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Guest Post: Depression Within A Depression

Tyler Durden's picture




 

Submitted by Jim Quinn of the Burning Platform

Depression Within a Depression

In recent months, worshippers at the altar of Keynes have been
hyperventilating over the possibility Congress will run a deficit of
“only” $1.5 trillion in 2010. They have issued dire proclamations about a
replay of the 1937-1938 Depression within the Great Depression. White
House favorite and #1 Keynesian on the planet, Paul Krugman, declared
that not borrowing an additional $100 billion to hand out to the
unemployed for another 99 weeks would surely plunge the country into
recession again.

    “Suddenly, creating jobs is out, inflicting pain is in.
    Condemning deficits and refusing to help a still-struggling economy has
    become the new fashion everywhere, including the United States, where 52
    senators voted against extending aid to the unemployed despite the
    highest rate of long-term joblessness since the 1930s. Many economists,
    myself included, regard this turn to austerity as a huge mistake. It
    raises memories of 1937, when F.D.R.’s premature attempt to balance the
    budget helped plunge a recovering economy back into severe recession.”
    – Paul Krugman in NYT    
     So did Roosevelt’s attempt to balance the budget in 1937 cause the
    second major downturn in 1938? I’m a trusting soul, but I prefer to
    verify what is being peddled to me by any economist, especially Paul
    Krugman. 

Ghost of Keynes Past

Today’s Keynesian economists have convinced boobus Americanus
that the Great Depression was caused by the Federal Reserve being too
tight with monetary policy and the Hoover administration not providing
enough fiscal stimulus. Ben Bernanke and Barack Obama used this line of
reasoning to ram through an $850 billion pork-laden stimulus package, as
well as the purchase of $1.2 trillion of toxic mortgages by the Federal
Reserve.

The only trouble is that this storyline is a complete sham.

The fact that colossal stimulus spending, zero interest rates, the
purchase of over a trillion in toxic assets by the Fed, and the loosest
monetary policy in history have done absolutely nothing to revitalize
the economy, has proven that Keynesian policies have been a wretched
failure. This is not a surprise to Austrian school economists.

Keynesian policies failed during the Great Depression, and they are
failing today. An economic catastrophe caused by loose monetary
policies, crushing levels of debt, and appalling lending practices
cannot be solved by looser monetary policies, issuance of twice as much
debt, and government commanding banks (or, in the case of Fannie and
Freddie, “commandeering”)  to make more bad loans.

Ludwig von Mises described what happened in the 1920s and 1930s. His
explanation accurately illustrates the situation in America today.

“There is no means of avoiding the final collapse of a boom
brought on by credit and fiat monetary expansion. The only question is
whether the crisis should come sooner in the form of a recession or
later as a final and total catastrophe of depression as the currency
systems crumble.”

The Roaring Twenties

They don’t call the 1920s roaring because money wasn’t flowing freely
and consumers were practicing frugality. The newly created Federal
Reserve expanded credit by setting below-market interest rates and low
reserve requirements that favored the big Wall Street banks. The Federal
Reserve increased the money supply by 60% during the period following
the recession of 1921. By the latter part of the decade, “buying on
margin” entered the American vocabulary as more and more Americans
overextended themselves to speculate on the soaring stock market.

The 1920s marked the beginning of mass production and the emergence
of consumerism in America, with automobiles a prominent symbol of the
latter. In 1919, there were just 6.7 million cars on American roads. By
1929, the number had grown to more than 27 million cars, or nearly one
car for every household. During this period banks offered the country’s
first home mortgages and manufacturers of everything – from cars to
irons – allowed consumers to pay “on time.” Installment credit soared
during the 1920s. About 60% of all furniture and 75% of all radios were
purchased on installment plans. Thrift and saving were replaced in the
new consumer society by spending and borrowing.

Encouraging the spending, the three Republican administrations of the
1920s practiced laissez-faire economics, starting by cutting top tax
rates from 77% to 25% by 1925. Non-intervention into business and
banking became government policy. These policies led to overconfidence
on the part of investors and a classic credit-induced speculative boom.
Gambling in the markets by the wealthy increased. While the rich got
richer, millions of Americans lived below the household poverty line of
$2,000 per year. The days of wine and roses came to an abrupt end in
October 1929, with the Great Stock Market Crash.

Between 1929 and 1932, the market fell 89% from its high. The
Keynesian storyline is that Herbert Hoover’s administration did nothing
to try and revive the economy. It took Franklin Delano Roosevelt and his
New Deal Keynesian policies to save the country. It’s a nice story, but
completely false. Between 1929 and 1933, when Roosevelt came to power,
the Hoover administration increased real per-capita federal expenditures
by 88%, not exactly austere.

Excessive Consumer Spending

When examining the BEA chart of GDP from 1929 to 1939, some
fascinating similarities with today’s economy leap out. In 1929,
consumer expenditures accounted for 72.3% of GDP, confirming that the
much-commented-upon American consumerism is not a modern development. In
fact, consumer spending peaked at 81% of GDP in 1932 and remained above
70% during the entire depression.

By 1950 consumer expenditures had subsided to 64% of GDP. In 1960,
they had fallen to 63% and edged up to 64% by 1970, where they remained
until 1980. By 1990 they had ticked up to 66% and by 2000 had reached
68%. The modern-day climax appeared to many to have been reached in 2007
at 70% of GDP. But in a replay of the New Deal playbook, where much of
the consumerism was funded by make-work projects and federal transfer
payments, the federal government has thrown billions of dollars at
consumers to buy houses, cars, and appliances. Consumer expenditures as a
percentage of GDP actually rose to 71% in
2009. It should be readily apparent that until consumer expenditures are
narrowed to a level that leads to a sustainable balanced economy, the
current depression will continue indefinitely.

Bureau of Economic Analysis National Income and Product Accounts Table

Table 1.1.6A. Real Gross Domestic Product, Chained (1937) Dollars [Billions of chained (1937) dollars]
   1929   1930   1931   1932   1933   1934   1935   1936   1937   1938   1939 
Gross domestic product 87.3 79.8 74.6 64.9 64.0 71.0 77.3 87.4 91.9 88.7 95.9
Personal consumption expenditures 63.1 59.7 57.8 52.6 51.5 55.1 58.5 64.5 66.8 65.8 69.4
Gross private domestic investment 12.2 8.1 5.1 1.5 2.3 4.1 7.6 9.7 12.2 8.0 10.3
Net exports of goods and services 0.8 0.4 0.2 0.0 -0.1 0.2 -0.5 -0.3 0.1 0.9 1.0
Government consumption expenditures and gross investment 9.2 10.2 10.6 10.2 9.9 11.1 11.5 13.4 12.8 13.8 15.0

The Depression Within the Depression

The Great Depression lasted from 1929 until 1940. What is not well
known is that GDP was at the same level in 1936 as it had been in 1929.
In no small part because GDP soared by 37% between 1933 and 1936. The
unemployment rate in 1929 was 5%. In 1936, even after GDP had recovered
to pre-depression levels, the unemployment rate was still 15%. It spiked
back to 18% in 1938 and stayed above 15% until World War II. Tellingly,
in 1936, private domestic investment was 21% below the level of 1929.

By contrast, government expenditures surged by 46% between 1929 and
1936. With the government creating agencies and hiring people into
make-work projects, private industry was crowded out. The extensive
governmental economic planning and intervention that began during the
Hoover administration was expanded significantly under Roosevelt. The
bolstering of wage rates and prices, expansion of credit, propping up of
weak firms, and increased government spending on public works prolonged
the Great Depression.

The evidence strongly contradicts the notion promoted by Krugman and
other Keynesian worshippers that the supposed 1937-38 Depression within
the Great Depression was caused by Roosevelt becoming a believer in
austerity. In fact, GDP only dropped by 3.5% in 1938 and rebounded by
8.1% in 1939. What actually collapsed in 1938 was private investment,
which fell 34%. By contrast, government spending declined by only 4.5%
in 1938, confirming that Roosevelt did not slash spending. To the extent
that he eased up on the accelerator, it was by cutting back on jobs
programs like those provided by the Works Progress Administration and
the Public Works Administration.

The reason private investment collapsed in 1938 was Roosevelt’s
anti-business crusade. He denounced big business as the cause of the
depression. In March 1938, FDR appointed Yale University law professor
Thurman Arnold to head the antitrust division of the Justice Department.
Arnold soon hired some 300 lawyers to file antitrust lawsuits against
businesses. Arnold launched cases against entire industries, with
lawsuits against the milk, oil, tobacco, shoe machinery, tires,
fertilizer, railroad, pharmaceuticals, school supplies, billboards, fire
insurance, liquor, typewriter, and movie industries.

The Greater Depression and Excessive Debt

Some Conclusions

The mainstream media’s popular narrative about the causes and cure
for the Great Depression invariably start with the storyline that the
stock market crash caused the Great Depression. Herbert Hoover
purportedly refused to spend government money in an effort to
reinvigorate the economy. Franklin Delano Roosevelt’s New Deal
government spending programs allegedly saved America.

This storyline is a big lie.

The Great Depression was caused by Federal Reserve expansion of the
money supply in the 1920s that led to an unsustainable credit-driven
boom. When the Federal Reserve belatedly tightened in 1928, it was too
late to avoid financial collapse. According to Murray Rothbard, in his
book America’s Great Depression, the artificial interference in
the economy was a disaster prior to the depression, and government
efforts to prop up the economy after the crash of 1929 only made things
worse. Government intervention delayed the market’s adjustment and made
the road to complete recovery more difficult.

The parallels with today are uncanny. Alan Greenspan expanded the
money supply after the dot-com bust, dropped interest rates to 1%,
encouraged a credit-driven boom, and created a gigantic housing bubble.
By the time the Fed realized they had created a bubble, it was too late.
The government response to the 2008 financial collapse has been to
expand the money supply, reduce interest rates to 0%, borrow and spend
$850 billion on useless make-work pork projects, encourage spending by
consumers on cars and appliances, and artificially prop up housing
through tax credits and anti-foreclosure programs. The National Debt has
been driven higher by $2.7 trillion in the last 18 months.

The government has sustained insolvent Wall Street banks with $700
billion of taxpayer funds and continues to waste taxpayer money on
dreadfully run companies like Fannie Mae, Freddie Mac, General Motors,
and Chrysler. The government is prolonging the agony by not allowing the
real economy to bottom and begin a sound recovery based on savings,
investment, and sustainable fiscal policies. President Obama continues
to scorn business by creating more burdensome healthcare, financial, and
energy regulations.

Today’s politicians and monetary authorities have learned the wrong
lessons from the Great Depression. The result will be a second, Greater
Depression and more pain for the middle class. The investment
implications of government stimulus programs are further debasement of
the currency and ultimately inflation and surging interest rates. Owning
precious metals and mining stocks, and shorting U.S. Treasuries will
pay off over the next few years. 

Regular Casey Report contributor James Quinn is the head of
strategic planning for one of the world’s most prestigious business
schools and the host of TheBurningPlatform.com blog.

 

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Sat, 10/23/2010 - 11:31 | 671820 trip nixon
trip nixon's picture

I don't know how to submit tips to Tyler, but I made a startling discovery this weekend. I cropped and pasted the rallies from March to mid-April (the second leg up on the rally) to the most recent rally from Sept to mid-Oct. What I discovered were two charts that were almost visually identical, and also the same height.

My question for Tyler and his experts is: What are the odds of this happening in nature?

http://dejavutrading.blogspot.com/2010/10/you-might-find-this-interestin...

My website looks at historical comparisons to look for trading edges: http://dejavutrading.blogspot.com/

Sat, 10/23/2010 - 11:43 | 671832 Implicit simplicit
Implicit simplicit's picture

Interesting.

Keeping my cash insurance for a couple of years. I think the old saying of "buy the rumor , sell the news" will apply to QE2. Frontrun QE2-sell the news.

Sat, 10/23/2010 - 12:44 | 671917 treemagnet
treemagnet's picture

I agree, except I already voted bearish until I found ZH and discovered I was competing with Ben's POMO bullshit.  But, it ain't over - I'm just early.

Sun, 10/24/2010 - 11:41 | 673244 Shocker
Shocker's picture

We are the closest thing to a depression.

 

 

 

Sat, 10/23/2010 - 12:02 | 671859 Winston Smith 2009
Winston Smith 2009's picture

Could this have something to do with the fact that 70% of the trades are now from HFT? In other words, computer algorithms gradually producing the same approximate curve in both cases?

Sat, 10/23/2010 - 13:10 | 671964 SteveNYC
SteveNYC's picture

I believe you've nailed it. Anything "organic" would have, and has, sold this market a long time ago. It is merely a scalping mechanism now for HFT and established Wall St. chop-shops.....until it is not. 

How many times will the Earth appear to "normally" rotate the sun until something disrupts its (and therefore the entire solar systems) orbit (removal of a condition)? How many times can HFT run the market up in what appears to be a "normal" fashion, before one condition is removed and the whole thing comes down? What will this "condition" be?

Even the hedge funds are starting to drop out of the charade as they simply can not justify their existence anymore, in many cases.

Just sit on the sidelines and watch, in my opinion I believe that, in our lifetimes, we are guaranteed to see a phenomenal event concerning "markets".

Sat, 10/23/2010 - 13:32 | 671996 Rasna
Rasna's picture

I agree...

The initial "model" produced a result with a positive outcome... Having proved the hypothesis and confirmed the "facts" (Can the market be manipulated to produce a desired outcome - higher and higher prices that are decoupled from economic reality and fundamentals?)

  Yes, by massive injections of liquidity... Can this process be repeated?  Let's try by resetting the model and the initial conditions.  Ergo, the latest ramp that looks identical to the first.

If you think about chaos theory, and the uncertainty associated with large inherently unstable systems, with many degrees of freedom, relying on the model to repeat the results indefinitely (or even a 3rd time) is like playing Russian roulette... Eventially a round will be chambered, and the player (Fed) will blow their brains out.

Sun, 10/24/2010 - 00:15 | 672850 jeff montanye
jeff montanye's picture

and i agree.  three times won't be the charm.  two will be pushing it but i'm shooting for lower treasury yields, gold and stocks by the new year.  more muted than '08 but worth trading.  we shall see.  what diversifies (complements) a gold and silver portfolio best over the next five years?  besides lead (brass, ammo, guns) and spam (etc.).  thanks.

Sat, 10/23/2010 - 13:39 | 672017 sgt_doom
sgt_doom's picture

+1,000

Sat, 10/23/2010 - 20:05 | 672515 greyghost
greyghost's picture

HI......my name is IGNORATI BOOBUS AMERICANUS....i have drunk from the poisoned well.....i need help...that is why i am here

Sat, 10/23/2010 - 13:43 | 672030 greased up deaf guy
greased up deaf guy's picture

similar observation made on the 20th (originally found by bill lumbergh)...

http://blog.afraidtotrade.com/unusual-similarities-in-structure-for-curr...

Sat, 10/23/2010 - 17:42 | 672346 ZackLo
ZackLo's picture

Murray N. Rothbard was brilliant, I wish I could have met the man before he died.

If you guys are interested heres some of his lectures on the 20th century....

http://mises.org/media.aspx?action=category&ID=213

his voice is a little repetitive because of the audio at first but you get used to the quality after listening to a couple, Definitly a scholar with analyzation of history thats impeccable.

Sat, 10/23/2010 - 11:34 | 671823 Sean7k
Sean7k's picture

Very well constructed argument. Could have delved into the creation of cartels, protection of unions and other government snafu's during the depression, but overall- right on the money. Thanks!

Sat, 10/23/2010 - 12:40 | 671912 B9K9
B9K9's picture

Hey Sean, I liked the comment you made on a previous thread where you noted that governments exist primarily for the benefit of the governors. Once one has this proper orientation, it becomes much easier to analyze and synthesize the various programs initiated under the rubic of 'common good'.

Keynes is an excellent example. Rather than have any meaningful effect, its purpose is solely devoted to protecting & advancing the control mechanisms already in place to further enrich the controllers. Any residual effect serves only to calm the herd to forestall potential rebellion.

It's a mistake to get caught debating angels on a pinhead. That is, actually question the merits of Keynes - it's merely a diversion. To paraphrase Voltaire, if Keynes didn't exist, the power-elite would have had to invent him. IOW, some/any mechanism had to be advanced (and blessed with academic respect) that promoted the policies we see today to ensure the PTB maintain their control.

Our only possible way out is if they have finally miscalculated. It's a rare event, but it happens periodically throughout history. Here's hoping for our generation.

Sat, 10/23/2010 - 13:18 | 671973 Sean7k
Sean7k's picture

Thanks. It is the result of studying Rothbard and anarcho-capitalism, but it makes sense to me. 

I agree about Keynes, in fact, I would argue the elites did use Smith, Ricardo and Mills to great effect. Always using the useful part of their theory and discarding or downplaying the part that was in conflict. 

I think our only way out is to realize that these are incredibly intelligent and resourceful people. To know thy enemy as you know thyself. To realize their move will not be predictable or expected, but will work very well and be prepared. 

I have been studying up on operation blue beam as of late and that is one interesting segue to global control. A little tinfoilish, but then, I'm a tinfoil kind of guy.

By the way, I always enjoy your posts, very informative.

Sat, 10/23/2010 - 13:46 | 672036 sgt_doom
sgt_doom's picture

You, sir, sound like a true scholar.....

Sat, 10/23/2010 - 15:12 | 672151 Red Neck Repugnicant
Red Neck Repugnicant's picture

I disagree.

Not only is it factually incorrect, it's poorly written.

 

Sat, 10/23/2010 - 15:38 | 672198 Sean7k
Sean7k's picture

Well. perhaps you can clarify as to how and why? or are you such an esteemed scholar it is not necessary.

Sat, 10/23/2010 - 19:09 | 672435 traderjoe
traderjoe's picture

RNR is the Andy Kaufman of ZH. He is a performance artist. Popping in simply to rile people up and watch the fireworks. Pay him no heed. 

Sun, 10/24/2010 - 00:33 | 672862 jeff montanye
jeff montanye's picture

but it is mill (john stuart) not mills.  keynes is also very imperfectly explicated on this website (my favorite).  he is confused with his bastardization, obfuscation, manipulation and actual inversion by the "power elite", the "politicians", the "government".  he said the government should save in an expansion so as to dissave in a contraction.  that's not what they did.  they dissaved in an expansion and now seek to save in a contraction.  it's not keynes' fault.  he, in a way like jesus and others, found a truth that was true but very hard to follow.

p.s. good kings have done this, in a less rigorously described way, since the invention of agriculture.

Sun, 10/24/2010 - 00:40 | 672882 Sean7k
Sean7k's picture

Still, he believed in government intervention. This is problematic. I will agree the monetarists are at the root of the problem, but as fabian socialist, Keynes believed in the idea of a superior intelligence guiding common people for their benefit. A superior intelligence residing in a select elite. He believed in government above free markets and here he is a failure.

Sun, 10/24/2010 - 01:12 | 672917 pan-the-ist
pan-the-ist's picture

You sir, are but dirt on the toe of a worm that Keynes stepped on.

Sat, 10/23/2010 - 18:07 | 672375 tmosley
tmosley's picture

You're a moron.

There weren't any facts presented in that post, only opinions based on the works of others (which is fine).  To wave off the post as factually incorrect only demonstrates that you failed to read/understand what he was saying.

Why don't you go back to the Obama forums, and leave the adults in peace?  If you just like to be a troll, go to 4chan.  I'm sure you'll get more of a reaction there.

Sat, 10/23/2010 - 21:26 | 672619 New_Meat
New_Meat's picture

Love it: facts wrong and grammar police at the same time!

I'd bet your neck isn't really red.

- Ned

Sun, 10/24/2010 - 00:25 | 672859 StychoKiller
StychoKiller's picture

So, does "Tan in a Can" come in other colors besides orange, then? :>D

Sun, 10/24/2010 - 09:12 | 673187 New_Meat
New_Meat's picture

comes with a racist tax ;-)

Sat, 10/23/2010 - 23:38 | 672799 MisesFTW
MisesFTW's picture

Nice post, sans anarcho-capitalism. IMO, It's garbage. I've been to the Mises Institute and was not impressed by Murphy's defense, or Walter Bloch's for that matter. I also found that indirectly, and sometimes directly, connecting Austrian economics to libertarianism / movement, if you will, very unsettling.

Austrian economics looks great on paper; as did Keynesian economics. Keynesian economics was implemented, i'm sure we all know why. Austrian economics will NEVER be implemented. Human reaction toward greed, fear, competition, etc is not conducive to Austrian economic policies. I postulate this using human history as my source.

Sun, 10/24/2010 - 10:39 | 673214 Bob
Bob's picture

Agreed.  The Great Keynes v. Mises Debate is just another blue team-red team spectacle wrt the real world, though I expect that "Austrian economics" will be unleashed once "Keynesianism" has run its useful course for TPTB, rolled out to great fanfare and enthusiastic applause from the other end of the stadium. 

Reminds me of dogs chasing cars. 

 

Sun, 10/24/2010 - 11:09 | 673289 New_Meat
New_Meat's picture

Bob, I like your line of thinking.  Are there enough non-Keynsians (let alone Austrians) to fill all of the slots?

Great debate ;-)

http://www.youtube.com/watch?v=d0nERTFo-Sk

- Ned

Sun, 10/24/2010 - 11:49 | 673342 Bob
Bob's picture

Love that video.  Ya gotta love Austrian theory, too, but what about that human wildcard?  Seem to me that "austrian" is more meaningfully contrasted with socialism than with keynsianism, given the profound social restructuring that such a elegantly simple and apparently perfect system would require. 

It's a beautiful idea.  The same could be said for socialism.  Good luck with either form of idealism. 

The human animal always gets in the way. 

Sun, 10/24/2010 - 01:37 | 672948 Cathartes Aura
Cathartes Aura's picture

nice to see someone post a recognition that "these are incredibly intelligent and resourceful people" - rather than the usual "oh man, they are sooo stoopid!!!" - I liked your post Sean 7k. . . it's good to research circles around their actions, rather than just follow up from behind them.

with regards operation blue beam - don't know if you caught the press on sept. 27th (I don't "do" news much, though I often follow links from some of the smarter ones here at ZH), but this is a good link to the variants:

http://www.wanttoknow.info/ufos/ufos_national_press_club_witness_testimony

quite the wild ride should these possibles be "unveiled", eh? hehe.

Sun, 10/24/2010 - 03:46 | 673013 DavidPierre
DavidPierre's picture
Astronauts, generals, top officials reveal major UFO cover-up in this UFO video (90 min)

http://personalgrowthcourses.net/video/ufo_videos

http://personalgrowthcourses.net/video/ufo_videos_2

......................................................................................

{Yeah... I know... they all are nuts and you know better... this is just "tin-foil-hat" stuff.  Watch it first then you make up your already closed mind.}

Sun, 10/24/2010 - 11:04 | 673284 New_Meat
New_Meat's picture

Gotta ask Art Bell.

- Ned

Sun, 10/24/2010 - 16:34 | 673801 Cathartes Aura
Cathartes Aura's picture

not sure if your end comment was directed at me? DavidPierre. . .

my mind is "open" to probabilities, and my beliefs are that even if I don't actually have direct experience of some thing, that does not preclude an other human having that experience. . . nor does it mean that I might not have that experience at some point in "the future". . .

I've had a lot of "experiences" that others would discount - and fair enough, they are mine, after all. . . *grins*

my post above this regarding the "press releases" was merely pointing to a path-to-storyline that may possibly unfold in the future, and I certainly wouldn't put anything past those who write the world's script(s). . . the "masses" are being gifted with HUGE screen TVs, HiDef, 3D, quad surround system sound, lol - how hard will it be to create a mass hallucination, really? the cables have been laid. . .

Sun, 10/24/2010 - 20:42 | 674089 tip e. canoe
tip e. canoe's picture

agree w/ aura once again.   the question is not whether or not aliens/UFOs/ETs exist amongst us but why all of a sudden after years and years of ex-military/NASA/astronauts etc etc etc going public does this testimony start getting coverage by reuters, MSNBC, ABC etc etc etc?

the medium IS the message.  
coming soon to a sky near you.

goldbugs better hope they don't come calling themselves the Annunaki ;~)

Sun, 10/24/2010 - 21:46 | 674166 DavidPierre
DavidPierre's picture

C A:

That was a generalized "You" not aimed at you.

Sorry for the confussion.  It was very late last night.

That end comment was for the fast draw junkers.

Sat, 10/23/2010 - 13:20 | 671980 Pants McPants
Pants McPants's picture

Excellent comment, especially paraphrasing Voltaire.  It has been a six year journey for me, from lefty (grew up in MN) to righty (military) to Ron Paul to anarcho-capitalism.  With the exception of now, every previous philosophy didn't sit right.  There were contraditions.  There were shysters.

I think it was Frank Shostak of the Mises Institute who said it, but he said something to the effect of government need for Keynesian policies preceeded Keynesian economics.

Despite the gloomy nature of my response, I believe in (most) of our generation.  Unfortunately it's going to take a long time to wake up most people.....and I need to work on my patience - especially with my ignorant friends!

Sat, 10/23/2010 - 20:47 | 672577 nuinut
nuinut's picture

IMO, Edward Bernays' contribution was probably on a par with Keynes, he has just remained under a lot more radars. But that's really just another angel to fit on that pinhead. 

Sun, 10/24/2010 - 10:42 | 673252 Bob
Bob's picture

The best solution is always the one that's never been tried and  beacons from that wondrous land just over the horizon. 

Sat, 10/23/2010 - 11:45 | 671826 ebworthen
ebworthen's picture

Besides being economic fellatio that will produce no children, the bailouts and sanctioning of privatized gains and socialized losses of the hedonic oligarchy reinforced the laxity of the indolent and lust for mammon of the corrupt to the shame and detriment of the responsible wishing to live free.

Sat, 10/23/2010 - 13:26 | 671991 tsx500
tsx500's picture

 . . . . you had me at fellatio ........

Sat, 10/23/2010 - 16:57 | 672289 Paul E. Math
Paul E. Math's picture

I'm thinking the bailouts were more like another sexual act that would also be unlikely to produce any children.  Except, perhaps, those kids that you 'drop off at the pool'.

Sat, 10/23/2010 - 19:13 | 672439 traderjoe
traderjoe's picture

Wow, a fantastic turn of the phrase...

Sat, 10/23/2010 - 11:37 | 671827 sushi
sushi's picture

Great article!! Too bad they couldn't blame the Chinese for the 1929 crash and subsequent depression.

Also, why is no one reporting on the contribution of American industry? Walmart is responsible for 10% of US imports from China, each of the Fortune 500 has major operations in China and all of them benefited by exporting jobs and capital and re-importing finished product.

Sat, 10/23/2010 - 13:31 | 672001 11b40
11b40's picture

Yes, Sushi, and you are touching on another major point. 

In the 30's & 40's, we still made things in this country but unemployment still remained in the 15% range until WW2.  How do we expect to add jobs in today's environment?  Low demand = Low investment = Few new jobs = Lower demand = Lower investment = Even fewer jobs = .......

Sat, 10/23/2010 - 15:37 | 672194 sushi
sushi's picture

I think the issue in the '30s and '40s is that there was a major agricultural failure and the population was driven off the land. This collapsed demand and there was no way to reabsorb those who had left the farm. Did not matter what the Fed did, it was not able to reignite the economy.

The irony today is that a lot of the Fed's liquidity is being moved overseas and invested in  EM, increasing thier productive capactiy and employment levels. My hunch is that we see the ROW pick up and undergo expansion, ROW demand will boost commodities demand (oil) and this will feed through into the advanced economies which will still not see job growth but will see higher input costs, decreasing margins and cost of living increases as consumers absorb the higher prices resulting from a yuan revaluation.

I doubt war would offer a solution. You no longer need that many boots on the ground, or expensive airfleets. Just a couple of tomahawks and ROVs being flown out of Nevada.

Sat, 10/23/2010 - 18:00 | 672367 BurningFuld
BurningFuld's picture

@sushi

"Walmart is responsible for 10% of US imports from China, each of the Fortune 500 has major operations in China and all of them benefited by exporting jobs and capital and re-importing finished product" that Americans had to borrow money to purchase.

Now the loop is complete.

Sat, 10/23/2010 - 18:15 | 672386 tmosley
tmosley's picture

There have been plenty of agricultural failures prior to that, and it never caused a 15 year depression before.

That is not what caused the depression.  It was 100% caused by government meddling in the economy.  Look at the differences in the initial economic shock and length of the GD and the Depression of 1920, then compare the reactions of the government.

Sat, 10/23/2010 - 21:30 | 672626 New_Meat
New_Meat's picture

+1 and yep. - Ned

Sat, 10/23/2010 - 22:01 | 672664 Fred Hayek
Fred Hayek's picture

Amen.  Besides Rothbard's book about the depression, Liaquat Ahamed's book, The Lords of Finance, does a great job explaining how the central banks, especially the Fed, caused the great depression and worsened things when there was still time to head off the depths of it.

Sat, 10/23/2010 - 21:42 | 672639 New_Meat
New_Meat's picture

sushi-time to hit the books.

Issue in the '30s ain't close to the '40s.

In the '30s, well Fed (and other central banks) slurping in cash to prevent inflation.  Smoot-Hawley protection (coming to a neighborhood near you real soon now).

If by ROW you mean "remainder of the world" then you well understand the Roosevelt policies that Our Dear President is attempting to recreate.  Union employment at the end of the '30s was higher than at the beginning, but, well, what we call U-6 today was [ed.] in the mid-20% as we see today.

Now, the 40s-war, then the great unblocking in '46, yes a recession but they were rather tough, then away the U.S. economy went, including huge investment into Europe and Japan to rebuild their economies.

and, well, a couple of TLAMs don't win wars.  Takes a crowd of 0311s and 11Bs with support to put the gleep onto the bad guys.

- Ned

 

Sun, 10/24/2010 - 01:18 | 672928 pan-the-ist
pan-the-ist's picture

The bad guys...

Just wondering who you consider to be the bad guys these days...

Sun, 10/24/2010 - 07:26 | 673092 ToNYC
ToNYC's picture

 

What about TAX CREDIT favoring EXCLUSIVELY Domestic-sourced businesses...including energy and natural gas. Energy sans Wahabbis.

Sun, 10/24/2010 - 10:33 | 673242 pan-the-ist
pan-the-ist's picture

They're beyond tax credit with these fucks already.  They're handing out subsidies...

Sat, 10/23/2010 - 13:56 | 672052 sgt_doom
sgt_doom's picture

I agree with your remarks excepting for "Great article!!"

I think it has many, many shortcomings.

The author states:

"The Great Depression was caused by Federal Reserve expansion of the money supply in the 1920s that led to an unsustainable credit-driven boom."

 

Like that pseudo-genius stooge, Bernanke, he leaves out a number of variables, such as the economic scam foisted upon them back then know as Prohibition (1920-1933), having similar effects as the tax cuts for the super-rich has today.  Likewise, those monies laundered through the exchange is almost equivalent, size-wise, to the leveraged speculation by the hedge funds, banksters, and the rape and pillaging by private equity leveraged buyout firms today.

 

Also, one MUST take into account those complex structured OTC assets and securitization, beginning back in 1909 and which really took off in the '20s, leading up to the Great Crash.

 

Roosevelt was exactly right in his blame, and Goldman Sachs, JPMorgan are up to the same old tricks today.

 

Same script, over and over again.

 

The reason the stimulus doesn't work is due to the dismantling of the US economy over the past 35 years, using those tools of jobs offshoring (labor arbitrage), hedge funds, PE leveraged buyout firms, with the underlying command and control paved by securitizations and credit derivatives.

 

It is really quite simply when one examines the big picture.

 

Study suggestions:  Markit Group, InterContinental Exchange [ICE, ICE Futures, ICE Clear, etc.], Climate Exchange PLC, ELX Futures, Sungard ownership, DTCC, ICE US Trust, Regulatory DataCorp's Global Regulatory Information Database [Compliance G.R.I.D.], and so on.

Sat, 10/23/2010 - 17:21 | 672322 razorthin
razorthin's picture

The point is that the Fed is the enabler of first resort.  So ultimately, the government, a la 1913, has only itself to blame.

Sat, 10/23/2010 - 11:38 | 671828 piceridu
piceridu's picture

Thanks Jim, a nice retrospective look at the folly that took place back then.

Sat, 10/23/2010 - 11:45 | 671835 Aghast in Midlothian
Aghast in Midlothian's picture

Interesting read- makes me wonder what guys as bright as Krugman and el Presidente (and I do believe they are bright) are thinking. Assuming stupidity is off the table, there are only three possibilities - incompetence, economic/political ideological inflexibility or malice (crash the system)...or some combination.

Place your bets and buckle up.

 

Sat, 10/23/2010 - 12:27 | 671889 baserunr
baserunr's picture

The outtake from Krugman says it all.  They desperately want to avoid the pain.  Pain of making their friends realize financial losses.  Pain of dislocation. Pain of uncertainty.  But mostly, the pain of recognition that they have been wrong, all this time.  Everything they have collectively staked their careers on is a sham, and the pain of that realization is too much to bear.  Better that future generations suffer under crushing debt than we have to admit "We were wrong".

Sat, 10/23/2010 - 13:49 | 672040 SteveNYC
SteveNYC's picture

Solid observation. The "ego" has had such a dastardly impact on the human race as a whole throughout history, why would it be any different this time?

Krugman is not necessarily an "idiot", he is just very, very unconscious. He is a robot, he is programmed, and fear lof failure will continue to keep him in his comatose state.

Sat, 10/23/2010 - 13:49 | 672042 macholatte
macholatte's picture

 

They desperately want to avoid the pain.

 

There is no pain if a numbing effect happens first. One anesthetic we can see used is mass media bullshit (propaganda) thrown everywhere until there is no place to turn for truth, justice and the American way. So people become sheeple and just put their heads down and go back to work and try to eek out a living.  They vote a straight Dem or Rep ticket and refuse to accept the idea of one party rule. It's too complicated. They choose to live in denial because it's safer, simpler and logical.

 

 

 

Sun, 10/24/2010 - 00:32 | 672868 StychoKiller
StychoKiller's picture

You can drown in de-Nile, assuming the crocodiles don't eat you first!

Sun, 10/24/2010 - 07:31 | 673093 ToNYC
ToNYC's picture

 

BWM...Brilliant While Misguided

Sat, 10/23/2010 - 11:50 | 671837 Psquared
Psquared's picture

Nice historical summary and I mostly agree with the conclusions. One interesting sidelight to the study of the GD I is to look at recessions/depressions before the creation of the Federal Reserve. The argument made in 1909-1913 was that a central bank, which could change monetary policy and the money supply, could help smooth out the bumps caused by previous boom and bust cycles. It looks to me as though the Federal Reserve policies have actually made these cycles more severe because they are constantly overshooting or undershooting the mark - or just using plain old bad policy.

It also appears to me that the only way the current system "looks" like it is working is by promoting a constant rate of inflation and currency debasement which masquerades as growth. Unfortunately, there are too many people with a vested interest in the current system to change it. It will have to collapse and a lot of people are going to get hurt. I hope that more and more people will step forward and say, "look, we have experimented with a central bank and monetarism twice in our history and both times it failed; it is time to do it another way."

Sat, 10/23/2010 - 12:03 | 671853 ebworthen
ebworthen's picture

The idea of a Federal Reserve to "smooth out the bumps" is similar to health or other insurance companies.  The idea is good but it is corrupted by greed, bureacracy, and lawyers. 

You create fear and outrageous costs for treatment or repairs, then collect premiums which become a kind of tax, then there is a great big pool of money that becomes a target for attorneys and speculative investment. 

AIG is a perfect example here, an insurer that operated like a hedge fund, leveraging the payments for insurance from the responsible to speculate (gamble) with.  When they failed, the great dark pool of money of the FED (printing press, debt, future tax obligations of the individual) came to the rescue. 

Insurance for insurance, unbound by the constraints of government, operating for the benefit of the elites in banks, corporations, and government - all at the expense of the individual citizen (and especially the middle class).

Not only a bad idea but unethical, immoral, and illegal.

Sat, 10/23/2010 - 13:16 | 671974 zaknick
zaknick's picture

I'd use criminal, fascist and genocidal.

 

I sure hope I see lots of actual physical human heads rolling through the streets in a great big orgy of freedom (the blood of patriots and tyrants and all that).

 

Guillotines, bitchez!

Sat, 10/23/2010 - 21:37 | 672635 Imminent Crucible
Imminent Crucible's picture

That particular sort of orgy of freedom has a way of getting out of hand, and turning into an orgy of revenge.  Kinda like in France.  Liberté, égalité, fratricide.  I'll settle for prison for the lot of them.  A Turkish prison.

Sat, 10/23/2010 - 17:04 | 672300 ThreeTrees
ThreeTrees's picture

Hayekian Triangles.  Get some.

Sat, 10/23/2010 - 22:29 | 672704 ebworthen
ebworthen's picture

I will look into it...

Sat, 10/23/2010 - 11:48 | 671838 lamont cranston
lamont cranston's picture

Why manufacture in the US? Between the EPA, OSHA, state and local kleptocracies, et al, not to mention tax codes, you're screwed before you start.

Sun, 10/24/2010 - 00:34 | 672875 StychoKiller
StychoKiller's picture

But, but, ... we gotta "save" the Environment!  Will someone PLEASE THINK of the children?? </sarcasm>

Sat, 10/23/2010 - 11:51 | 671842 RobotTrader
RobotTrader's picture

No doubt, the economy is flat on its back.

Some say we are in a full fledged depression.

However, the stimulus, zero interest, and POMOs have created another stock market bubble of epic proportions, at least in certain sectors.

Vast fortunes have been made, 4, 5 and 6 baggers everywhere off the March 2009 lows.

NFLX up 800%

PCLN up 700%

GMCR up 600%

CMG up 500%

AAPL up 400%

CAT up 400%

VMW up 375%

GDX up 350%

Sat, 10/23/2010 - 12:02 | 671858 rocker
rocker's picture

Hello Robo,  "trip nixon" has a interesting bit of charts to view. I have seen this by others and have noticed that this leg is almost as long as the first run. Do you not agree that we are soon done.  Say around Dow 1250.

I also like to watch how many junks you get. I think of it as a interesting indicator. Credit for being right, so far.

Sat, 10/23/2010 - 18:20 | 672392 tmosley
tmosley's picture

If you understand that, why do you keep posting charts from individual stocks and claiming that the recovery is underway?  Why do you continue to hate on gold and all things gold related?

What is your malfunction?  You correctly identify the bubble and its cause, so why can't you see the inevitable outcome?

Sat, 10/23/2010 - 20:46 | 672576 TwelfthVulture
TwelfthVulture's picture

I don't know if Robotrader actually believes that a recovery is underway.  They are simply stating the fact that markets have been, for whatever reason, whether rightly or wrongly, consistently ginned higher.  More's the better if Robo has managed to wring a few bucks from global banking cartel in the process.

Sun, 10/24/2010 - 07:35 | 673094 ToNYC
ToNYC's picture

 

A Recovery is indeed Underway. As in Charles MacKay's book on "Extraordinary Popular Delusions and the Madness of Crowds"...they are slowly coming to their senses, and one by one.

Sat, 10/23/2010 - 12:03 | 671860 Oh regional Indian
Oh regional Indian's picture

Interesting observation. Keysianism failed in in his hey day. He was their, guiding hand.

Thanks Jim, I'll put that in my conspiratorial axiom list.

Governments world over were forced to adopt the Keynsian model because it was a known failure and ended up enriching the oily-garks while impoverishing the common man/woman/child.

Ergo, all Keynsians are either

1) Foolish (unlikely)

2) Curropt (very likely)

3) Co-opted (obvious)

ORI

http://aadivaahan.wordpress.com

Sat, 10/23/2010 - 12:13 | 671868 Kina
Kina's picture

Found a modeling of the coming stock market burst, done in slow motion.

 

Notice how the big boys (red) exit at light speed, leaving the lumbering others with zero support and ending up a wet mess on the table.

Good luck to those who think they can get out in time when this thing blows.

http://www.youtube.com/watch?v=N8hAwVaaD84

Sat, 10/23/2010 - 17:58 | 672364 treemagnet
treemagnet's picture

So whose the retard who flagged this as junk?  Black Swan I especially like your last line.  It sums up the essence of my thoughts - 150 or so equities accounting for nearly half the volume in a historically low volume flow, controlled by drunken shepards and inbred sheeple.  When these HFT's decide to stop playing, it'll be gone baby gone.  I was on the phone with my broker (a terminal bull) during the flash crash.  There was a part of me that was absolutely fascinated with the incredulous angst in his voice....you nailed it, at some point 10 percent of the market will take their ball and go home in 10 minutes and thats just the first chapter in this sad, sordid tale.

Sun, 10/24/2010 - 00:38 | 672879 StychoKiller
StychoKiller's picture

If the Ignorati re-elect too many Decepticrats in Nov, I guarantee I'm closing my IRA and taking possession of what's left!  (Not that the Republicons will do any better, but someone's gotta cock-block Obamatron!)

Sun, 10/24/2010 - 10:00 | 673219 BurningFuld
BurningFuld's picture

As far as maintaining the stock market valuations I would think promises have been made for monies received by the big boys. If things start to go south the printing press will go into maximum overdrive. Think of all the monies paid to retiries based on equities. They are simply not going to let that collapse because that IS money flowing into the economy. Stocks are NOT going down, money will be printed, the only thing going down is the value of the USD.

Sat, 10/23/2010 - 12:18 | 671878 pamriallc
pamriallc's picture

whats true is that "lock to lock" from 1929 to 1939 the economy grew.  the gut of the economy changed a lot.  even in Germany under Hitler, with allied forces bombing Germany into complete submission, we note the following:

the "GDP" of germany declined by 50% during this period and due to the complete gutting of their infrastructure and etc...

6 years after the war, German GDP was actualy ABOVE the levels seen just prior to WW2

whats the point in mentioning this?

simple:  no one died in the current crisis, no one slaughtered 6MM people and created mass graves.  you have instead a banking system that got too leveraged, consumers who were over-leveraged, and as this is worked off, the economy will recover.

people act like the current situation is the end of the world.  rather, we believe it is the beinning of something much better, something that we can be proud to be a part of.

the USA is not Germany under Hitler and the idea of "getting over ourselves" and getting back to work vs complaining about the present----  that could actually improve things a lot more.

two weeks ago in Norway reviewing investments for clients, last week in San Francisco visiting companies for clients, now in Vancouver BC on the way to Shanghai and Beijing---  yes....   digging digging digging for more awesome opportunities for my Family Office.

making it better, one bankable opportunity after another.

shawn a. mesaros   pamria, llc (pacific asset management)

Sat, 10/23/2010 - 12:23 | 671885 ebworthen
ebworthen's picture

The over-leveraging of corporations and governments brought about the global depression which brought about World War II.

This time, we have nukes.

Sat, 10/23/2010 - 14:00 | 672056 sgt_doom
sgt_doom's picture

Pithy and brilliantly articulated, ebworthen.

Sat, 10/23/2010 - 19:32 | 672467 Green Leader
Green Leader's picture

...plus tectonic, weather & bioweapons.

Watch the show...courtesy of the US Military:

http://www.ssd.noaa.gov/goes/east/tatl/loop-wv.html

 

 

Sun, 10/24/2010 - 01:47 | 672962 Cathartes Aura
Cathartes Aura's picture

. . .nice!

tie these in with the blue beam ops & you've got everyone's attention. . .

Sat, 10/23/2010 - 12:24 | 671886 snowball777
snowball777's picture

So your suggestion is that we bomb ourselves into the stone age?

 

Sat, 10/23/2010 - 13:00 | 671939 ebworthen
ebworthen's picture

Not a suggestion, just an observation that the stakes are higher this time around.

My only suggestion would be public hangings of the malfeasant.

Sat, 10/23/2010 - 13:38 | 672013 zaknick
zaknick's picture

Yaaay, hangings!!!!

 

Can we havz guillotines too?? Please?

pammya seems to be deep into that kool-aid

 

Anybody who knows just what the hell is happenning to this country, what has really happened to this country over the last century (uh oh, conspiracy theories), would oppose the fascist scum running the country and their "central bankster dollar". Unless you're deeply invested in the status quo. With income inequality rates like today, the vast majority are not benefitting from this "system" and instead would benefit from major changes in society. Making the economy and money work for people instead of the other way around would be a great start (it is possible with the banksters guillotined).

 

Abraham Lincoln:

1864

"We gave the people of this republic the greatest blessing they ever had, their own paper money to pay their own debts."

1865

In a statement to Congress, "I have two great enemies, the Southern army in front of me and the financial institutions in the rear. Of the two, the one in my rear is my greater foe."

http://www.youtube.com/watch?v=USGSOViaulc&feature=related

Sat, 10/23/2010 - 19:27 | 672461 traderjoe
traderjoe's picture

Zak - Agreed, agreed. Pammya is a 'money-changer'. Someone that benefits from the ponzi-private banking cartel system that creates inflation to rob citizens of their stored value (thereby requiring them to 'invest' their money). 

As long as he is making people invest at 1% fees or more (charging them to use their money), he's happy. He cares not about the 44 million on food stamps. The 25% homes underwater. The 17% U-6 unemployment. 

GDP is his measure of economic health and happiness, because the centralization of rewards brings him client monies, which bring him fees. That is his worldview.

For him, it would be beneficial if the Feds waved their wands to fix the mortgage mess. It would reduce 'uncertainty' - even though in the long-run it might reduce our citizenry's freedom. 

 

Sat, 10/23/2010 - 22:09 | 672679 Fred Hayek
Fred Hayek's picture

That's a bit strong.  You're assuming a knowledge of his thoughts and motivation of which you can't be certain. 

Sat, 10/23/2010 - 19:18 | 672046 11b40
11b40's picture

Just in case you forgot, WW3 has already started, and it is against a phantom enemy that can never be defeated.  On top of that, these invisible "terrorists" will one day acquire the big bomb....or maybe not.  Maybe it will be bio-terror, electronic terror, or maybe just hitting a few malls around Christmas an causing economic terror.

Maybe all the jobs will come from the Department of Homeland Security.  I see they are monitoring collegefootball games now.  Modern day equivalent of WW2.  We could slap 1,000% tariff on anything that has to do with surveillance and create a huge new domestic industry, too.

Sat, 10/23/2010 - 21:55 | 672658 New_Meat
New_Meat's picture

+1 'nother grunt heard from - Ned

Sat, 10/23/2010 - 22:10 | 672680 Fred Hayek
Fred Hayek's picture

What are you talking about?!  We've always been at war with East Asia!

Sun, 10/24/2010 - 07:46 | 673097 ToNYC
ToNYC's picture

 

HSA/TSA are now the scourge of Individual Liberty. The default restriction of traffic and travel to avoid the hassles only isolates the US Citizen from the Global perception of what this absurdist terror/terrorist debacle fiasco fantasy has wrought on a Free People in the false name of Security. The aditional benefit is random confiscation as if the asbestos particle on your paper currency makes you the proximate cause and contributor to mesothelioma. Isolation slows the notice of the diminishing value of the USD. The cure is worse than the disease. Primum non nocere.

Sat, 10/23/2010 - 12:36 | 671907 unum mountaineer
unum mountaineer's picture
people act like the current situation is the end of the world.  rather, we believe it is the beinning of something much better, something that we can be proud to be a part of. That sounds so familiar...where have I heard of someone trying really really hard to convince themselves...oh wait..there this.. the real purpose of my job is to make capital markets more efficient and ultimately provide the U.S. consumer with more efficient ways to leverage and finance himself, so there is a humble, noble and ethical reason for my job ;) amazing how good I am in convincing myself!!!' Fabrice Tourre have a good one guy..don't take any walks on short piers..
Sat, 10/23/2010 - 12:56 | 671930 Sean7k
Sean7k's picture

Perhaps you should reread the piece. You have obviously missed the point. This is about using the same methods as last time. Declaring that they worked last time, when they did not. 

This is about the need to use other methods to restore health to the economy via Austrian methodology. 

The comparison to Hitler is a red herring. Germany improved later for two reasons: the US was the unchallenged economic leader in the world with the only fully functioning manufacturing base and two, we subsidized their reconstruction at the expense of US taxpayers.

While some people are continuing to maintain and expand business opportunities, a large percentage of Americans are not and there is no viable solution for their unemployment. Especially as long as we shelter banks and insurance companies by exchanging their liabilities for new capital at the expense of the taxpayer. Any business can profit if the playing field is tilted in their favor, much less turned on it's head. 

The only solution to this madness is to allow the cycle to correct through what will now be massive deflation and dislocation. Then eliminate the central banking system and restore America to a sound money banking system that rewards investment, savings and production. 

 

Sat, 10/23/2010 - 15:05 | 672037 zaknick
zaknick's picture

deleted

Sat, 10/23/2010 - 14:01 | 672060 sgt_doom
sgt_doom's picture

Again, most scholarly...

Sat, 10/23/2010 - 14:10 | 672078 Sean7k
Sean7k's picture

Thanks, but I'm sure I'll say something to change your mind...

Sat, 10/23/2010 - 19:30 | 672463 traderjoe
traderjoe's picture

I think BB give you a drive-by junk...

Well said...

Sat, 10/23/2010 - 13:41 | 672026 Diogenes
Diogenes's picture

There were a couple of principles that guided German politics postwar and help account for their economic miracle.

1) They just had 12 years of Hitler and now they had a new government under the eye of the Allies. Socialism and dictatorship were out, capitalism and democracy were in.

2) They didn't dare inflate the currency. The German people had seen their money wiped out and reduced to nothing 4 times in 40 years. The slightest sign of inflation would have caused an instant panic and bank run.

Democracy, capitalism, freedom, a sound currency and balanced budgets and in 10 years they recovered from the worst war in history and were better off financially than ever before.

Sat, 10/23/2010 - 22:12 | 672684 Fred Hayek
Fred Hayek's picture

Weren't the germans counseled by the U.S. and brits to go with a mixed economy but went much more free market under Adenauer?   I thought a history professor told me that.

Sat, 10/23/2010 - 15:24 | 672167 Jim Quinn
Jim Quinn's picture

You are a linearist. There aren't 6 million dead people, YET. I suggest you read The Fourth Turning. We are still in the early stages of this Crisis. The pain and suffering is yet to come. War is inevitable. Millions will die.

Sun, 10/24/2010 - 08:15 | 673125 Paul E. Math
Paul E. Math's picture

Imagine that Germany did not re-establish its manufacturing base after WWII.  Anything they needed that was manufactured was built somewhere else and paid for with loans.

Imagine that they had a government-supported mortgage guaranteer so that they could build McMansions for everyone on the rubble of their former homes.

Imagine that their central bank purchased all the unpayable mortgages used to build the McMansions.

In the end, the Germans would have had a crushing debt load, no means of repayment and toilet paper for currency.

Yes, Shawn, there are still lots of transactions taking place.  And you have successfully placed yourself in the middle of them.  Like the rest of the parasitic FIRE industry.

Sun, 10/24/2010 - 10:24 | 673231 BurningFuld
BurningFuld's picture

Indeed Germany was a very tough place to live after WW2. My mother and her first husband immigrated to Canada in 1951 because even at that time things were still awful in Germany. My mothers first husband came to Canada because he had found work in a mine. He had to work in Canada for a year before he could send for her.

And like my mother always said "Even though we didn't have any money we survived and those were some of the best times after the war."

Proving money does not make you happy and this whole credit fiasco should be allowed to collapse.  Time for a do over.

Sun, 10/24/2010 - 12:19 | 673399 Sean7k
Sean7k's picture

? What are you alluding to?

Sun, 10/24/2010 - 14:12 | 673603 BurningFuld
BurningFuld's picture

The fact that after WW2 ended it took tough times in Germany to get it rebuilt. There was no easy way out. Also despite how tough the times were (In relation to what we are used too now for sure) It still wasn't that bad. As long as you can source food...rather than needing to be armed to defend your material assets....if everyone is in the same boat people would rather come together to survive.

Sat, 10/23/2010 - 12:21 | 671881 Oh regional Indian
Oh regional Indian's picture

Keynes must be rolling in his deficient grave.

It is also clear the Keynsian monetary policy allowed the global war machine to grow to it's current size.

Austrian school would have kept de-velopment more balanced.

ORI

http://aadivaahan.wordpress.com

 

Sat, 10/23/2010 - 12:24 | 671882 Temporalist
Temporalist's picture

The government is always right, will always do the right thing for their people, take exact measurements and reports accurately in all instances.

The Great Depression started because there was not enough Prozac.

Krugman will always be right because even as more spending doesn't work he will always be able to say it wasn't enough.  He's the type of guy at the gas pump that keeps pulling the handle even as the tank overlows because he hasn't burst into flame "just yet."

Sun, 10/24/2010 - 07:48 | 673104 ToNYC
ToNYC's picture

 

Remember that the more fake gas, the less the explosive nature of the diluted fuel.

Sat, 10/23/2010 - 12:22 | 671883 snowball777
snowball777's picture

The "Keynesian story" is that Hoover's inaction with respect to bank failures and his idiotic tax bump in the face of falling revenues paved the way for true misery nationwide; he destroyed the capital structure of the US economy.

There's something to be said for the electronic breadline masking the true scale of this recession, but it is also true that we would have BLS stats that match John Williams, if we'd done nothing.

That we should have gotten something for our tax dollars, like Glass-Steagall restored, clawbacks and bonus limits, a transaction tax, meaningful derivatives regulation, or even a completely nationalized bank or two (Citi and Bank of Lynching Countrywide, we're looking at you) is obvious to many.

 

Sat, 10/23/2010 - 12:47 | 671920 pamriallc
pamriallc's picture

currency debasement has been going on for centuries.  the roman empire went from gold to copper to tin before "the fall of rome" and it took several lifetimes for the full circle to complete itself.  "live by debasement---- live *IN* d-basement"--- I always say.

 

shawn a. mesaros,   pamria, llc

Sun, 10/24/2010 - 21:14 | 674118 tip e. canoe
tip e. canoe's picture

yo shwan, heads up -- youu got some typos in your website bro.   guess youu were too focused on all the slick bellz & whistlez to bother to hire a proofreader.  how typical of youu usperior boyz with your toyz.

Sat, 10/23/2010 - 12:26 | 671890 the grateful un...
the grateful unemployed's picture

a Depression is also a state of mind. During the 1st GD Roosevelt sent photographers out to document the suffering, in order to sell the country on New Deal. The 1st GD was propaganda at one level. There was also very little accountability. My grandparents got 10 cents on the dollar from their bank account. The banker told them the news personally. (I asked my mother, what, there was no meeting? How did you know you were being treated fairly? Evidently the towns merchants were given some leeway, as they did not go out of business. My grandfather lost his, and his mortgage, but got an FHA loan and kept their house)

Farmers could not sell their products because of price controls. Prices were kept high to make sure that farmers kept producing, but they ended up plowing crops back into the ground. 

There was a strong labor movement, communists and socialist organizations. WWII ended all that, partly because the government had complete control of the labor market during the war, they told you where you could work. They rationed goods, but of course there was a black market, and the rich kept wearing their top hats and tails. Just like today tehre was plenty of conspicuous consumption (Queen Elizabeth christens world msot luxurious cruise liner named for her- yesterday)

It entirely possible the Great Depression never ended, that the Fed reinflated the bubble several times, (or constantly by expanding the money supply) which implies the economic system is unworkable, period. The work ethic, people who work hard are more successful than lazy people, helped the financial oligarchs play labor off to see who would work for the least money. Then of course the corporate profit model was sustained by price fixing, (condoned by the government, see above) until such time as the Chinese entered the global market. The oligarchs got cheap labor, but the profit motive disappeared. Walmart is a profit-busting workers store, like the GUM store in Moscow years ago. Its sometimes hard to figure whose side we should be on.

Bernanke is a deflationist too, driving credit rates to zero, and destroying the former business of usury. In the 1930s there were no corporations. Think about that, no coke or pepsi, mcdonalds, no tv, no mass consumers. To that end we have all been living off the fat of these corporations, as they try to delever and downsize without losing profitability. Once the corporations start to go under, the full effect of the 1st (and only) Great Depression will continue.

While some emerging markets offer hope that the corporate model will find new customers, the ugly truth is their business model is too large, and too dependent on a constant supply of consumers, and commodities which are needed to process their products. And these emerging market consumers aren't prepared to fully embrace the consumer lifestyle, and never will be, while Americans will move away from that lifestyle. The dysfunctional economic (Keynesian) model will finally be reversed, the Federal Reserve abolished, and then the Depression will (hopefully) end.

The half decade of corporate expansion was really veiled Keynesian policy, as governments expanded they needed a large supply of military and paramilitary hardware to maintain control and order.  As we can now see, government was in place to enable this expansion, sold under the false flag of nationalism, patriotism, and what have you, in fact the corporations were beholding to no flag or country, they were merely leading us toward a one world government. Obama has proved many of these theories, and is the perfect foil, and worth studying, to see how we have all been duped.

 

the truth is now much more clear than it ever has been.

 

Sat, 10/23/2010 - 12:32 | 671899 snowball777
snowball777's picture

An interesting perspective. You may want to consider that the properties you associate with the Fed are actually properties of capitalism itself.

And the 1930s had plenty of corporations, who do you think was in the NRA and futzing with prices?

Sat, 10/23/2010 - 12:39 | 671911 the grateful un...
the grateful unemployed's picture

good point on corporations, the supply of ubiquitous consumer products was still decades away. While we thought it was meant to improve our lifestyle it also empowered governments to outgrow their populations.

If your active policy is deflation (certainly in credit) then you aren't a capitalist are you? 

under the heading there is no fool like an old fool, I note Warren Buffett  bought a railroad, when history suggests that conspicuous consumption is the economic sector he should have bought. and CC is a concept, along with disparity of wealth, which disproves the viability of the existing system.

Sat, 10/23/2010 - 13:04 | 671946 snowball777
snowball777's picture

Rational capitalism is never greeted well by either end of the spectrum...you're as equally reviled as a Trot.

Warren's choo-choo trains will be feeding Wal-Mart terminals in the midwest...I think he made a bet on both.

Sat, 10/23/2010 - 15:07 | 672147 the grateful un...
the grateful unemployed's picture

Walmart is hardly conspicious consumption. DId you see there were two IPO which were met with enthusiasm, which lifted the high end consumer discretionary market, yesterday. Then the Queen launched her ship. Like GD1, there is no real lack of spending, just further income inequality, and oddly enough, conspicious consumption among the poor, which were parodied in the old song, 'Putting on the Ritz..' The restaurant business is thriving, as it did in the 1st GD.

Sun, 10/24/2010 - 01:04 | 672907 snowball777
snowball777's picture

The credit-money system allows for a great deal of wealth affectation, across the spectrum and provides the illusion of a frictionless world where most any demand becomes inflexible.

The problem with the 'sticks and umb-er-ellas in their mitts' crowd, is that they've got most everything they want and can live happily off their fixed-income investments while the Wal-Mart crowd pretty much needs to keep spending their entire income or more to stay off the street and fed.

Sun, 10/24/2010 - 08:01 | 673109 ToNYC
ToNYC's picture

 

You need Capitalism and to ride that Tiger to get complacent, brilliant monkeys a reason to overproduce. Let them be blinded by greed and serially get over it. In the processs, the Social Animals benefit from the animal spirits delvered by the rapacious Tiger...not becoming the Tiger.

Human rights before Corporate rights.

---shopping bag man in Tiananmen Square, June 5, 1989

Sat, 10/23/2010 - 12:54 | 671927 Oh regional Indian
Oh regional Indian's picture

Very well written grateful un.

Awesome recap. Very resonant too with the way I feel (and am just learning more and more).

Do you write somewhere?

ORI

 

Sat, 10/23/2010 - 15:45 | 672206 the grateful un...
the grateful unemployed's picture

am trying to put together a series of short stories with common, futurist theme. getting that sort of thing published is not easy. have you read 'The Global Village' by Powers and McLuhan?

Sun, 10/24/2010 - 01:23 | 672936 Oh regional Indian
Oh regional Indian's picture

Good luck with the publishing road. I hear it can be rough.

And I have not read it but will definitely check out the Global Village.

ORI

Sun, 10/24/2010 - 08:03 | 673112 ToNYC
ToNYC's picture

 

take a look at <www.fastpencil.com>

the business model is to make everyone be able to write a book.

Sat, 10/23/2010 - 13:29 | 671999 kaiserhoff
kaiserhoff's picture

Let's see now, coke was invented in 1884.  No corporations, except perhaps US Steel, Penn Central, Ford,...,no mass consumers, except perhaps for movies, which peaked in the 30s, baseball, radio...

I agree with much of what you say.  Your insights are quite valuable, but generalizations should be used with care. The world before the 50s was not quite primitive.

Sat, 10/23/2010 - 14:09 | 672076 11b40
11b40's picture

Not sure what I am missing in the below quote, but I was not aware that usury was a former business practice.  It seems to be alive and well in my part of the world.

"Bernanke is a deflationist too, driving credit rates to zero, and destroying the former business of usury."

Sat, 10/23/2010 - 18:21 | 672394 11b40
11b40's picture

Not sure who junked me, but would like to know when usury stopped being a business practice?  With credit card rates as high as 30% and Pay Day L-enders thriving, it seems like usury is still a very profitable business.

Sun, 10/24/2010 - 08:06 | 673116 ToNYC
ToNYC's picture

 

ZIRP has so blinded the US citizen from noticing that the banks are working only their free fake FED money which they get for 0.25%. MEANWHILE the accumulated real savings by hard-working people gets put out to pasture with zero return. This is economic slavery.

Sat, 10/23/2010 - 12:36 | 671905 RobotTrader
RobotTrader's picture

Oh yeah, one other thing.

The "near zero interest rate policy" has kicked off yet another refi boom.

Hard to believe that another "refi bubble" may be starting, but here it is:

"Wilner Samson and Michelle Smedley, both doctors, just refinanced their
home in West Hartford, Conn., saving $300 a month. “There were times
during the housing boom when I felt I was missing out on a big party,”
said Dr. Samson, a kidney specialist. “Now I’m getting my reward.”

Kathy and Mike Bernreuter have been working on the refinance of their home in Northbrook, Ill., since May.


This month the Bernreuters were told their new loan was on track for approval. Their mortgage payment should soon drop by more than $1,000 a month.


“Now we’ll have more money available to us to actually fix up this house,” said Mrs. Bernreuter."

http://www.nytimes.com/2010/10/23/business/23refinance.html?_r=1&ref=todayspaper

Well, recessions don't last forever.  We will emerge from this morass sooner or later.  Until the stock market tells us otherwise, it is already discounting a recovery.

QE2 or no QE2.

Republican victory or not.

If the bank stocks crack and the market breaks hard from here, then I'll change my opinion because the market would have spoken.

Sat, 10/23/2010 - 12:54 | 671924 treemagnet
treemagnet's picture

There will be no cracks in the dam - just a complete, sudden, catastrophic, cascading collapse.  I get what you're saying and yeah, I wish I were long today so I could sell Monday.  If you're long here, its an unrealized gain.  Puts and shorts will be in the green when the bulls are convinced the markets just taking a "breather"...then it'll slip away again, and again.  But bulls won't sell because they'll want to get back to where they were.  Any of this sound familiar?  I will be greedy when you are afraid, but for now, you are winning - soak it up my friend.

Sat, 10/23/2010 - 14:38 | 672106 SteveNYC
SteveNYC's picture

I wonder if they were "sold" a floating rate/ARM, or whether our Dr. friends had the smarts to "fix". To "fix", or be "fixed"?

Sun, 10/24/2010 - 08:13 | 673119 ToNYC
ToNYC's picture

 

The Banks can always afford to send out one already rich and no risk low LTV loan winner every so often who gets a taste of the 0.25% fake crash cash credit the FED gins up each day for the member Banks to use and collect interest / rent without paying compensation to US Citizen savers. They are clearly NOT in the club.

Sat, 10/23/2010 - 18:57 | 672427 deadhead
deadhead's picture

approx. 1/3 of americans have a sub 625 fico score.

 

credit is dead

Sat, 10/23/2010 - 12:43 | 671916 unum mountaineer
unum mountaineer's picture

click click, there's no place like home, click click there's no place like , there's no place like home...auntie Em, I had the strangest dream..

Sat, 10/23/2010 - 12:54 | 671925 Pants McPants
Pants McPants's picture

I strongly dislike Paul Krugman.

Sat, 10/23/2010 - 13:01 | 671940 Village Idiot
Village Idiot's picture

Dear ZH crew -

Welcome to the weekend. 

 

VI

Sat, 10/23/2010 - 13:05 | 671949 RobotTrader
Sun, 10/24/2010 - 00:57 | 672903 StychoKiller
StychoKiller's picture

Gravity isn't just a good idea, it's the Law! :>D

Sat, 10/23/2010 - 13:18 | 671977 Tao Jonesing
Tao Jonesing's picture

Milton Friedman was NOT a Keynesian, and it was his 1962 book "A Monetary History of the United States" that made the claim that the Federal Reserve caused the Great Depression by being too tight with monetary policy.

Bernanke, like Friedman, is NOT a Keynesian.  He's another monetarist and a devoted follower of Milton Friedman.  Friedman's version of supply side monetarism was intended as a rebuttal to Keynesianism.

To repeat, Chicago School monetarism is not now, nor was it ever, Keynesianism.  (And even Keynesianism had very little to do with Keynes.)

 

Sat, 10/23/2010 - 14:06 | 672066 sgt_doom
sgt_doom's picture

You have nailed it absolutely, Tao Jonesing!

This Hayek, von Mises, Milty Friedman crowd usually gets it all screwed up.

If only they had read Karl Polanyi, Henry George, and the economic democracy movement (ied.info).

Once more, ignorance shouts the loudest......

Sat, 10/23/2010 - 15:33 | 672184 Jim Quinn
Jim Quinn's picture

Rothbard wrote “America’s Great Depression” in 1963. In their view, the Great Depression was the inevitable outcome of the easy credit policies of the Federal Reserve during the 1920s. Rothbard criticized Milton Friedman’s assertion that the central bank failed to inflate the supply of money. Rothbard asserts that the Federal Reserve purchased $1.1 billion of government securities from February to July 1932, which raised its total holding to $1.8 billion. Total bank reserves only rose by $212 million, but Rothbard argues that this was because the American populace lost faith in the banking system and began hoarding more cash, a factor very much beyond the control of the Central Bank. The potential for a run on the banks caused local bankers to be more conservative in lending out their reserves, and, Rothbard argues, was the cause of the Federal Reserve’s inability to inflate.

Friedman was about 35 years too late. Von Mises warned of a credit fueled collapse during the 1920′s.

http://online.wsj.com/article/SB10001424052748704471504574443600711779692.html

Sun, 10/24/2010 - 11:33 | 673320 the grateful un...
the grateful unemployed's picture

and the supreme irony of that lesson is that not one financial analyst (other than Bob Prechter) recommends hoarding cash as investment plan. Really amazing since the Depression proved that putting money in your mattress is the best advice in a deflationary event.

Had the government been able to reflate the money supply, its not certain whether that would have further eroded confidence, and accelerated the barter system, and the underground economy. A penny was worth something in those days. Cash had value, and still there were people who flaunted it, partly due to prohibition, and the illegal booze economy. The Depression was always a tale of two economies, two currencies, just as it is right now. The Fed chief can print money and give it away, while others sweat for their money, and never have enough to pay the bills. The Depression was America screaming for social revolution, and then stopping short of its goal. 

My own thought is they should float the two currencies, sweat currency and investment currency (M1 and M3) based on their use. 

Sat, 10/23/2010 - 22:20 | 672694 Fred Hayek
Fred Hayek's picture

Well, technically, no one's a Keynesian, including Krugman as not one of those identified with the theory have actually advocated running balanced budgets or surpluses in normal times so that a deficit can be run in bad times.  They all ignore  the first part and focus on the second part.

Sat, 10/23/2010 - 13:41 | 672024 alagon
alagon's picture

Keynes believed that one should save money during good times, and spend money during bad times....The US never saved money!

Sat, 10/23/2010 - 22:21 | 672698 Fred Hayek
Fred Hayek's picture

Oh, jeez.  I started typing away in response to the post above yours and didn't see that you'd made the same point.

Sat, 10/23/2010 - 13:48 | 672039 count_zero
count_zero's picture

I'd just like to point out that most posts on ZH are assuming no future inventions or increases of productivity. That's irrational pessimism.

Of course, if gov spending (the real driver of fed money printing, imho) isn't wound-down the innovations won't be enough to overcome the malinvestment in non-returning assets.

 

Sat, 10/23/2010 - 14:08 | 672074 sgt_doom
sgt_doom's picture

"I'd just like to point out that most posts on ZH are assuming no future inventions or increases of productivity."

Negative!  Rational honesty is noting that those past increases in productivity have gone hand-in-hand with decreases in wages, and those inventions are immediately offshored for foreign manufacture, production and usage.

They have offshored innovation, my good man, and anyone who doesn't comprehend that is sorely limited in cognition.

Sat, 10/23/2010 - 19:40 | 672481 traderjoe
traderjoe's picture

IMHO, the increasing corporate attention to quarterly earnings has focused innovation on reducing expenses: automation, financial engineering, off-shoring, big-box retailing, online retailing, etc. which has brought about your reduction in wages. In addition, much of the product-based innovation has been in consumer goods, especially electronics, which does not necessarily increase productivity or societal wealth. A migration from a 17" TV to a 19" TV doesn't really provide any societal value. 

Not to say a jet travel, personal computer type innovation isn't out there, but those are few and far between and not really the focus of current corporate leaders... 

Sat, 10/23/2010 - 20:56 | 672584 Teaser
Teaser's picture

You're right, it is irrational pessimism.

But consider this:

Speakers now produce sound as well as the human ear can possibly hear it (bose)

Computers now have more speed and power than 99% of human beings could possibly use.

TV sets now produce pictures that are as clear as the human eye can possibly see. (High Def)

Smart phones and Tablets are simply extensions of existing tech, not breakthroughs.

 

So, technology like mass production was great for getting mass produced gadgets into people's hands.  computers, tvs, stereos, have reached the limit of human perception, along with many many other products.  Let me ask you, where IS the next big thing?  I don't see it yet.

And let me end with an anecdote.  In college, I worked on commission in Sear's white goods appliance section.  Made really really good money for a college student btw.  Anyway, during one summer a memo was sent out.  The memo announced that henceforth, engineers would be designing refrigerators to last only 8 years, rather than the 10 years they were making them last at the time.  The memo went on to say that this would increase refrigerator sales by x amount in the next decade.  I nearly fell over in the meeting, being an austrian econ major and all.  I mean HOLY SHIT, ENGINEERS ARE BEING TRAINED IN COLLEGE TO MAKE SHIT LAST ONLY JUST SO LONG!  This was 15 years ago, or thereabouts.

So, I submit to you, that the entirety of our economy is driven by cosumerism, or rather, the need to replace the gadgets you have faster and faster in order to keep the gears of capitalism as we know it now, running.

Perhaps we never really did leave the great depression?!

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