There is a lot of talk about the economy slumping down into what would be comparable to the Great Depression of the 1930s. While most of today’s population will not recollect this, some vividly recall stories of the grandparents who did live through this. So instead of living in fear, it’s worth making a basic comparison to at least have an understanding of what could be coming.
The Causes
The effects of a depression over rides the causes. Comparing the reasons for the Great depression and a potential depression that we may be facing now are quite different.
Back Then:
- The crash of the Wall Street Stock market in 1929
- World commodity prices dipped dramatically
- Huge reduction in economic demand and credit
There is still a lot of debate among experts as to which of these were the biggest influencers of the Great Depression. Some will say it was merely a combination of them all.
Now:
- The stock market has been seen to be struggling. But even through the height of the first wave of the pandemic, the market was on a roller coaster. Now there appears to be a rally, all of which is sending mixed signals. Some say that it’s not a sign of a rapid Covid-19 rebound but is a sign of abnormality. All of which adds to the confusion for those who use the stock market as their major metric for judging the economy.
In any event, both eras showed the stock market was not stable, but in today’s economy, it is far more challenging to predict what it’s going to do.
Back Then: Spending Habits
The Great Depression had a significant impact on several countries, but it appeared Canada was one of the hardest hit.
- The overall spending by the public sector dropped by 42% during 1929 and 1933
- 30% of the workforce had no jobs
- Out of every five Canadians one had to depend on Government relief
- The unemployment rate never dropped below 12% until the second world war started.
Now:
It is almost impossible to get a handle on the spending habits during the virus outbreak. It is common knowledge that people are not spending because so many stores have been closed and people have had to stay home. Although online sales did escalate and some industries did very well. It also has created a need for additional markets such as for PPE.
- The spending habits are going to depend on how safe and secure the overall public feels. Do they feel safe enough to go out and spend, or are they fearful of contracting the virus? Do they still have jobs, so they feel financially stable enough to spend money? The answers to these will not be available for a few months.
Back Then: Importing and Exporting
- Back in the depression era, 1/3rd of the National gross income came from exporting.
- Different parts of Canada were hit harder than others because of their independent circumstances
- The provinces in the West were heavily dependent on exports
- The Prairies were dealing with years of drought
- There were plaques such as grasshoppers, and there were massive hailstorms that destroyed crops.
Now
- Exports of GDP for goods and services is 32.13%
- Importing is 34.09%
Keeping in mind that the virus has affected the entire world. So our economy is also dependent on the recovery of many of them.
Back Then: The Government
Here is a big factor and one that needs to be paid close attention to when making a comparison between then and now
- The government was weak in many different areas.
- The Federal government put no effort into stimulating the economy through jobs
- The system for dispensing welfare to those in need was inadequate
- The Federal Government was of the mindset that it was up to the provinces and their local governments to look after their people.
- There was a reluctance even to admit that the country was in a depression
- There was no such thing as unemployment, but instead, there were unemployment relief camps. Workers were paid 20 cents a day for construction work.
Now:
- The Canadian government, on all levels, was swift to step up to the plate and provide relief for both the private sector and businesses.
However, this is taxpayers’ money that is carrying the load. It is going to create a huge deficit, which means that there will have to be a way of paying it back.
Plan For The Worst And Hope For The Best
The best approach for each individual is to assume that there are going to be some rough financial times ahead. But knowing this is a possibility takes the shock out of. At least it will give time to go over their finances and plan to put into action anything that can be beneficial for the budget. Being able to think with a clear mind and not one that is reeling from the shock may allow you to do some creative planning.
An example of this is the post that was done on cottage sharing. It is just one step that a person who owns cottage property can take to reduce some of their costs in this area.
Another area that has to be given thought is when it comes to spending. Knowing that finances may be tough usually means people tighten their belts, which means they don’t spend. When there is no spending, then this affects the growth of the economy.
Be prepared to be flexible when it comes to your job. It may be that you have to work odd hours, depending on the industry you are in. This may be one of the ways that some businesses will be able to weather the financial storm.
The Duration
Also, the other factor is that the culprit being the virus will be defeated once a vaccination is in place. This sort of gives you a timeline as to how long these circumstances may exist. There are all kinds of predictions when it comes to this too. But, most experts are saying 12 to 18 months before a vaccine will be developed.
You may want to get your tax matters cleared up now, so that is one less problem you have to deal with for the rest of this year. If you need help with this, I am available to assist you. Just contact me, and we will arrange an appointment.
