Looping

My friend and I were standing in the yard the other day when he said something to me that resonated.  “I think we’ve both seen the country and the world go through some bad times before,” he said, “but it’s never felt like this.”  That, of course, got me wondering how our grandparents felt (great grandparents for you younger types) on the eve of the Great Depression.  What are the lessons from then that we can apply today?

As it turns out, there are quite a few similarities.   One is that there was a tremendous amount of paper wealth created then which was masking the underlying problems of the American, and world, economies.  Housing stats began to fall in 1927 and the wealth of the country was concentrated in an elite upper class.  Because of this, the much larger underclass couldn’t create enough demand for goods and services since not enough of that wealth was “trickling down (to use a favorite phrase of the last couple of decades).

There was little or no regulation of the financial markets.  Banks lent money at very low interest rates and the money was often used to fund highly-speculative ventures.  The auto industry was having problems.  Then, in late October of 1929, a patient already sick with cancer (the economy), had a heart attack.  Everything turned to crap.  President Hoover, a few months later, said “business and industry have turned the corner” which was just untrue (you know – “the fundamentals of our economy are sound…”).

But we survived and, eventually, prospered.  Why?  In my opinion, because FDR cleared the air (“we have nothing to fear but fear itself) with words and with actions.  Yes, many people decried the WPA and other “socialist” programs but they got people working, money flowing, and the economy back on track.

The lesson?  Well, obviously history has a way of repeating itself.  My people point to the recent election as inspirational on one level or another – that certainly was part of the cure in 1932.  There are a lot of other similarities in the air as well.  I tell my clients that we need to stick to the core business, be careful with cash, and look for opportunities.   As with most things today, I think the cycle will operate on Internet time – it’s like dog years.

Roosevelt had a brilliance for making the complex relatively simple.  He cleared the room of the stink of fear, fixed the system so the corruption and greed that messed it up couldn’t continue to do so, primed the financial pumps, and kept inspiring people to pull together.  Let’s see how the next few months and years unfold as we loop through history again.