April 25, 2020

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America Is on the Verge of Depression

America Is on the Verge of Depression

The Congressional Budget Office release a report yesterday (April 24, 2020) that expects our response to Coronavirus will wipe out 40 percent of the US economy and throw 27 million Americans into long-term unemployment. We could see unemployment rates of 20 percent or more for a decade.

The Last Depression

My parents were born in 1925. Their understanding of the world was shaped by the Great Depression and World War II.

Their parents weren’t poor prior to the Depression. My paternal grandfather, Mike, owned a tool-and-die shop in midtown St. Louis. My mom’s father was a fireman who invented the hydrostatic fire alarm. His father and grandfather were both physicians.

But all that changed in 1929. My mom and her siblings grew up eating Corn Flakes for three meals a day. Her brothers went to work at nine and ten years of age. Her brother Patrick, having spent years shovel coal at Union Station, joined the Navy in 1940. He sent almost every penny home.

My dad knew a family, the Bremmers, whose adaptations to the Depression were remarkable. There were six of them, including four children, but they shopped for only five. Mr. Bremmer ate whatever the rest of his family didn’t, often scraping the marrow out of pork chop bones. The family drew one bath a week and took turns in age order: dad, mom, oldest, second oldest, etc., in the same water, every Saturday after Confession to be ready for Mass.

They survived, of course. Most of them, anyway. My dad lost his mother when he was ten years old. My mother lost her brother Buck and sister Ann during the Depression a few years apart.

The Anti-Depression Generations

My earliest memories are of the late 1960s. Technicolor and Kodachrome, sleek new cars, very long Benson & Hedges cigarettes that Aunt Jane and Uncle Bob smoked. If you watched Mad Men, you’ve seen the world of my early childhood.

My parents were 39 years old when I was born. Though people talked of the Depression more then than they do now, the Depression seemed like ancient history to me. It was part of the black-and-white world that came before color television and color photos. As a kid, I didn’t understand economics and couldn’t figure out why my mom’s family didn’t just buy more stuff.

To everyone born just before or after me, life could only get better. New technologies would make every task easier. Growing wealth and opportunity meant we could confidently borrow three-times our annual income to buy a house. Unlike my parents who handled credit cards as if they were loaded guns, we grew up treating plastic like, well, plastic. The bill would come, of course, but that $80 bike would cost me only a minimum payment of $10 a month (for 64 months). Pocket change.

Most of us grew up in a culture that taught us life is short and we shouldn’t put off treating ourselves to whatever we want. As Nicholas Cage’s character Hi put it in Raising Arizona:

…and every day we kept a child out of the world was a day he might later regret having missed.

We felt that way about everything, except we were worried about our later regrets, not someone else’s.

It costs a little more. But you’re worth it. —L’Oreal

Immediate gratification become something of a moral imperative to the generations with no memory of the Depression. It’s how we grew up. It’s how we lived.

Until now.

A New Depression

Maybe President Trump can turn around the economy as quickly and completely as he did from 2017 to 2019. But something tells me can’t.

Following the recession caused by the financial crisis, every state, every business, every governor, mayor, and county executive wanted their state, company, city, and county to flourish. They wanted financial success.

But not this time.

It’s hard to explain why, exactly, but for the first time in history, our “leaders” seem to prefer a depression. Many governors pride themselves on the actions they’ve taken that are designed to crash their local economies and throw their constituents into unemployment, homelessness, and poverty.

Many elected officials seem to consider high unemployment and failed businesses as status symbols. It’s as if Coronavirus triggered mass economic Munchausen Syndrome.

Munchausen syndrome is a strange – but very real – mental health condition. It’s the most severe type of factitious disorder, a group of conditions in which people purposely exaggerate, invent or even cause disease symptoms.

Unlike 2017, President Trump will get little help in growing the economy this time around. Democrats, in particular, are spoiling for a new Depression. They seem to long for the 1930s when Democrats took over every major city hall, every state house, and almost every seat in Congress.

A Return to Black and White

If the CBO is right, we will go quickly from two cars per family to two (or more) families per car. We will learn what it’s like to live in multi-generational households again. (My dad grew up with seven siblings, his father, and his grandmother in a two-bedroom, one bathroom house.) Many people will soon experience foreclosure and the mad scramble to find a place to live. Like the end of The Wizard of Oz, we fall asleep in color and wake up in black and white.

With millions thrown out of their homes, rental housing will be at a premium. Following a spike in inflation triggered by trillions in government spending comes a massive round of deflation as unpaid debt crashes even the largest of financial institutions.

Writing in 1997 of the period from about 1986 to about 2008, historians Strauss and Howe said:

“The era will have left the financial world arbitraged and tentacled: Debtors won’t know who holds their notes, homeowners who owns their mortgages, and shareholders who runs their equities—and vice versa.” — The Fourth Turning

We learned in 2008 just how “arbitraged and tentacled” the financial world has become. And nothing changed about that after the financial crisis. Debtors still don’t know who holds their mortgages, and lenders still don’t know who pays the rent.

When the Depression was emerging, there was no safe place for wealth except for real estate bought with cash. All other assets were wiped out. Mortgage holders accelerated debt payments, demanding immediate payment of principals in full. Debtors couldn’t pay, so the property was repossessed and, often, left to rot.

Maybe America will rally. Perhaps the governors and county executives who continue to suppress human rights and freedom of commerce will change their minds. Maybe people in those states and counties will up the ante with their protests. It’s possible that those local dictators will surrender to public pressure.

But the path we’re on is one of extreme poverty and a terrifying new world order. A 40 percent collapse in the US economy will trigger a global recession. The world will become a breeding ground for a new version of Hitler, Stalin, or Mao.

I’ll leave you with this: if America and the world plunge themselves into a New Depression, how will you respond?

For my part, I’ll grab a Rosary and pray that I live well in God’s eyes even if I die in undignified poverty in the world’s eyes.