The world economies may be in for some rough times ahead. Let's call it a crisis, or even crises. Yet throughout history, every crisis has also brought opportunities. Indeed, our ancestors lived through many recessions and economic downturns. The end result was... us. Most of our ancestors survived the various economic problems of their day and went on to raise families and to prosper in various ways.
Many of us were born as a result of an economic crisis. How many of our ancestors lost their homes and then moved to other places for better economic opportunities? Upon arrival, they or their children met new potential spouses, married, and started new families. Indeed, many of us would not be alive today if it were not for economic crises.
Today's economic woes are nothing new. Indeed, far worse economic problems challenged our ancestors. Here are a few of the major recessions and depressions throughout history:
The Dutch Tulip Bubble of 1637
As much as the tulip is associated with Holland, it is not native there. Rather it was introduced in 1593 by a botanist named Carolus Clusius, who brought it from Constantinople. Over the next several decades, tulips became a fad among the rich of Holland, and prices began to climb. Soon even ordinary bulbs were selling for extraordinary prices, and the truly rare bulbs were astronomical. This was a perfect example of the greater fool theory: no matter how much I pay, there will always be someone willing to pay more.
The height of the bubble was reached in the winter of 1636-37. Tulip traders were making (and losing) fortunes regularly. Then one day in Haarlem a buyer failed to show up and pay for his bulb purchase. The ensuing panic spread across Holland, and within days tulip bulbs were worth only a hundredth of their former prices. The tulip bubble had burst. The financial loss was so severe that the Netherlands suffered a depression that lasted for years. Even many who were wise enough to stay away from tulip bulb speculating lost their savings as a result of the general economic depression that resulted from the tulip bulb crash.
Panic of 1797 1797–1800
The effects of the deflation of the Bank of England crossed the Atlantic Ocean to North America and disrupted commercial and real estate markets in the United States and the Caribbean. Britain's economy was greatly affected by developing deflationary repercussions because it was fighting France in the French Revolutionary Wars at the time.
Depression of 1807 1807–1814
The United States Congress under President Thomas Jefferson passed the Embargo Act of 1807. It devastated shipping-related industries. The Federalists fought the embargo and allowed smuggling to take place in New England.
Panic of 1819 1819–1824
The first major financial crisis in the United States featured widespread foreclosures, bank failures, unemployment, and a slump in agriculture and manufacturing. It also marked the end of the economic expansion that followed the War of 1812.
Panic of 1837 1837–1843
Bank failures and lack of confidence in the paper currency caused a sharp downturn in the American economy. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage).
Panic of 1857 1857–1860
Failure of the Ohio Life Insurance and Trust Company burst a European speculative bubble in United States railroads and caused a loss of confidence in American banks. Over 5,000 businesses failed within the first year of the panic, and unemployment was accompanied by protest meetings in urban areas.
Panic of 1873 1873–1879
Economic problems in Europe prompted the failure of the Jay Cooke & Company, the largest bank in the United States, which burst the post-Civil War speculative bubble. The Coinage Act of 1873 also contributed by immediately depressing the price of silver, which hurt North American mining interests.
Long Depression 1873–1896
The collapse of the Vienna Stock Exchange caused a depression that spread throughout the world. It is important to note that during this period, the global industrial production greatly increased. In the United States, for example, industrial output increased fourfold.
Panic of 1893 1893–1896
Failure of the United States Reading Railroad and withdrawal of European investment lead to a stock market and banking collapse. This panic was also precipitated in part by a run on the gold supply.
Panic of 1907 1907–1908
A run on Knickerbocker Trust Company deposits on 22October 1907 set events in motion that would lead to a severe monetary contraction.
Great Depression 1929–1939
Stock markets crashed worldwide, and a banking collapse took place in the United States. This sparked a global downturn, including a second, more minor recession in the United States, the Recession of 1937.
Of course, most of us remember the Early 2000s recession when the collapse of the dot-com bubble, the September 11th attacks, and accounting scandals contributed to a relatively mild contraction in the North American economy.
I find it interesting that the great panics are always followed by periods of prosperity. Indeed, all economics seem to run in cycles: a downturn followed by an upturn. The upside to recessions is the fact that periods of expansion last about 5 times longer than recessionary periods.
The few who "keep their heads" during a recession tend to spot and act upon golden opportunities. For example: the other day I read an article on how billionaire American investor, businessman, and philanthropist Warren Buffet bought stocks and shares, spending billions, while most others were selling in panic. When everyone is complaining about the stock market going down, Warren Buffet is quietly looking for bargains to purchase. When the stock market starts looking better, he sells at a profit. Many other smart investors do the same: purchase stocks when everyone else is in a panic.
We have all heard the phrase "buy low, sell high" many times, but how many Americans actually follow that advice? Warren Buffet does and his success is legendary.
Will the current recession be the same? Will many people panic while a few crafty folks move in and make fortunes? I really don't know. I have no expertise as a stock market adviser or as a financial planner. But it strikes me that history is indeed repeating itself. Many of our ancestors lost their homes and all their possessions in the various recessions and panics of the times. However, they or their children almost always persevered and eventually prospered.
I am looking forward to the next ten or twenty years.