The Christian Honesty

The end of 2007 and throughout 2008 has seen a disastrous 'flattening' experience for millions. Banks, stocks and real estate have crashed. Assets are being sold off in an attempt to reduce debt on balance sheets. Time and again there have been tales reported of hundreds of millions of dollars being wiped off. People all over the world village sit with bated breath waiting for the 'axe' to descend on them.

The economy is headed for a liquidity trap. Interest rates will be lowered to such a rate they will fail to attract investors, says Colin Twigg of IG Markets. When banks are forced to liquidate assets, call in loans, it could set off a downward spiral, with echoes of the 1930's.

The only other alternative would be for nations to print more money. However, this could end up with the same result as Zimbabwe with its 100,000 p.a. rate of inflation.

Many are questioning: Are there things that are the same between the 1930's and 2008? The down-turn in the early 1930's took three years, while the financial melt-down in 2008 has taken only one year.

In the 1930's:
- 1929 investors had a currency which was backed by gold
- The melt down was preceded by a housing boom and cheap credit
- Financial system was less sophisticated - accounts tallied with pen and paper
- Millions were left ignorant of the immediate situation In 1929 because communication was snail mail.
- Communications were created through 'indian whispers'
- Information was limited
- The new US Federal bank was making regular mistakes
- Voters distrusted big spending programs and the government
- People withdrew money from the bank, as they panicked, causing runs on banks
- Many feel the government of the day was more capable of handling the melt down
- There was no safety net in place
- The general population was more self-sufficient growing their own vegetables
90% of jobs were rural
- Credit was unattainable for most people
- There was a trade surplus as people were more able to create trade items
- National borrowing was at a minimum
- People lived in more local communities and went without or made do
- In America only 1% of the population owned 40% of the nation's wealth
- The richest 0.1% controlled 11.5% of income in the US

In 2008:
- 2008's dollars are backed by IOUs from the world's biggest debtor, the US
- The era was preceded by a housing boom and cheap credit
- We trusted implicitly the sophisticated financial models - until they failed
- Communication is global, immediate interaction, measured in milliseconds
- Information is transferred instantly and more easily checked for accuracy
- Information circles the globe daily
- Today we see the Fed patrols financial markets, putting out flare-ups with highly flammable material
- The government is the big spender 'rescuing' the economy
- People have a choice of losing their money by selling their shares or sitting in hope of a better day
- People questions the ability of the governments of the world to meet the melt down
- There is a safety net in place (?)
- Today supermarkets 'grow' vegetables for the vast majority of the population
- There is a more urban population
- 2008 has huge public and private indebtedness
- There is a massive trade indebtedness with little or no ability to create trade items
- Millions of dollars are borrowed every single day
- There is a global village which is highly consumer orientated
- The wealth is more widely spread so the top 1% have less impact on the nation
- 11.6% of income in the US is controlled by the richest 0.1%.

While the downward plunge has been sharper than the 1930's, will we recover any quicker in 2009, as we continue to borrow simply to pay back on what we have already borrowed. The final conclusion is that the 'house of cards' is hundreds of times larger than it was in the 1930's.

Comparing 1929 to 2008 is a bit like comparing a Model T to a 2008 Chevy, said Sung Won Sohn, an economist at California State University Channel Islands. They're both cars, but that doesn't mean they're both the same.