For Mildred, a professional woman around sixty years of age, Great Depression II has started. I am going to have to work the rest of my life, she said. I can't retire.
She is not a rich woman, and her retirement investments have been decimated by the perpendicular drop in the stock market. Despite a lifetime of working and saving, like a thrifty squirrel burying acorns in the backyard, she's now broke.
One of the places she buried her acorns was AIG, thinking it would be hard to find a more conservative, rock-solid place to put her retirement money. She bought AIG preferred shares, that is, shares that are guaranteed to pay dividends and are thus ideal for retirement.
What none of the experts let the investors know was that somewhere along the path, AIG had stopped being rock-solid. Before Mildred knew it, the government had bought AIG and wiped out the stockholders. She, along with others, read in the papers that AIG's new owners will not be paying preferred stockholders their promised dividends.
It may be necessary for the government to take over control and ownership of these very large concerns with tens of thousands of stockholders, but the procedure is not unlike an oncologist administering chemotherapy. The doctor intends to knock out the cancer cells, but a lot of other innocent cells go down with the bad ones.
It would help if John McCain, Barack Obama and the other politicians careening around America would give a thought to Mildred when they come to the part in their stump speeches where they denounce Wall Street speculators. There are Wall Street speculators, lots of them, and the smart ones are doing very well cashing in on the enveloping depression, but they do not own most of the stocks in the hands of non-speculators like Mildred.
According to the Securities Industry Association, over half the households of America--something like 57 million families--own stocks directly or through mutual funds. McCain and Obama might bear in mind that this block of 100 million or so Americans are the very heart of the middle classes they both cannot praise enough.
By necessity, Mildred has cut back on her spending. We can assume millions more in the same situation are cutting back on theirs. Other millions who have seen the value of their houses drop have been doing the same. Even though they were not intending to sell their houses or cash in their mutual funds or their 401(k)s, they now feel poorer and less secure.
Although inflation is getting almost no public attention at the moment, it does not need publicity to carry on its economically subversive work. As prices go up and wages do not, people--particularly lower income people--buy less. They have no choice.
In sum, the less that is bought, the lower the demand for goods and services and the only thing that goes up on the graphs is unemployment. As the construction industries, among our largest employers, go down the toilet, unemployment rises.
Fear--Franklin D. Roosevelt's nameless, unreasoning, unjustified terror--is also at work here. It is driving countless people to take what money they have left out of money market funds, cash in stocks at a loss and withdraw it from savings accounts to put it in government notes which, for practical purposes, pay no interest. Money stuck away in government notes and bonds is unproductive money, money that will not be spent to generate wealth. Stagnant money makes for a scum-pond economy and fewer jobs.
Fear has made it next to impossible to borrow for anything--working capital for one's business, for new ventures, for investment in new equipment. Bankers who a couple of years ago were out on the streetcorners begging people to take the money off their hands will not cough up a car loan.
Banks are now so scared of getting stuck, they will not lend to each other. Well they might be, for even after recent spectacular bankruptcies and takeovers unresolved debts and unfathomable obligations still overhang the society.
Neither Mildred nor the captains of industry and the masters of the financial universe are spending, let alone lending. If this freeze continues there is no avoiding it--Great Depression II will begin to resemble Great Depression I, when one-third of a nation was out of work and on the dole.