Back to the Future (Part I): The Economy

"Those who cannot remember the past are condemned to repeat it." -- George Santayana, poet and philosopher

Credit
... then
After the the United States recovered from a postwar recession in 1921, its economy grew at a healthy annual rate. American workers produced more goods more efficiently, and their incomes increased, if not quite so quickly as the profits born from their greater productivity.¹ Many Americans' optimism grew too: they thought that they had entered a new era of prosperity, when more Americans could afford more luxury goods and live, at least materially, better lives than ever before. So securely did they hold this belief that they accepted newly available offers of credit in order to buy what they could not afford from their own pockets. By the end of the decade Americans were living lives well-furnished with debt.² More than anything, they bought cars.³ The production, purchase, and financing of automobiles drove the perception and reality of American prosperity in the 1920s. Often, however, the ready credit of the 1920s came at a price, an annual interest rate of around 30 percent on an installment plan for a new car.⁴

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After the devastating attacks on 9/11, the American economy began to grow at a steady pace. Americans became the most productive workforce in the world. What initially led the economy out of the period post-terrorist attacks was the multi-brand "Keep America Rolling" campaign of U.S. automakers. This marketing strategy led to the affordability of big bulky gas-guzzling SUVs which, in turn allowed Americans to re-suburbanize. This directly lead to two outcomes: A massive increase in home prices and home values and record profits for the oil companies. While some did get financing at zero or near zero percent on their autos, a substantial number of people purchased their homes with adjustable rate mortgages and sub prime rates.

The Stock Market
... then
By 1925, Wall Street men knew, and the Wall Street Journal reported, that they were working in "the kind of market that makes for larger commissions than profits."⁵ Watching the increase in trading on the exchanges and in the borrowing to trade on the exchanges, the Federal Reserve decided to make it more expensive to borrow money.⁶ Then on October 24, 1929, Black Thursday, the market crashed. Some, like John D. Rockafeller, claimed that they would continue to buy, but by mid-November, more than a third of the stock market's value had vanished.⁷ Facing a dubious future, Americans made important decisions not to buy. Particularly, they stopped buying the expensive durable goods like cars they had learned to buy on credit.⁸

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By the summer of 2007 noted TV personality and investment guru Jim Cramer went on television and gave notice that a major and serious financial crises was developing. Although insiders knew for nearly a year of the pending financial crisis, the Federal Reserve continued to raise rates, making it more expensive to borrow money. Then on September 29, 2008 the DOW had its largest single day point drop in history. Some, like investor Warren Buffet espoused confidence, but many considered the damage too great. In the past year Americans had drastically cut their spending: buying less cars, and consuming less and less fuel.


¹George Soule, Prosperity Decade: From War to Depression, 1917-1929 (New York: Rinehart, 1947), 220.
²Eric Rauchway, The Great Depression & The New Deal (New York: Oxford University Press, 2008), 13.
³Martha L. Olney, Buy Now, Pay Later: Advertising, Credit, and Consumer Durables in the 1920s (Chapel Hill: University of North Carolina Press, 1991), 40.
⁴Ibid., 115.
⁵"Broad Street Gossip," Wall Street Journal, 1/13/1928, 2.
⁶Rauchway, 17.
⁷John Brooks, Once in Golconda: A True Drama of Wall Street (New York: Wiley Investment Classics, 1999), 119.
⁶Rauchway, 19.