Five Things You Need to Know: The Modern Stealth Depression Revisited

By Kevin Depew  JUN 29, 2010 3:00 PM

With wealth evaporating right before our eyes, the time for preparations has passed and fear is the only thing we can hold on to.

 


"It will pay to sell with Clay."


I'm standing in the parking lot of an old tobacco warehouse in Mt. Sterling, Kentucky, faded white cinder blocks stacked around red loading dock doors that somehow seem to predate the building itself, and this is what it's promising me: "It will pay to sell with Clay." It's not even 10 o'clock on a Saturday morning and the sun is beating down hot and fierce. I snap a photo of the red and white Clay Tobacco Warehouse slogan -- commandment, really -- and stand there in the heat a moment longer, puzzling over its grammatical ambiguity; something I'd never really considered even though I must have passed that sign literally thousands of times during the course of growing up in this town. "It will pay to sell with Clay." A man could take that statement in almost any number of not altogether profitable directions. I get back in the car and soon come across a Redi Mart gas station. Another picture. Another ambiguous promise; nothing much looks "Redi" about this mart, nothing much at all.

Let's be fair: These are only two businesses in a small town of about 6,000 or so that, from the outside at least, seem to be surviving the New Economy as well as any other small town. At the local high school a new fancy football field is being put down to go alongside the new basketball arena (remember: this is Kentucky, where every basketball gym is an arena). And it's true, after all, that far fewer people smoke cigarettes these days. And everyone knows that independent gas stations across the country have pretty much disappeared -- victimized by the growth of the major chains who would give away gas for free, if they legally could, in order to sell people the crap lining the shelves inside; crap that involves a much higher profit margin, naturally. Make no mistake, there are the same underlying economic problems here that exist all across America in cities both small and large: too much real estate development, too few home buyers; too many cars, too few cars buyers; in short, too much malinvestment, thanks to decades of artificially cheap credit.

Later tonight at a party at the auto auction -- which does seem to be booming, although I do notice a sign that warns ominously that any car sold for less than $1,000 is sold "AS-IS" -- a friend of mine who owns a 20-year-old local real estate business in town tells me matter-of-factly that he's going to be teaching kids math this coming school year... until business improves.

"Well, maybe you can throw in some stuff about mortgage amortization and how to calculate a monthly payment, whet their appetites a bit; kill two birds with one stone," I tell him, trying to look on the bright side.

He laughs. "I could, but none of them would get loan approvals anyway."

In Human Action: A Treatise on Economics, Ludwig von Mises writes:
 

The popularity of inflation and credit expansion, the ultimate source of the repeated attempts to render people prosperous by credit expansion, and thus the cause of the cyclical fluctuations of business, manifests itself clearly in the customary terminology. The boom is called good business, prosperity, and upswing. Its unavoidable aftermath, the readjustment of conditions to the real data of the market, is called crisis, slump, bad business, depression. People rebel against the insight that the disturbing element is to be seen in the malinvestment and the overconsumption of the boom period and that such an artificially induced boom is doomed. They are looking for the philosophers' stone to make it last.


Doomed. Indeed. I've been thinking about this doom for quite some time now. It's one thing to see the fire coming, quite another to walk among the ashes.

About 30 miles due west of Mt. Sterling, in Lexington, a hole occupies the middle of the city where once an entire block of businesses stood. Oh, these businesses were razed and replaced by this hole with the best of intentions; to build a 35-story, 550-foot-tall high-rise hotel with expensive penthouse condominiums on top and loads of retail and office space on the bottom. It was to be called CentrePointe... with an "e" on the end because ye knowe that an "e" addede to the ende of juste aboute any grouping of ye olde shoppes is sure to class things up a bit. Unfortunately for the developers, they announced this pie-in-the-sky project at the very peak of the credit cycle and, apparently, with no real plan in place to scare up the $250 million the project was expected to cost.

"Unlike the go-go days before the real estate bubble burst, few investors are interested now in luxury hotel-condo projects," Lexington Herald-Leader newspaper columnist Tom Eblen wrote recently. "Even in its new, scaled-back form, CentrePointe makes no economic sense."

Intended to be a showcase for Lexington in time for the World Equestrian Games to be held there this fall, today CentrePointe is just a pasture in the middle of downtown Lexington with black four-board fencing surrounding the hole it hides; like a special little paddock built just for commercial real estate speculators. All that's missing are the horses.

"[T]the stock market became an engine of doom, carrying to destruction the entire nation and, in its wake, the world."
-- Murray Rothbard,
America's Great Depression

On Sunday I read where Paul Krugman in the New York Times called this The Third Depression. "We are now, I fear, in the early stages of a third depression," he wrote. As befitting someone trapped in the sensibilities of New York City -- the only city in the world that will ever matter! -- he's several years late to that observation. New York City in general, Wall Street in particular, is a bit like an aging movie star who doesn't realize she's already been replaced by a younger version of herself. If you don't believe that, spend a weekend looking around Washington DC. But that's another story.

This modern stealth depression actually began years ago:
 

Welcome to the Depression. No, don't drop whatever it is you're doing. Don't get up. It's not going anywhere. It will wait. It's just going to sit over here in the corner and read a magazine while you do whatever it is you need to do.

A Depression doesn't run hot and fierce like some crazed meth burner. A Depression is methodical, purposeful, patient. It will build a shelter out of tree branches and newspaper, light a small, well-contained campfire and wait you out, brother. While you feed on the empty calories of denial and popcorn, it will quietly gather shards of broken dreams and fashion them into a terrible weapon of blunt force reality.

It's a hell of a thing to call this day and age the next Depression. It's dangerous tinfoil-hat territory inhabited mostly by screeching lunatics and volatile nutjobs. But by the time they get squeezed out by reputable folks the whole gig will be up, the circus will have left town.

-- Kevin Depew, The Modern Stealth Depression


It's terrible form to quote yourself in your own articles, but the reason I write in the first place is because nobody else says what I want them to say. The reason I bring this up is because Krugman and all the others who have come late to our depression party almost always fail to put an economic collapse in any useful context; how it feels to someone in a town of 6,000; what it means to see your brother laid off once his economic usefulness to the company runs its course. Okay, so I will.

Despite the seeming enormity of it in retrospect, the stock market crash of 1929 barely even registered for most Americans. The day before the crash, Time Magazine's October 28, 1929, issue was business as usual; national stories, Washington stories, a review of the newest plays opening in Manhattan, a piece on a cat-washing contest in Kingston, North Carolina -- the equivalent of the modern-day YouTube cat video.

A week later, in the wake of the stock market plunge, Time's cover story took an angle as far from crashing share prices as you could get -- a profile of a man named Samuel Insull, the "financial father of the Chicago opera." The crash did make the magazine, of course, second billing in the Business section in a piece titled, "Bankers v. Panic." The next piece, however, was about a $2.5 million investment by a Wall Street investment bank in orchids: "Last week, however, to the orchid industry went 2,500,000 Wall Street dollars, not squandered, but carefully invested."

Heh. Yes, the dream dies hard, doesn't it?

It took a little more than two full years, December 11, 1931, before the New York Bank of the United States would collapse. Surely that would rattle a few cages. Well, no cover play. That was reserved for Dr. James Henry Breasted, "foremost Egyptologist of the US," but the bank collapse did garner a story in the Business section, below a piece on Lorillard Co., then in the news as "the only major industrial concern in the US to resume dividends in 1931."

Jesus, Mary, and Joseph -- what is wrong with these people? Haven't they even the vaguest sense of the impending doom they face? Someone should warn them. They're headed straight into a vicious buzz saw. It's like watching drunken sheep follow one another off the Cliffs of Moher.

On January 22, 1932, things turned desperate. The Reconstruction Finance Corporation was formed to dole out government aid to banks, railroads, farm mortgage associations, and all manner of failed business enterprises. By any decent measure of journalistic standards, this deserved top billing in a weekly newsmagazine. So Time's cover story on playwright Philip Barry's eleventh play, "The Animal Kingdom," comes as a sharp, kneecap-shattering nightstick blow.

By the end of the following year, 1933, President Franklin Delano Roosevelt had squeezed the Emergency Banking Act through Congress, signed the Economy Act, the Credit Act, the Reforestation Relief Act, the Agricultural Adjustment Act, the Farm Act, the Federal Securities Act, the National Cooperative Employment Service Act, the Home Owners' Loan Act, the Glass-Steagall Act, the National Industrial Recovery Act, the Emergency Railroad Transportation Act, and created the Federal Emergency Relief Administration, the Federal Deposit Insurance Corporation, and Civil Works Administration.

In short, everything in America was falling to pieces and going to hell. And yet, here I am staring right now at the cover of Time from August 7, 1933, just past the mid-point of that awful year, and Marie Dressler is on the cover in full character as a "a raffish, vigorous old woman whose generous heart thumps under sleazy clothes that do not fit her." 

Three months later, the November 13 cover is "Football."

The December 4 cover features Seton Porter of National Distillers, whom the magazine, with bald-faced envy, claims has "50% of all US whiskey in his saddlebags."

This is quickly turning into some kind of perverse joke, right? I'm beginning to think these people deserve the Depression, dammit. No wonder the country has gone to hell; all anyone cares about is Tugboat Annie, football, and whiskey, just like today; Lady Gaga, football, and whiskey.

And there it is, finally, the point. We're slowly sidling up to The Fear. With wealth and lifestyles evaporating right before our eyes, The Fear is really the only tangible thing we can hold on to. The Fear is always worse than the actualization. The Fear feeds on potentiality, unimaginable potentiality.

Now, there are two ways to look at that. One is to despair over our misfortune at finding ourselves in the wrong place at the right time, taken along for a ride on this wave past the cresting point. The other is to consider what adventures await on the other side. I'm in the second camp, mostly because I'm a defensive pessimist by nature, a present hedonistic, present fatalistic, beaten-down idealist, and also because I understand that despite it all -- the jobs that have vanished, the economic pain, the losing -- we'll continue to live our lives, make families, raise children the best we can, and find ways to make the best of whatever situation we're in.

Today, times are tough for many people. But even now the vast majority of us are carrying on and finding ourselves somehow casually adjusting to changes in lifestyle.

Some years ago I read a recollection piece in the New York Times by a woman who reported that she felt humiliated by her parents' reckless disregard for money during the Great Depression. They didn't have much anyway, but her parents were apparently intent on squandering what little they could accumulate on fancy clothes and cocktail parties. As I remember the story, she asked her mom, "Why on earth are you having a party with things the way they are?" Her mother, without missing a beat, said, "It's times like these when people need parties most of all."

Indeed. The time for preparations and battening down the hatches has passed. It's here. Let's party.

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