And the answer I linked ...
The Great Crash of the '90s
Predictions from the past that haven't
come true ... yet
By Nina Wasserman
THE DOLLAR HAS COLLAPSED and interest rates are skyrocketing. Banks are in crisis. The unemployment rate has more than tripled. Inflation is creeping up and up. Foreign investors are pulling out. America is in trouble.
Does it sound like 1929? Actually, it's 1995, a year that was supposed to usher in financial hardship even more severe than the Great Depression.
Such was the belief of many respected economists who looked into the future in the late 1980s. Reading the economic cycles of history, it looked as though America was headed for economic doom.
Instead, not only did the economy survive the stock market crash of 1987, but the '90s brought dramatically greater employment, a federal budget turnaround and a stock market hitting an unprecedented high. The national unemployment rate was 4.5 percent last year, compared to as much as 25 percent during the 1930s. Our annual budget deficit, once approaching $300 billion, has been transformed into a projected $14 billion surplus. And the Dow Jones is up from a
2,679-point average in 1990 to a record high of more than 10,000 points today.
Yet Harry Figgie Jr., a Cleveland entrepreneur and former owner of Rawlings Sporting Goods, topped the best-seller list in 1993 with his ominous book, written with Gerald Swanson, "Bankruptcy 1995: The Coming Collapse of America and How to Stop It,” which forecast "an economic nightmare that will dwarf the Great Depression.”
He warned that on its current path, "The United States of America, as we know it today, will cease to exist. The country will have spent itself into bankruptcy from which there will be no return."
Figgie, who was co-chairman of President Ronald Reagan's Private Sector Survey on Cost Control, predicted that the federal debt would rise to $13 trillion by 2000 -- it actually was estimated at $5.6 trillion last year. He said the value of the dollar would freefall and foreign investors would pull out.
Southern Methodist University economics professor Ravi Batra thought the crisis would come even earlier. In 1985 he published "The Great Depression of 1990." Batra used the indicators of the time preceding the Great Depression in the 1930s as grist for his analysis of the 1980s.
One of the biggest similarities he noted was a pro-business, anti-labor government that paved the way for disaster by deregulation. Banks were allowed to make risky investments with people's money in the 1920s and in the 1980s, Batra said.
Figgie and Batra were among a host of authors trumpeting disaster scenarios for the '90s. The instability of the late 1980s created a market for such theories, according to Kathleen Camilli, chief economist for Tucker Anthony, a regional brokerage firm. "A lot of things were going on in the '80s. There were double-digit interest rates. It was a difficult time for the oil industry, and we had the stock market crash in '87. There was the escalated Cold War. These events created a lot of uncertainty."
Gerald Celente, director of the Trends Research Institute in Rhinebeck, N.Y., said his institute had predicted the stock market crash of 1987 and the brief recession in 1990 -- but had wrongly forecast difficult times in the late '90s. "We certainly did not see this level of economic growth," he said, nor did he expect such a quick and strong recovery, and employment gains, after the ‘87 crash.
Celente said three factors played a huge role in turning things around to create today's boom: A global economy spurred by the end of the Cold War; the impact of the Internet; and the actions of the Federal Reserve.
The global economy was the result of the fall of communism, breaking down trade barriers all over the world including those between the United States and Russia and China. The Internet created a whole new industry composed of fast-paced companies providing new goods and services. And the Federal Reserve lowered interest rates so both businesses and individuals could refinance their debts, freeing up cash to invest in places like the stock market.
Diane Swonk, chief economist for Bank One in Chicago says she was one of the few optimists in the '80s. In 1987, she bet that the crash would not collapse the economy. "And we made a lot of money off that bet," she said. "Even though Wall Street was jumping ship, Main Street was doing just fine. People overestimate the impact of the financial markets." And Swonk maintains that this prosperous period is going to stay for a while.
But those who missed the boat and bet on doomsday have not completely abandoned their theories. Many caution that the money now pouring into speculative investments will one day evaporate.
According to Celente, the same mechanism that saved America from economic trouble in the '90s -- the Federal Reserve's lowering of interest rates -- could be the cause of a disaster to come.
David Levy, director of the Levy Institute Forecasting Center in Mt. Kisco, N.Y., had predicted the financial panic in the early '90s would lead to a recession in this decade. He still predicts we are set up for what he calls a contained depression.
"The stock market is dangerously overvalued," according to Levy. "That does not mean I know when the market will crash; this summer or maybe a year from now. People are spending far more than they are earning."
Batra has also revised his predictions and will come out with a new book in August, "The Crash of the Millennium." Batra said his predicted Great Depression of 1990 never happened because Japan cut interest rates in response to its stock market crash and, as a result, the Japanese started investing in America. The influx of Japanese money into our economy buoyed us, Batra said.
"The depression was postponed," he said. "When do I think it will happen now? Between September and December."
Nina Wasserman is a freelance writer. |
