Over the last couple of weeks, we have been treated to a series of stories which have given the impression that it is only a matter of days before the entire US economy collapses into a hopeless pit of doom. With all due respect to some of these economic Chicken Littles, the situation is not quite that bad.
To be sure, there are some major problems with the mortgage system as well as with many of the banks and investment houses that bought into bad loans. It is going to take a lot of effort and a number of years for everything to get back to what we would consider normal and, in the meantime, lots of people are going to suffer problems. But they will survive and things will continue.
Just to put things in perspective, let us try to compare conditions now to the way they were during a truly bad time in the economy. Since all of the stories have compared things to the Great Depression, that seems to be a reasonable target.
Starting with Unemployment.
Right now the unemployment rate is 6% but many claim that this understates the true rate so why don’t we be generous and double the rate to 12%. During the 1930s the unemployment rate approached 30% and was in the 20% range for years in a row. It didn’t drop out of double digits until the end of the decade.
What about Economic Growth ?
Right now the economy is certainly slow, but it is still growing at a rate of around 2-3% per year. During the years of the Depression the economy SHRANK by double digit figures.
What about Wall Street ?
The last week saw the stock market remain fairly even despite the wild swings but, to be fair, it has dropped around 20% in value over the last year. During the Great Depression, it dropped by as much as 80% in value.
How about Banks ?
During the Depression, we saw nearly HALF of the banks in the country fail completely. Today, even with the problems over the past year, the failure rate remains in single-digits.
How about Mortgages ?
Right now the foreclosure rate is under 1% nationally and in the worst-hit areas it is not much over 1%. During the Great Depression, the rate rose to as high as 50% of all homes under threat of foreclosure.
I could go on but I think the point has been made. While there are certainly many problems with the economy right now and, while the bailouts will cost a lot of time and effort, things are far from being as serious as they were during times of real economic collapse
And of course, we survived the Depression.
So are there problems to deal with ?
Yes, and many serious ones. They are the result of years of policies by both parties and will require years of reform and effort by those same parties.
Are we going to all die tomorrow ?
No. And, in fact ,it is this kind of panic that can just make things worse rather than better.
As the saying goes…Tough times never last, but tough people do.