Surviving the Great Collapse

This economic crisis doesn't have to be a second Great Depression -
if government does nearly everything right, and soon. But if government
doesn't do more, and fast, this could be worse than the 1930s. Why?
Three big reasons:

Finance: A Doomsday Machine.
The financial system is in far worse shape than it was when the stock
market crashed in October 1929. In the 1920s, there was a stock market
bubble, mainly because people could play the market "on margin,"
borrowing to invest in stocks. There were also scams like the original
Mr. Ponzi's. Like in the present decade, the Federal Reserve helped to
enable the game, with low interest rates and few rules.

today, thanks to "securitization" of loans and the ability of insiders
to create exotic and unfathomable financial instruments, the
speculative system makes buying stocks on margin look like child's
play. In the aftermath of the crash of 2008, the process of sorting it
all out and getting banks functioning again is something that markets
simply cannot do.

We are not even clear who owns what. The wise
guys on Wall Street invented a doomsday machine from which there is no
market escape.

In 1929 when the stock market crashed, the banking
system was relatively healthy. Bank customers played these speculative
games and took the losses, not banks. This time, the banks drank their
own Kool-aid.

It took until the awful winter of 1932-'33 for the
general depression to fully infect the banking system, and cause over
7,000 banks to fail. But Roosevelt's cure - deposit insurance and a
temporary bank holiday to sort out good banks from bad - quickly got
the financial system up and running again. Today, the banking mess is
still dragging down the real economy, with no effective cure in sight.

Wealth, Deficits, and Demand. The
economy now bears all the hallmarks of a depression. Between the
housing collapse and the stock market crash, American households are
out several trillion dollars (in the 1920s, there were no 401(k) plans
and less than 2 percent of Americans owned stock).

When people
are suddenly out a lot of money, they spend less. Weak demand in one
sector is cascading into other sectors. People spend less on autos, air
travel, hotels, restaurants, clothing - any optional purchase. Business
sales and profits are down, which causes other layoffs, and the cycle

Roosevelt was said to be a big spender, but his biggest
peacetime deficit was only about 6 percent of GDP. This year, the
deficit will exceed 11 percent, and the recession will deepen all year.
It took the truly massive deficits of World War II - nearly 30 percent
of GDP - to finally end the Great Depression

A Debtor Nation.
America in 1929 was a major international creditor. Today, we are the
world's biggest debtor. The financial bubble created the illusion of

During the bubble years, the foreign borrowing
disguised domestic weaknesses, such as our much-diminished
manufacturing sector. For now, foreigners are still willing to lend us
vast sums, but that may not continue indefinitely.

All these
economic calamities have solutions, but each is more radical than
what's currently on offer. The government will have to temporarily
nationalize major banks, sort out good assets from bad ones, and then
return banks to responsible private ownership. To cure the housing
collapse, government should directly refinance mortgages, rather than
bribing banks to ease terms.

Deficits will have to be a lot
larger before they can get smaller. That should not require a war; this
is just as grave a national emergency. Those deficits could purchase
much broader prosperity.

This crisis doesn't yet have a name. It
has all the hallmarks of a depression, but people are understandably
reluctant to use the D-word. So let me suggest one: The Great Collapse,
since this was both a financial collapse and an ideological one.

America recover from a Great Collapse? Can we avert a second Great
Depression? To coin a phrase, yes we can. But we need the right
strategies and we don't have much time.

Join Us: News for people demanding a better world

Common Dreams is powered by optimists who believe in the power of informed and engaged citizens to ignite and enact change to make the world a better place.

We're hundreds of thousands strong, but every single supporter makes the difference.

Your contribution supports this bold media model—free, independent, and dedicated to reporting the facts every day. Stand with us in the fight for economic equality, social justice, human rights, and a more sustainable future. As a people-powered nonprofit news outlet, we cover the issues the corporate media never will. Join with us today!

© 2023 Boston Globe