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  • Well, hello again!

  • To be honest, I sort of feel like one of those ridiculous weather forecasters standing on

  • the dock as a hurricane whips through.

  • Yes, economic numbers are bad.

  • Yes, it's likely to get worse before it gets better.

  • At this point, the likelihood we're headed into a recession is basically a given.

  • Why aren't we there already?

  • Because a “recessionis generally described as a period of two consecutive quarters when

  • GDP goes down-- simply put, too little time has passed to make it official.

  • There have been 33 recessions in the US since 1854, with 4 occurring after 1980.

  • So, while they're not a whole lot of fun, they are a pretty normal part of the business

  • cycle.

  • But lately, you may have heard another word floating around.

  • Depression.

  • Oh my...!

  • Ok ok, before we start freaking out, let's get a clear picture of what a depression actually looks

  • like and see what history has to teach us about softening the blow.

  • Let's start with the text-book definition of what an economic depression is.

  • Ha!

  • I tricked ya...there actually isn't one!

  • The National Bureau of Economic Research is responsible for officially declaring the start

  • or stop of a recession.

  • But neither they nor any other agency declares a “depression”.

  • It's just considered a longer, more dramatic form of recession.

  • How long, and how dramatic?

  • Depends on who you ask.

  • But one popular definition requires a drop in GDP of over 10%, and a duration longer

  • than 2 years to really be called a “depression”.

  • There are some pretty striking similarities between the 1930's and 2020.

  • For example, at the peak of the Great Depression, unemployment rates hovered around 24.9%, and

  • those who kept their jobs saw their salaries cut and hours reduced.

  • As of late May, unemployment in the US is hovering close to 28%, according to the U6

  • rate covering the broadest definition of unemployment.

  • There's also a clear uptick in behaviors linked with self-sufficiency.

  • You don't have to scroll far to see a picture of a home-baked bread or newly planted veggie

  • garden.

  • Philip is pickling everything in sight and I feel I have finally achieved the level of

  • Sourdough Sensai.

  • My meemaw learned the same lessons from the Great Depression.

  • She was famous for her budget stretchingsurprisecasseroles, that let nothing go to waste.

  • But unlike in my house, she purposely never had fresh bread, always frozen, since there

  • was no risk of it going to waste.

  • Didn't seem to slow her down though, she lived to the ripe old age of 99.

  • P: On the eve of World War 2, many feared our nation would be plunged into a second,

  • deeper financial crisis.

  • But instead, the following decades turned out to be an era of unprecedented prosperity!

  • How was that achieved?

  • First: government spending.

  • President Roosevelt's “New Dealused federal funds to put millions of unemployed

  • people back to work building the nation's bridges, roads, parks, and cities. and subsidized

  • home-ownership through the creation of the Federal Housing Administration.

  • And in order to meet the needs of the war effort, the Government bought vast amounts

  • of military supplies from private companies, and heavily invested in domestic manufacturing.

  • This double-injection of funds from the government is widely credited with lessening the length

  • and severity of the Great Depression.

  • Upon returning from the war, millions of service members utilized the GI bill to attend college,

  • helping to essentiallycreate” a true middle class in America.

  • Compared to these massive projects, The CARES act--while a necessary first step, is only

  • a fraction of what could be done in the future.

  • Second: Devaluing our currency.

  • Yes, you heard that right -- weird as it may sound, devaluing the dollar played a big role

  • in getting us out of the last mess.

  • By breaking the strict tie of dollars-to-gold, the government could freely print loads of

  • new dollars that were worth less.

  • Between 1933 and 1937 the money supply increased 42 percent.

  • In his bookLords of Finance”, Liaquat Ahamed observedMost economists now agree

  • 90 percent of the reason the U.S. got out of the Great Depression was the break with gold."

  • We've already begun the devaluing process in response to the Pandemic, by the Fed creating

  • hundreds of billions of new dollars in March, thus lowering the value of the dollar.

  • Why does this help?

  • Simply put, a country with a weaker currency will be more competitive in global markets.

  • Though, there are downsides, like ticking off your trading partners.

  • Many countries have recently taken issue with Chinamanipulatingtheir currency to

  • gain a trade advantage.

  • But if you do this too much, you risk creating hyper-inflation, though experts uniformly

  • agree we're nowhere close to that happening in the US.

  • A third factor in turning the tide of the depression was technological and business

  • innovation.

  • Even in the depths of a financial crisis, new innovators emerge -- sort of like new

  • seedlings sprouting after a forest fire.

  • Obviously, this is no justification for the destruction COVID is wreaking, but historically,

  • temporary downturns have accelerated breakthroughs.

  • The period between 1929 and 1941 is widely considered the most technologically progressive

  • of the 20th century.

  • We might look back at this as a time when remote learning and telecommunications took

  • a huge leap forward.

  • A fourth strategy was one not used by government agencies or big business, but ordinary citizens:

  • thriftiness.

  • I think it's best summed up in the Depression-era mantra , “Use it up, wear it out, make do

  • or do without.”

  • This is a stark contrast to our modern, first-world, “throwawayculture

  • of replacing cars, phones, and computers every couple of years.

  • In the 30's, blue and white-collar families alike kept communitythrift gardens

  • whenever possible.

  • They mended their own clothing long before considering buying something new, and opted

  • to play card and board games over more expensive entertainment.

  • And for those unable to make ends meet, the use of government welfare programs became

  • so normalized that much of the social stigma fell away.

  • Things might feel really grim right now.

  • But there is power to change the course of the future, and it lies in the hands of governments,

  • companies, and even individual citizens.

  • Only time will tell how we'll look on the other side of this, but history shows us that

  • we get to play some part in how the story ends.

  • And that's our two cents!

  • Thanks to our patrons for keeping Two Cents financially healthy.

  • Click the link in the description to become a Two Cents patron.

Well, hello again!

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B1 US depression great depression recession government currency unemployment

Are We Headed for a Depression?

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    Capalu Yang posted on 2020/05/28
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