banks refused to lend to farmers west of the 98th meridian on the grounds that it was “too dry.” Then Congress passed the Federal Farm Loan Act in 1916, and banks offered 40-year loans at 6% interest to any man who had a farm to work.

The farmers turned around and used that money to buy tractors, which in the good times provided more than enough income. And more and more land went under the plow.

But, all good things must end. By 1929, America had a grain surplus. The inevitable happened: Prices crashed while farmers still had loans to pay.

The only way for someone who made $10,000 in 1925 to duplicate his earnings in 1929 was to plant twice the amount. At least, that was the theory. Soon, unsold wheat piled up next to the railroad track. By 1930, land that once brought an income of $4,000 now brought only $400!

This Is a Painful Reminder: Things Can Always Get Worse …

And things did get worse! The price of wheat actually went to ZERO — that's what farmers were told they would get if they brought any more of that damned grain near the station.

Since farmers had no income, they couldn't repay loans. 1930 saw the first widespread bank failures. The town thrifts closed their doors forever, taking what little money farmers had left with them.

The Dust Bowl was symbolic of the U.S. economy during the Great Depression.
The Dust Bowl was symbolic of the U.S. economy during the Great Depression.

And then, that same year, the weather changed. As America tipped into a full-scale drought, the marginally farmable land of the panhandle simply dried up and blew away.

Dust storms raged across the landscape. The clouds of dirt would pile up 10,000 feet high and march across the prairie, looking, as one eyewitness recalled, like a range of mountains on the move.

The storms blew out windows, buried cars and tractors, fried food with static electricity caused by all that dirt rubbing together, suffocated animals where they stood and filled the lungs of every living thing. The storms were killers of animals, men, women and children.

One storm, in 1934, blew up a great rectangle of dust from the Great Plains to the Atlantic, 1,800 miles wide, and laden with 350 million tons of dust — three tons of dust for every American alive at the time.

The worst storm, known as Black Sunday, hit on April 14, 1935, and carried twice as much dirt as was ever dug out of the Panama Canal.

Faced with nature's furious onslaught, many people ran for their lives. Ten thousand people a month fled the Great Plains, the biggest single exodus in American history. Still, many others stayed ... either too stubborn or too poor to move along.

The Dust Bowl was the physical manifestation of the nation's financial and emotional sickness, problems that turned the election of 1932 into a lightning rod for “change.” The candidates talked about being the real agent of change.

Sound familiar?

Eighty Years Later, We've Come Full-Circle: Three Lessons from the Great Depression

Back then, one of the Democratic candidates was an East-Coast swell named Franklin Delano Roosevelt. FDR's platform was to give people jobs with a huge public works program to build America's infrastructure, and he went on to become President.

FDR made bold moves that pulled the country out of its slumber.
FDR made bold moves that pulled the country out of its slumber.

FDR is famous for getting America through the Depression. Along with Social Security and other landmark programs, much of his energy was focused on stopping the Dustbowl, which spread like a cancer through America's heartland.

At its peak, the Dust Bowl covered one hundred million acres. By the end, some scientists estimated that more than 80 million acres in the southern plains were stripped of their topsoil.

But with FDR's leadership, the problem wasn't insurmountable:

  • Four million acres of abandoned farmland were bought up.
  • Young men were paid a dollar a day in the Civilian Conservation Corps to plant trees from the North Dakota border with Canada all the way to Amarillo, Texas.
  • A government program taught farmers a new way to till the soil and farmers agreed to abide by strict soil conservation standards.
  • New technology allowed those farmers who remained to tap the Ogallala aquifer — a subterranean body of water as large as Lake Superior — in even the driest times.

By these combined efforts, the Dustbowl was tamed.  Thanks to these efforts, along with other new programs, the country emerged from its economic slumber. Here's what I think we can learn from history …

1) Good laws are good for business.

FDR railed against crooked bankers and called for more regulation. His bank holiday and subsequent regulation restored America's faith in his banks.

Last week, we just saw the government pony up $30 billion of taxpayer dollars to enable one bunch of sharks in pinstripe suits to buy another. Some of the financial instruments that got Bear Stearns in trouble are so complicated that even highly educated analysts can't understand them, let alone value them. I think it's time for more regulation, not less.

2) Not all change is good!

Just like back then, all of the current Presidential candidates say they're agents of real change. But one change that got us in our current financial pickle is letting unregulated institutions — the “shadow banking system” — take over the roles traditionally filled by regulated banks. That's the kind of change we can do without.

3) Bull markets can end with a bang.

The 1929 bull markets in both grain and equities ended rather suddenly, when everything looked great. This is a reminder to all of us to keep one eye on the exit even in the best markets.

That said, I don't think we're anywhere near the end of the current grain bull market. After falling hard and fast last week, grain prices are moving higher again.

Why? This time around, U.S. farmers aren't just feeding America, they're feeding the world . And the world has never been hungrier.

The bull run for commodities started in 2001 – and still looks strong.World wheat inventories are expected to fall to 110.4 million metric tons in the fiscal year ending May, the lowest since 1978, the U.S. Department of Agriculture said on March 11. The USDA went on to say that U.S. supplies may drop to 6.6 million tons, down 47 percent from a year earlier.

Meanwhile, floods in the nation's midsection are delaying soybean and corn crops. And out in the old Dustbowl, parts of western Kansas, the Oklahoma Panhandle and West Texas received so little rain in the past month that the winter wheat crop may be hurt.

It's not just grains that are looking good, either. Check out this chart of the CCI Index, an equally weighted basket of commodities. It shows the bull market that began in 2001 is still going strong.

So while this bull market will end someday, I think it has a long way to go. Historically, bull markets in commodities last an average of 15 years.

And that makes the pullback we're seeing now one heck of a buying opportunity.

Yours for trading profits,

Sean

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com .

Money and Markets Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in