Don’t give into fear!

In his 1933 inaugural address, Franklin Roosevelt said, “…The only thing we have to fear is fear itself…which paralyzes needed efforts to convert retreat into advance.” He was speaking at the depth of the Great Depression, a period that some are comparing to current economic circumstances. While Roosevelt’s words remain true today, there are few similarities between current financial circumstances and the economic turmoil of the Great Depression. In 1934, unemployment was 25% compared to 6% today, and 40% of mortgages were seriously delinquent as opposed to 4% today.

Lessons from the past
Regardless of the differences, lessons learned during the Great Depression are informing current government actions. Many experts believe that the Great Depression was caused by poor policy-making on the part of the American Federal Reserve, which did not create needed liquidity in the markets. As a result, credit tightened and banks failed. Today, the Federal Reserve and the United States Treasury are taking extraordinary measures to extend credit and maintain liquidity in the markets – including asking for the authority to own up to $700 billion in mortgage-related assets.

Reasons for optimism
Thus far, Fed and the Treasury actions have bolstered investor confidence, improved liquidity, and earned a significant response in credit and equity markets. Although we should not expect rapid economic growth anytime soon, its important to keep another statement from Roosevelt’s speech in mind: This great Nation will endure as it has endured, will revive and will prosper.

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