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Two Great Depressions - One Lifetime
by Robert B. Gordon,
Sc. D.
August 24 2004
Assuming that the first Great Depression started at the 1931 bear market bottom, it has been over 70 years to the start of the next one to strike the developed world. This does not count Japan whose private depression is now in its 15th year. Forecast in 1995 to have started by now, unexpected actions by Mr. Greenspan to greatly heighten and prolong the 1990s stock bubble have delayed its entrance. Not only was it delayed, but almost wiped from the conscience of our national leaders and their economic advisors. Supposedly, according to our leading economists, we have been moving out of a shallow recession into a bright economic future. Nothing can be further from the true state of affairs according to expert followers of the Elliott Wave Theory.
Forecast by Robert Prechter in his monumental 1995 book At the Crest of the Tidal Wave: A Forecast for the Great Bear Market, a World Wide Depression was due to arrive after a large stock market Crash affecting the developed world. What happened, of course, was a delayed and stretched out bear market that affected the U.S. and Europe. The time table for the depression was delayed by the unexpected and somewhat unorthodox actions of Mr. Greenspan. Having been preoccupied recently with actions in the stock market, I was quite surprised to receive the following letter from a bright, young scientist.
A LETTER FROM A YOUNG PROFESSIONAL
"Just came across your article...It warrants much merit. I am a young Ph.D. scientist from Texas and I would like to share my observations about this economy with you.
Pretty much all of my young Ph.D. colleagues are have severe trouble with obtaining ANY full time employment. The pool of adjunct professors at my college has ballooned, including many who are middle aged.
Even with a remarkable background (including owning a C corp.) I cannot find ANY worthwhile employment within the United States. No problem...I would teach in the public school system. Despite having a stellar teaching record and fantastic references, I cannot even get a job in the public/private/charter school system.
Many of my colleagues who have children are living in poverty. If any do have full time jobs, its only in the 35,000 dollar range...far too low to even think about making dents in exorbitant student loans. And these incomes do not seem to be rising.
Here's more. I teach an Anatomy & Physiology class geared towards 2 year nursing degrees. 20 percent of my students have masters degrees (engineering, MBA, etc.) and 35 percent have bachelors degrees. Nobody seems to be finding any work---anywhere. Mind you, we live in the DEW metroplex...an area that's been hit relatively little compared to other major cities.
The fact is that math and science hold very few good (or high paying) jobs anymore. Research faculty and postdoctoral positions pay less than most independent school district teaching salaries.
Let me tell you the truth about this. We do not need any more medical advances/drugs. We, as an American economy, CANNOT pay the exorbitant sum to fund projects that we objectively cannot afford anymore. We cannot afford $20,000-a-month novel cancer treatments. We cannot afford to extend people’s lives past a 100 because Medicare and Social Security cannot afford it to subsidize it. The very tight NIGH and NSF funding on all levels of math and science amply reflect this, perhaps rightfully so.
Space exploration? We cannot afford this luxury. We have severe and expensive social issues that science cannot touch. How about IT? American wages cannot compete with the educated computer scientists from China and India.
Over and over our political and business leaders spout rhetoric that the future of economic prosperity depends on the innovation of today's scientists. I cannot, in good conscience, recommend a pure science or math career to any smart student right now. "
This young professional has spent many years preparing for work in a specialized field that, at least for the time being, appears to be filled with no openings for new graduates. I personally did not realize that the current situation is as bleak as depicted in the e-mail above. However, in further correspondence with this job seeker, I developed further concerns about the current problem of employment for recent young professionals.
Outsourcing of professional jobs to other nations like India is looming as a major problem for our colleges and students. Of course, our general economy is expected to get much worse in both breadth and depth as the great depression forecast by the Elliott Wave theory slowly develops. This dire view is of course held by only a tiny minority of our people and by essentially no one in our senior economist group who are totally ignorant of Ralph Elliott’s great pioneering work in the 1930s.
GROWTH PROSPECTS IN A DEPRESSION
One aspect of coming years that can be counted to help at least some job seekers is a continued growth in population. Even though birth rates may well decrease, immigration will continue, as well as some increase in longevity of both men and women. There will almost surely be a need for more workers in health care. On the negative side will be a large decrease in all types of building for homes, offices, factories etc. Unskilled workers in large numbers will need some type of government aid to survive.
Growth of students in college campuses will probably come to a sudden stop as jobs for graduates decline. The cost of a 4-year college degree may actually come down, ending many years of annual increases. The number of MBAs headed for high salaries in Wall Street will probably drop quite a bit. Research and Development will continue in many areas and be the basis for new jobs in the future.
As tax revenues drop, cities and states will have to cut employment in some areas in order to increase them in helping the unemployed. The great bulk of support for the unemployed will have to come from the Federal Government as was the case in the 1930s.
COMPARING GREAT DEPRESSIONS 1 AND 2
I seem to be part of a very small group of current writers who lived through the Great Depression 1. In fact, I am not aware of another one. I lived in a 3-generation household that existed from my birth until my leaving home for graduate school. I graduated from high school in 1931 at age 16, from college at 20 and from graduate school at 24. I worked one summer in a machine shop for 50 cents per hour and received $600 for each of the last 3 years as a Teaching Fellow at MIT. My starting salary in my first professional job was slightly under $2400 per year. During those years, I was only vaguely aware of the many problems of the Depression. I do not remember any discussions in my Econ. 101 Course relevant to the then current and very bleak economy.
My father continued to work, but his salary was cut in half. My first goal had been to be an architect, but the complete lack of any type of building stopped that. The only architect I knew was superintendent of a small apartment building to stay alive. I changed my college major at MIT to accept a job as a Teaching Fellow. I do not know how I lived on my very modest stipend. I remember that I did send my dirty laundry home to be washed and returned. Throughout 8 years of college, both students and faculty wore jackets, vests and ties. I remember buying a full suit of clothes in Boston’s Filene’s basement for $11.
The coming Depression 2 will link the on-going events in Japan to the U. S. and Europe in a true worldwide slowdown in the economy. How bad it will be and how long it will last remains to be seen. Surely the current strong levels of commerce between nations will insure a severe global depression.
The present economic slow down in the U. S. with family savings at an extremely low level does not bode well for our nation. When Great Depression 1 struck, the U. S. family savings were very much higher than now. Twenty percent of our people were living on farms and much better able to feed themselves compared to 2% now. In 1931, at the start of the first depression, there were already many 3 generation families living together, including my own. One very likely event is that family groups will move back together in the coming depression to reduce housing costs. We may see one or two empty houses on each block.
With the very poor financial conditions of cities and states, not to mention the debt levels of the Federal Government, our nation is obviously headed for extremely difficult days ahead.
THE GREAT FAILURE OF OUR ECONOMICS COMMUNITY
I have written several times about the complete lack of understanding by our economics profession on how and when great depressions happen. In the 70 years since the last Great Depression, our leading economists have completely failed to recognize both the cause and the timing of major depressions. The tragic result is that our national and global government leaders have been mislead and given very bad economic advice ever since Depression 1. The great failure of economic forecasting made it inevitable that Depression 2 would happen and that world leaders would have no warning from the experts they consulted for advice.
For some reason known only to our leaders in Economics, there has been a complete failure of any recognition by their complete community of Ralph Elliott’s brilliant discovery of natural laws that govern the detailed action of stock market waves. A retired accountant, he viewed countless stock market charts and discovered that they were hierarchical in nature (identical at all time levels from minutes to centuries) and followed a group of natural laws. His great book, The Elliott Wave Principle published during Depression 1, would have received a Nobel prize if written by a mathematician or economist. Instead it has survived only thru the work of a small group of devoted followers who have extended and proven his work. Since Elliott’s work, followers have extended Elliott Waves back to London in 1720 at the time of the South Sea Bubble and have proven a solid connection between Elliott Wave formations, market panics and subsequent major economic depressions. In fact by 1995, Robert Prechter was able to predict the end of a large Elliott Wave sequence and the beginning of Depression 2. It is difficult to believe, but apparently not one of the copies of his At the Crest of the Tidal Wave was seen or read by an American economist, of whom there are many thousands.
It is utterly amazing to me that in the past 70 years of academic work there have been only two journal articles on Elliott Waves by members of academia, a popular article by an American mathematician and brilliant scientific article by a Chilean economist. Will the American Economics community, who currently have no clue on what causes panics and depressions, discover the Elliott Wave principal before the arrival of Depression 3 far into the future? Based on the slow pace of their learning to date, the answer must be no.
I am happy to call Prof. Hernán Cortés Douglas of the Catholic University in Chile a friend in the cause of spreading the knowledge of Elliott Waves. He has given me permission to republish his paper in Financial Sense Online and it is available via my archive. He has also given me the honor of translating my paper "Wall Street’s Greatest Crime" into Spanish and making it mandatory reading in one of his classes. It contains many great quotations from some of the very best books on earlier market panics and is very easy reading.
WILL THERE BE A DEPRESSION 3?
Based on everything known today, there will be a Depression 3, but far in the future. The current Elliott Wave picture shows Depression 2 lasting for many decades after it starts but it hasn’t started yet. Alan Greenspan succeeded in extending the market mania by several years after his 1996 "irrational exuberance" comment. In fact he obviously became a promoter of the Mania in its last several years. Then, he unsuccessfully tried to rebuild a sagging economy with extremely low interest rates. So it now appears that in the fifth year of the current bear market, the U.S. and European economies are slowly slipping into what will eventually be recognized as Depression 2.
Based on our understanding of the Elliott Wave basis for the current bear market, we know that it will be very long since it is wave 4 in a 5 wave sequence that started in the London stock market in 1720. In this sequence, wave 2 lasted 62 years in a bear market that put nearly every company on the London stock exchange out of business. A well known character of Elliott Waves is that waves 2 and 4 are often the same length and type. So, followers of Ralph Elliott’s pioneering work are the only investors to have this very clear vision of the great length of the current bear market and its accompanying Depression 2. Everyone alive today may well spend the rest of their life combating No. 2, so I for one will not worry too much about No. 3.
SOME ENCOURAGING WORDS TO YOUNG READERS
The best advice to discouraged young men and women is to take each day and task one at a time and to give it your very best effort. Good things are eventually going to happen along with any setbacks. You are part of a very large country, perhaps twice the size of the 1930s when I was struggling to get an education. Our Research and Development efforts in the U. S. are much greater now and creating entirely new industries and job opportunities.
When in school, build contacts both within and outside the school that will be useful in later life. Do not be afraid to make a change in your vocation, if it is necessary or desirable. If you are having difficulty getting a job in your chosen field, make a change if possible. Start a new venture with several colleagues.
If any reader is have the problems of the Ph.D. job seeker whose letter was given earlier, I suggest the following actions. Solicit names of contacts for jobs from every possible faculty member and then do the same things with leaders in your community who are working in the field in which you seek a job. Contact these individuals with a short note asking for a few minutes of their time. Keep it up until you get the job interview you seek.
If you are fortunate to have more than one job opportunity, do not automatically accept the one with the highest salary. Consider the long range advantages and disadvantages of each. Many young people spend their money very unwisely. Start a serious savings program at an early date.
If you are having trouble locating work in your hometown, search for another area with better prospects in your specialty. Subscribe to a large newspaper in another city and study the ads to see if a visit might be worthwhile.
When you do find employment, do not spend your money as fast or faster than you earn it. In a bear stock market and depression, the most important need is an iron-clad savings plan, putting aside a mandatory 10% or more of your gross income every month.
STATUS OF THE THREE BUBBLES
Every reader of every age should read this section carefully because of its tremendous importance. The stock market bubble is now in its fifth year and is giving credence to the idea that this bear market and Depression 2 will last a very long time. We have now finished the first down leg, the first up leg (considered wrongly by most of Wall St. to be a new bull market). We are now starting down in a second leg that will eventually go to new lows. The Elliott Wave Theory predicts that the DOW--now at 10,000--will ultimately drop to 500 or lower, so it has very far to go both vertically and in time.
The second and third bubbles are the massive credit (loans) and Real Estate bubbles, which are due to collapse at any time and by so doing to surely bring on Depression 2 in its full fury. Our time table seems to be following that in Japan and about ten years later. Their stock market started down from nearly 40,000 yen in 1989 and has been as low as 7,000 with numerous rallies. Their realty started to collapse about 4 years after stocks, so we are a little behind their schedule but with every expectation of catching up.
Regardless of age, no one should be buying a house at the current elevated prices. I expect most all housing prices to fall at least 50% in the next few years and in some areas, it could be quite a bit worse. Five and ten years from now, I expect perhaps 20% of our houses will be empty or deserted and another 20% will hold 2 or 3 family generations. At some future time, there will be some very tempting bargain prices on some wonderful real estate.
Remember that this has happened before in local areas like Florida and Texas, but this time it will be a national disaster caused by 4 years of super low interest rates plus mass hysteria.
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© 2004 Robert B. Gordon, Sc.
D.
Dr,
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Robert
B. Gordon, Sc. D.
Sun City West, Arizona
August 24, 2004
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