2008 vs. 1873

I have just finished reading an article written by Professor Scott Reynolds Nelson, a 19th century American historian, comparing the current financial mess with the Wall Street Crash of 1873.

My immediate feeling after the reading is that history sometimes does repeat itself.

Below are the lists of causes of the 1973 Wall Street Crash:

a) With the support of emperors of the Austro-Hungarian Empire, mortgages were easier to obtain (read sub-prime mortgages).

b) Land values climbed and climbed (read U.S. property bubble).

c) Creditors assumed more and more credit, even using half-built house as collateral (read U.S. credit bubble).

Lessons drawn from 1873 were that the frozen of the credit market will definitely impact the main street. And since history does repeat itself, I expect the following things in the next few years:

1) Widespread unemployment creating new form of unions.

2) Nationalistic response to the globalization i.e. higher tariffs and other protectionist measures and a decline of international trade.

3) Politicians will be busy seeking scapegoats. The potential candidates, I could think of, includes Wall Street bankers, competitive Chinese and US immigrants.

4) Social unrest in many countries, resulting in many regime changes.

5) A widespread consolidation of all industries with the post-panic winners being those firms with a substantial cash reserve.

6) The center of gravity of the world may once again shift to the east i.e. China and India.