We’ve been here before
I’ve become very interested in the Kondratieff Long Wave Cycle or K-cycle and have been looking into all the booms and busts that have taken place over the last 150 years or so. Since WWII, we’ve been living pretty comfortably and times have been prosperous. But when you look back, there have been regular cycles of economic panics and booms. For example, there was a huge panic in 1907 in the US, known as the 1907 Banker’s Panic, which was apparently anticipated around 1910.
In 1902, a newspaper article, entitled “Panics and Booms” appeared, which frankly describes our economic crisis of today. Written by L.M. Holt in 1897 (at the tail end of the Long Depression in the US) it was republished in 1902 and Holt argues that booms always follow busts. The early 1900s were boom times so the article was a warning to prepare for an upcoming economic hissy fit.
Basically, Holt says that a depression is caused by over-indebtedness and to get out of a depression, we have to pay back the debt (and clearly in our own times that includes bailouts and stimulus packages). The more debt, the longer the economic slump. Here is the 1902 article but you can also read it here. The article is fantastic because it’s such a simple read – no pointy-headed economic jargon or economic formulae.
It’s really worth reading if only to realise that it seems the lesson for each generation is to learn all over again what is within our means and what is not affordable. But do we ever learn? As Holt says:
“Gradually the surplus debts of the country are paid and the people breathe easier again. People live within their incomes and temporarily learn economical habits. Men smoke fewer and cheaper cigars and ladies purchase fewer ribbons and occasionally fix over a bonnet and dress instead of getting new ones.”
So when we recover from the GFC, our collective task will be to stick with the “economical habits” we will surely have to adopt to survive the GFC and we will have to learn the hard lesson of not getting sucked up in over-indebtedness again.