A Well (un)Managed Depression Is Not All Bad ( Light this Fool Up)Submitted by Kagiman on Thu, 01/15/2009 - 20:08
Pres. Obama: A Well (Un)Managed Depression Is Not All Bad
Posted 1/15/2009 5:20 PM CST
Written by Chris Darkins
Is a Depression All Bad?
For those of us who have a significant amount of our net worth tied up in the financial markets or in physical assets yes it is bad. Price deflation and asset devaluation have dislocated a significant amount of wealth. According to the Federal Reserve Flow of Funds Account, $7.09 Trillion in net worth has been decimated from Q4 of 2007 through Q3 of 2008. If you assume that Q4 of 2008 is equal to Q3 of 2008 then that number jumps to $10 Trillion in net worth lost. If we continue on this path of wealth destruction then the $20.9 Trillion of net worth in this country will be eliminated within 2 years. Bad news for the wealthy right.
On the flip side, price deflation and asset devaluation will make physical and financial assets more affordable for the average working class American, assuming you can find work. Consider the following: In the United States, wealth is highly concentrated in relatively few hands. As of 2001, the top 1% of households (the upper class) owned 33.4% of all privately held wealth, and the next 19% (the managerial, professional, and small business stratum) had 51%, which means that just 20% of the people owned a remarkable 84%, leaving only 16% of the wealth for the bottom 80% (wage and salary workers). In terms of financial wealth, the top 1% of households had an even greater share: 39.7%.
Let's assume for a moment that unemployment reaches 25%. This would mean that 75% of Americans still have an income. Therefore, 55% (80% from above - 25% of all Americans being unemployed) of the group that controlled 16% percent of the wealth would still be generating an income with significantly greater purchasing power prior to the depression due to price deflation and asset devaluations. Wouldn't a depression level the playing field for a majority of Americans (55%)? Wouldn't this create an opportunity for enterprising individuals to make investments that would create wealth for the least wealthy Americans as the economy begins to grow again? Sounds like a cyclical economic reset to me which is natural and inevitable so why not get it over with?
Of course, this argument assumes that this market reset (not correction) will be allowed to take its natural course. However, based upon President Obama's economic recovery plan I believe this is unlikely to happen and government intervention will continue to rule the day. Our Government currently intends to print and spend over $1 Trillion per year trying to fight nature which will cause hyper-inflation as foreign trade partners lose faith in the dollar and look to the Euro as the currency of choice for global commerce.
With the exception of temporary pain from high unemployment, a properly (un)managed depression can fulfill Obama's goals of leveling the playing field for Main Street America. Sometimes it's better to let events take their natural course and allow the unyielding spirit of American Individualism to rule the day. After all, The Great Depression set the playing field for the 20% of Americans that now control (or did before the depression) 84% of the wealth. Are you prepared to take advantage of this unprecedented opportunity to build generational wealth?
How to create wealth in a depression is a subject we address in detail on the DarkinsTribune.com. Let me know your thoughts.