Guest Post: Depression Within A Depression

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.

Comments

[Bear]

Irrational pessimism indeed. Trends in global education, our national demographics, energy peaks, and the massive off-shoring of the last generation portend a pessimism that is certainly rational. 

[tmosley]

Good luck making your "technical innovations" comply with existing and new regulations.  Good luck finding investors to help you bring your "technical innovations" to market in this environment.

My company has a fucking cure for HIV that WORKS sitting in a freezer, waiting for funding to take it through the legion of regulatory hurdles for getting it to market.  Due to the enormous hurdles that have been placed in our way both by regulators and granting agencies (our technology was "too new" and "untested" for us to receive funds to test it--what a crock), we have had to refocus away from drug development to materials, where we have had much more success.  We are continuing development of drugs on the side, but with only one scientist working on it in his spare time.

Happily, we also developed a cure for prostate cancer using the same new approach, and that research has been funded.  Hopefully we can get some traction on other drugs after we show our results on the anti-cancer project.

I'm not really sure what new technology is going to come about that is going to revolutionize the labor market.  Anything that would have a radical effect is just as likely to be stopped dead in its tracks as was our anti-HIV drug.

[Real Estate Geek]

If your company has a cure for HIV, why are you still located in a place that has such enormous hurdles?

Why not relocate to a less-regulated country and let the world beat a path to your door?  Plenty of rich folks would travel abroad to get such a cure.

[StychoKiller]

I would gladly buy into a Corp. that develops a method for Shrinking Govt programs or making Stupidity more painful!

[ToNYC]

Try free market Capitalism with protection for Human rights greater than Corporate rights for once.

[tip e. canoe]

what a concept

[Temporalist]

I disagree I think many ZHers know "future hypothetical super thingy" is possible but are of the opinion that relying on such an unpredictable event is retarded, or irrational...irrational.  The idea is - act recklessly and irresponsibly hoping that some super event will save you.  That sounds like something a wino would do.  Or Homer Simpson.

And if it works it is even worse.  It is a system drowning in blood.

[sagelike]

Even today economists don't agree on what cured the depression but apparently Quinn believe's he's in possession of the unvarnished truth. Amazing!

I never trust people who make grand statements like this: "This storyline is a big lie."

How do we know his thesis is not a Big Lie? We don't.

[sgt_doom]

Wisely stated, sagelike!

Those who only pay attention to, and espouse, monetary policy ignore the importance of securitized debt and the role it played in both the Great Depression and today.

They always ignore the debt factor, the securitized debt factor, and the ensuing ultra-leveraged speculation allowed by such nefarious processes.

It is their nature, after all....

[Jim Quinn]

It's my opinion, backed up with facts. Do your own research and come to your own conclusion. It's called thinking.

[sagelike]

Jeez Jim, your rebuttal missed my point completely and like so many, you resort to an insult buttress your position.

My point was not whether you are factually correct. I thought your article was good but plenty of very smart economists bring a load of `facts` to support their arguments and yet draw completely different conclusions than you did.

My point is that there`s no more certainty that you are correct vs. someone else and to present your theory as absolute truth and other theories as a `big lie` is just plain arrogant.

You have a well presented theory and nothing more.

[Jim Quinn]

So you've called me untrustworthy and arrogant, but you think I insulted you by suggesting you think?

Everything anyone writes is an opinion. Sometimes you have to come down on a side. I don't trust people who can't decide what they believe.

[sagelike]

I did not in any way call you untrustworthy and I said it's arrogant to suggest any other opinion is a lie.

Talk about twisting my words man.

[Eureka Springs]

the more these austrian friedmanites bash keynes, the more i like him.

the shock doctors never sleep. I think it's the free market meth and too many episodesof gunsmoke.

[bugs_]

Hey wait a minute!  The inflationists have an altar???  This sucks, the folding tray table that was in the deflationists lounge is gone.

[OutLookingIn]

 Jim - Don't know where you came up with the Ludwig Von Mises quote.

Here is the version that is most common;

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crises should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

-Ludwig Von Mises

[tom]

I agree that Obama and others are stupidly using half-baked understandings of what happened in the 1930s to justify stimulus and, more importantly, refusal to make a post-bubble fiscal adjustment.

But Quinn's analysis of what happened in the 1930s isn't much better. There were multiple causes of the depression, but besides the 1920s stock bubble, the most important was the pegging of the dollar to gold. As real output declined, the dollar became overvalued, people pulled dollars out of banks to exchange them for gold, demonetizing and thus shrinking the economy, and the process snowballed.

As for the 1937-8 recession, sure the government's anti-trust battle did have something to do with it, but that was well worth it. How so-called "libertarians" imagine that allowing corporations total free rein to extract monopoly rents and shit in everybody's water and air aids the cause of liberty, I'll never understand.

[StychoKiller]

I agree that Obama and others are stupidly using half-baked understandings of what happened in the 1930s to justify stimulus and, more importantly, refusal to make a post-bubble fiscal adjustment.

As any politician will tell you, sitting on your hands and doing nothing just doesn't sit well with people after their own particular ox has been gored!

[Mr.Kowalski]

It's not a Depression for everybody: "To ensure fool-proof security, the President Obama's team has booked the entire the Taj Mahal Hotel, including 570 rooms, all banquets and restaurants. Since his security contingent and staff will comprise a huge number, 125 rooms at Taj President have also been booked, apart from 80 to 90 rooms each in Grand Hyatt and The Oberoi hotels. The NCPA, where the President is expected to meet representatives from the business community, has also been entirely booked. 

The officer said, “Obama’s contingent is huge. There are two jumbo jets coming along with Air Force One, which will be flanked by security jets. There will be 30 to 40 secret service agents, who will arrive before him. The President’s convoy has 45 cars, including the Lincoln Continental in which the President travels.” 

http://economictimes.indiatimes.com/news/politics/nation/Barack-and-Michelles-Mumbai-darshan-plans/articleshow/6797379.cms

[the grateful un...]

i am loathe to suggest that what you are saying is that the President is appearing to represent those on the bottom side of the income equality divide, while living on the upper side of that line, so therefore i am loathe. (and fearful)

[Hunch Trader]

Obama, the Sultan of the United States.

[BurningFuld]

OR

Da rich people lend money to da poor people thereby making da rich people continually richer and da poor people continually poorer, until it quits working.

[philgramm]

Anarchy---Let's shake the dirt off this great word and reclaim it from the statists

[MRalwaysRIGHT]

A great article, but it misses the killer-punch of currency & debt default - for the full picture see http://www.cmrworld.com/MCDBlog.asp 

[Bear]

I understand default ... but I don't understand you methodology. One day old dollar is gone, new dollar is on with no conversion. All money markets gone, all cash gone, all savings of Americans gone, all debt gone, all mortgages gone. Default, yes ... but all you have to do is drive $ to 0 to make this happen and we are frogs in boiling water instead of making an army for 20,000,000 holders of dollars and guns.

[Mr.Kowalski]

I honestly believe that these people (Ben, Obama, etc) fully believe that a recovery is right around the corner. They believe that blogs such as ZH are where the crazies hang out. But I dare anyone in Wash DC to match my own predictions made for this year.. and I'm one of the simple serfs: http://themeanoldinvestor.blogspot.com/2009/12/outlook-for-2010.html

[Implicit simplicit]

In regards to #9&10, I agee. Eventually, in order to avoid paying higher interest on bonds, the gov./fed/banks will need to correct the equity market. Although they would like to keep both propped up, equities will be the sacrificious lamb.

[doomandbloom]

this is like the movie 'inception'....dream within a dream...

[THE DORK OF CORK]

The real money is essentially a monetarist bailout of the banks - the Keynesian bit is a little add on to keep the patient alive while the banks balance sheets attempt to repair themselves.

The focus on John and not Milton is dubious in the extreme as both their solutions depended on  debt issuance.

I believe it is marginally better to have Keynesian placebo as at least the populace have more awareness of the true debt in the system rather then the magic tricks that bankers play with.

Besides a Keynesian / indirect banking control ecosystem seems a more effective governance then a direct banking but subversive off fiscal books debt money supply manipulation that the Friedmanites love so much.

Keynes has produced massive capital creation during its early years - the friedmanites have produced nothing but junk and Jehovah's.

[tom]

Exactly.

Except that you seem to forget that most Keynesians including Keynes favor monetary stimulus and fiscal stimulus, not just the latter. Remember Keynes' joke that the gold-standard-induced increase in gold mining during economic crises could be replaced to greater benefit by government programs to bury freshly printed currency in sealed jars while selling licenses to dig for them?

Is Bernanke a monetarist or a Keynesian? He strikes me as a lot more of like mind with Krugman than with Friedman.

But all this monetary manipulation is a lot more immediately dangerous than the fiscal stimulus. The fiscal stimulus itself, a total of about a trillion counting Bush's tax rebates, has been small relative to size of the fiscal deficit from refusing to make a post-bubble fiscal adjustment, and to the scale of the monetary stimulus.

The jars of buried currency program was just a joke - what Keynes really advocated was public works aimed at building the basic components of industrialized society, which were still missing for most of the people in "the West". Keynes liked capitalism, and was an avid investor in stock markets, but he thought pure capitalism was failing the masses economically where early fascism and communism were succeeding. That opinion was as widespread in 1920s Britain and 1930s America and Europe as admiration for China's achievements is today.

Forget the Keynesian theories, which have morphed and transmogrified over the decades. Keynes himself never espoused the same theories twice in two texts. The fact is that dictatorial command economies (and China is still a predominantly command economy) can in certain situations out-compete market economies in their ability to rally resources towards obvious goals, such as building the basic components of an industrialized society. They are like war economies. Their success however tends to be fleeting and to leave behind carcasses of white elephants and dispirited populations.

The 1930s were a disaster on all counts and nobody came through them looking smart. The west didn't begin to regain the affluence it had enjoyed in the 1920s until the 1950s. (The bozos who only look at GDP numbers will tell you that the war brought recovery, which is about as stupid as it gets. War efforts are valued in GDP at cost. The spurt of effort during war isn't economic recovery, it's desperation and obvious common cause. There is no "value added" in war, only winning and losing.)

Hardcore anti-Rooseveltians really need to go spend a week at Oregon's Timberline lodge and then ask themselves, if builders with that much skill were willing to work for as little as they did in the conditions that they did, and still couldn't find work, would you really, honestly, truly not want to put them on the public payroll and get them building, something, anything? It seems to me that the people who bitch most about how partial understandings of 1930s economics are misused to justify current policy are doing the same thing, only in reverse: they take their partial understandings of fiat dollar era economics and try to apply it to the 1930s, with stupid results. Those were completely different times.

[non-anon]

I know more than boobus b/c of Zero Hedge.

Thus I will be turning on, tuning in and dropping out!

[Implicit simplicit]

Before turning all Tim Leary, remeber the more you know, the more you realize that you don't know. Perhaps someone can enlighten you while entering Huxley's doors of perception.

[mcarthur]

Hoover always got a bad rap.  Todays demand drought/deleveraging will prove this out in time.  Bernake is pushing on a rope.  Burning every Walmart, a Chinese state enterprise, to the ground would do more to solve issues than printing money.

[Azwethinkweiz]

The Barkley Hotel just opened! It's better than the Four Seasons...except, well, it's only for dogs. A multimillion dollar hotel just opened (FOR PETS) which feature, well, you guys can look for yourselves. (not shown on the site is that each dog has his/her own flatscreen television in their room.) WHAT RECESSION/DEPRESSION?

http://westlake.thebarkleypethotel.com/accommodations/canine_quarters.aspx

[Dan The Man]

Just like Brock Lesnar...When you reach the top, the only way to go is down.

[Wave-Tech]

Why are things the way they are?  

It's the money STUPID...

http://elliottwavetechnology.blogspot.com/2010/10/its-money-stupid.html

Wall Street seems to have hit bottom nearly a year ago.  On the back of an 11^th hour bailout by Main Street, Wall Street is enjoying a rather bountiful and robust V-shaped recovery.

Meanwhile, Main Street struggles with frustration, anger, and envy.  How could this be justified?  After all, Main Street bailed out Wall Street.  Without Main Street, Wall Street would have collapsed, right?

Why is this?

[the grateful un...]

erroneous cause and effect analogies. 1929, the stock market crash caused the Great Depression. We can lay that myth to rest.

[SendMeYourWorth...]

Quinn's writing has bits of truth.  The chart below shows the shift of money to the wealthy, with another peak just 3 years after FDR took office, assisted by regressive taxes on commodities like gasoline and food, tax-loopholes for the wealthiest. That peak had begun to grow again when FDR reduced the WPA and PWA efforts. Eventually the war hiring kicked in and for the next 30 years the U.S. enjoyed a prosperity that was the envy of the world.

Quinn is quite correct about the porky stimulus, and much of the spending done today enriches countries outside of our borders.

But just because the economics of really investing in our country and people has not been tried does not mean it won't work. A $4-6 trillion jobs program which puts us to work building the infrasturcture and developing the energy sources we will use in the 22nd century would give us the revenue to rebuild our manufacturing and begin to create the wealth that would save this country. Other nations know this and they are funding their own programs with far greater urgency, and money, than we seem to have the political will to accomplish.

If we don't we will lose the control of our lives and country to those who had the vision to invest in their people and their country.

Look at the income gap prior to the Great Depression in the chart below. Look at it today. http://www.nytimes.com/2007/03/29/business/29tax.html?_r=1

[THE DORK OF CORK]

The depression continued because FDR did not devalue the dollar enough.

Therefore industry continued to pay for excess 1920s credit creation of the banks by paying interest on a overvalued dollar.

[THE DORK OF CORK]

[THE DORK OF CORK]

[THE DORK OF CORK]

[THE DORK OF CORK]

[THE DORK OF CORK]

[TheMonetaryRed]

I'm curious: does anybody on this blog know how much of the 2009 stimulus was tax cuts?

[Young]

I'm tired of this discussion. I'm in the austerity camp - someone always has to pay. The FED will pay the price of their own demise sooner or later. Indebted consumers will pay for their lack of personal financial control, and, reasonable non levered humans and small/medium business owners will pay for others stupidity. In the latter group, some of their profits was fictitious/built on low interest rates. SOMEONE ALWAYS HAS TO PAY. Of course in Unicorn Keynesian land, where unlimited growth is possible, no one has to pay. Now what's wrong with that picture?

[THE DORK OF CORK]

Austrians conveniently ignore the true nature of compound interest when it suits them - if we look at a more modern credit explosion followed by a crash lets look at Volcker's role in crashing the economy and who benefited - l am disturbed by some Austrians fawning over Volcker's high interest rates when it destroyed the American economy.

You cannot be a hybrid Austrian by hording debt money and its interest.

Volcker essentially started a process of massive capital rundown of the US where the surplus created was expressed in interest that was spent on consumption - capital was exported and America was hollowed out.

I can see this same process in the European periphery now - the ECB aim to do a Volcker on  Euro  Gold and keep it strong  for 10 or more years by destroying capital and industry to sustain the ponzi.

[Young]

Growth/profits/jobs built on easy credit aren't sustainable in the long run, and aren't supposed to be there in the first place if we speak about a sound economic system. Subprime borrowers, really weren't supposed to own a home in the first place, still the media fails to get to the root of the problem - the political utopian view that everyone has a right to own their home - and blame someone else. The two decade equity pump up is an illusion based on low interest rates... And the list goes on.

But I do agree with you on the basic premise that it is wrong to use austerity to try to clean out the system and then return to the "ponzi" as you call it. So, what we really have in both camps is Einsteins definition of madness: Doing the same thing over and over again and expecting different results.

But it's typical political sweep under the rug stupidity, they never go to the root of the problem.

[THE DORK OF CORK]

The credit aggregates should never have grown over the long term growth rates of the economies - in fact what the CBs engaged in was criminal behaviour as Denninger has so accurately portrayed

So the question is who pays - well my solution would be the outright destruction of the shadow banking sector and a monetisation of the dollar and Euro relative to their Gold reserves.

The US and Europe may have gained bounty from foregin lands via these agents but the renewed anti globalisation / banking reaction has resulted in massive blow back as these locusts come back home.

As I said above FDRs dollar revaluation was too conservative in its scale and continued a wealth transfer to debt holders who were instrumental in a credit explosion in the 20s.

As regards sub prime , Alt As, fraud closure etc - these were mechanisms for capital extraction and nothing else - they would not exist if capital was not artificially kept at a extremely low level.

[THE DORK OF CORK]

double post

[New_Meat]

"Keynesian policies failed during the Great Depression, and they are failing today."

Yep.

"We have tried spending money, we are spending more than we have ever spent before and it does not work. I say after eight years of this administration, we have just as much unemployment as when we started….and an enormous debt to boot."  Henry Morgenthau, Jr. Treasury Secretary for FDR May 1939.

But there were smart people back then and in office now.  We are seeing return of Smoot-Hawley.  Companies then and now were "hoarding" (note the use of that word) cash.  Roosevelt + crew attacked the private sector for that rational behavior.  Those verbal attacks have started, but we'll see in the lame duck whether this policy gets put into place.  Next up: "The Do-Nothing Congress."

- Ned

[THE DORK OF CORK]

I beleive that Bernankes only choice is to massively revalue gold in dollars - this will stop the bleeding of capital from the US that is flowing towards China and the oil producing nations.

This will result in a huge drop in oil expressed in Gold and kill the wage arbitrage model stone dead.

Why would Uncle Ben do this - because his client banks can no longer earn interest income from the US - its greatest prize.

They will at least for the next few decades invest massively in US capital infrastructure that has been neglected for 4 decades.

Ben has no choice but to hit the Gold button

 fofoa.blogspot.com/2010/10/its-flow-stupid.html

[the grateful un...]

America has several treasures, most all of them are not capital intensive, that is they don't require quite as much to get started and maintain as traditional industrial manufacturers. We produce the entertainment and media content for the global network, we are the financial engineers, and the bio and medical technology leaders. To often we give away our property to foreign users, and charge, or restrict domestic users for the same products. Japanese gangsters can buy Liver transplants at UCLA. China pirates entertainment. Drugs made in America are cheaper in Canada. You call this capital bleeding, and capital is different than cash, in the strict term, capital represents some store of value. But I think you meant cash. The social fallout of the first depression was a rise in nationalism, economic tariffs and protectionism, and finally wars. It seems as though we are perfectly positioned to avoid the human effects of an economic depression, while completely unaware of the non-workability of the underlying system.

[whwood75]

"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".

Select ratingCancel ratingPoorOkayGoodGreatAwesome

According to this web page:

http://www.remnantreport.com/cgi-bin/imcart/read.cgi?article_id=469&sub=

that school is the University of Pennsylvania's Wharton School. I challenge any readers of this blog to find any reference to Mr. Quinn anywhere at the University of Pennsylvania's web site. One would think that the name of someone holding a position as important as his would certainly show up somewhere.

[Jim Quinn]

GO FUCK YOURSELF YOU POMPOUS PRICK.

http://www.finance.upenn.edu/comptroller/sbo.shtml

I challenge any readers of this blog to show less intelligence and research abilities than whwood75.

What the fuck is your problem dickhead?

[Jim Quinn]

Crawl out of your hole dickhead. What was the purpose of your post? Let's hear it you slimy piece of shit.

[Jim Quinn]

Do you want me to explain how to click that link? Your complete lack of any intelligence whatsoever makes me think you will be sorely challenged in that effort.

I'll be sure to await your brilliant thoughts on other important issues of the day.

I checked the McDonald's corporate website and it seems you are a french fry specialist hoping to move up to putting pickles on quarter pounders. 

[DavidPierre]

SMOKEY QUINN hates to be called out on his lies and fraud and is up to his usual obscene replies ... cut and paste... plagiarism.

The history of Smokey Quinn.

See:
#577149

#577421

Some classic shit Smokey Quinn ran on his blog.

#495628

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

#577815
Jason Rines, Smokey Quinn's former webmaster...

"Smokey and Jim are the same people, yes. I mapped both the I.P.'s back to his office at Wharton."

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

Quinn is the problem... not just a symptom.

He works as an accountant at The Wharton School of Business but spends his entire business day on his website.

Smokey Quinn is sucking on the state tit for his big paycheck as he tries to make himself out as some sort of guru (lol) with his flaccid economic articles. 

He writes about all the poor people who abuse the system while doing nothing all day, jerking off on his blog, pretending to have all the answers.

Smokey Quinn is absolutely stupid about 9/11 and believes everything in the 'offical' Mafia/Government conspiracy theory.

YUP!...buildings just fall down...end of story.

  He's just a convenient tool for the system...spouting shallow economic BS... A Ponzi Plant!

His previous webmaster dumped him after a year of bigotry and racist posting that attracted very strange followers to his blog. 

 Quinn is a hypocrite surrounded by sycophants.

 Smokey Quinn's is an angry. insecure hillbilly, an ivory tower right wing guy.  How different is he than Krugman, other than his obscene, racist views?

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

 hey ... MORON!

You will always have 'your sheep' who will still respect you in the morning.

[Jim Quinn]

The sheep kick you out of the barn - DP?

You are a pathetic little traitorous weasel living in the backwoods of Canada who has no life other than to copy and past the same exact shit on every article.

At least come up with something original. Are you so ignorant and redneck that you can't even think up some new slurs?

[Jim Quinn]

Did you sleep with your mother or sister last night? How are the banjo lessons coming? I hear your up for the part in Deliverance 2. You already have the looks down.

[DavidPierre]

Aw... What the matter Smokey?

"Are you reaping what you have sown?"

Is truth to much for you to acknowledge and deal with in an open forum? 

It's to bad for you that your delete button does not work here.  Why don't you explain to the nice folks why you like to hide your racism behind an AKA on that blog of yours?

What's with all your bestiality with sheep? 

Now... go on out to the paddock and get that favorite fat ewe of yours and give her your little ram.  It will relieve your sexual tensions for a little while.

Smell you later... Moron!

[Jim Quinn]

Finally you worthless piece of shit. You actually stopped fucking your mother to think up something original. Does it eat at your pathetic little brain every night that you deserted America during the Vietnam War because you were too pussy to fight? Your little pea brain conspiracy theories convince you that your desertion was noble.

It wasn't. You are a chicken shit little man who fled America for Canada rather than defend your country. You disgust me.

[Smokey1]

DavidPierre---Once again the traitor comes after Quinn. I guess you're still pissed at Quinn for blackballing you from his site. You are a piece of work DP, because Quinn is EXTREMELY tolerant of who he allows onto his site. Best as I can tell, you are the only one ever booted off. Your pscychotic nonstop rambling about 9/11 would have been tolerated, but your constantly spamming his site is what did you in. At a minimum, HUNDREDS of regulars on Quinn's site know that in addition to being a deserter guilty of treason, you also lie when you claim Quinn and me are the same person. Get some help, DP, before you hurt someone or yourself.

[DavidPierre]

Smokey Quinn:

Let's hear from your former webmaster, Jason.  A totally independent and knowledgeable witness to your lies and fraud.

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

"I saw your comment on Zero Hedge regarding Jim Quinn. I would advise you as a fellow American to let him continue to hang himself and not waste your own time. He has his own totalitarian approach that reveals itself over time to the reading audience. We can't stop each wannabe dictator wrapping himself/herself around the flag of what the United States once stood for. He will continue to tell those seeking truth that they are a moron. Whether I am right or you or right we are at least attempting to get at the truth."

"I cannot waste time on the wannabe dictators while my dead countrymen have not received justice. Justice will be served when I feel the rest of my countrymen are safe and that also is a long ways away. We will probably be old men by the time we feel we know enough truth to say we concluded our own investigation and many of the perpetrators dead of old age, war or both. So I have little time for Quinn."

"Smokey and Jim are the same people, yes. I mapped both the I.P.'s back to his office at Wharton.

As for having fun, well... TBP is a place where if you want to be abused and argue with someone with only academic experience then go for it."

http://ragingdebate.com/politics/remembering-911/c41097#c41097

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

So everyone is a liar and thus a traitor except you!?

Let everyone see what obscenities you can conjure up out of that sick, racist mind of yours to defend yourself on a public forum where IP banning, comment deleting and your aka postings will not work.

Just try to be more rational in responding.  The sophomoric sexual slurs are so over used and juvenile.

[Jim Quinn]

You and Jason are quite a team. I suggest you double your dose of lithium and stay away from the sheep and your daughter for awhile. I know it will be hard for you, but just keep thinking about the planes crashing into the Towers and it will bring a smile to your traitorous face. Let everyone on ZH know about your delusional 9/11 theories. Let's here about the Bush family.

Let everyone see how cogent and intelligent you really are. Please provide your 9/11 pearls of wisdom. I know that will require a vast array of cutting and pasting, but I'm sure you are up to the task.

What a pitiful little scumbag you are.

[DavidPierre]

Smokey Quinn:

Just calm down now and try to be rational for a moment. You are going to give your fatass a heart attack with so much sexual frothing all over your sticky keyboard today.

You have not even tried to explain yourself to the people here on ZH ... address the above. 

Stuck for something to say are you?

{ps... learn difference between "here" and "hear"!}

[Jim Quinn]

How pathetic and sad that you have actually adapted David Pierre as your name when it was given to you as a derogatory slur by Robmu1. Your self loathing must be so consuming that you actually became David Pierre rather than be the traitorous David who fled the US like a little girl.

Please let everyone at ZH understand your 9/11 theories. Are you afraid to reveal your true nature? Give us the play by play on how it was an inside job committed by George Bush. You used to spam my site with pages of links and pastes. I'm sure you've saved them.

Come on DP. We really want to be learned by you. I understand you were banned from Raging Debate too.

[DavidPierre]

Smokey Quinn:

Just more lies that you constantly tell yourself, and others, to justify your previous, well documented lies.  It must really suck to be you while attempting to fog the facts. 

Come on big man... just admit the truth, if to no one else, at least to yourself.

No wonder you used "Smokey" as one of your AKAs. 

{ps... You got those three sons of yours well prepared and ready to send off to the new wars for amerikan empire?  Sure you do! ... being such a chickenhawk patriot and all.}

[Jim Quinn]

Not man enough to let everyone on ZH know about your warped theories about 9/11? Come on big guy. Open up. Listen to those voices in your head and tell us how Bush planned 9/11. You always were quite strident about the Bush family history.

I understand. You are too frightened to reveal what a nutjob you are. Sleep well, you traitorous little pathetic excuse for a human being.

[DavidPierre]

Don't have to explain 9/11 on ZH, most intelligent people here get it.

It's just MORONS like you that need a slow, constant, and often repeated,  education in 'Special Class' about the real world, scientific "facts of life".

Those "facts" do not include fat ewes... your obvious and oft times repeated, sexual preference.

[Jim Quinn]

The intelligent people on ZH get that you are a warped nutjob. Show them I'm wrong. Lay out your vast conspiracy theory for 9/11. The smart people on ZH will be amazed by your brilliance. We all await your words of wisdom.

THE SOUND OF CRICKETS.

BAH BAH. - British Columbia - Where men are men and sheep are scared.

[DavidPierre]

Smokey Quinn:

Jesus H. Christ! 

You are a bigger MORON than even I can believe.

Just keep outing yourself, better than I ever could, as a obscene, foul-mouthed, fat little pervert obsessed with bestiality.

Just admit the fact that you are a Liar and a Fraud, who tripped up and exposed himself publicly.

Go post this thread over at your manure laced blog... www.thesheeppaddock.com .

Be done with exposing such ignorance to the wider public. 

{ps... they finally banned your fatass off of SA awhile back.  Want to deny that also?}

[Jim Quinn]

Your ignorance is only surpassed by your mental illness.

Here is your banned from SA bullshit back in your face you loser. This exact article was published this afternoon.

http://seekingalpha.com/article/231891-depression-within-a-depression?source=hp_latest_articles

You are a pathetic little man. We will be discussing your mental illness on TBP and you can only read it and take it out on the sheep.

You are pathetic.

[Jim Quinn]

The life and times of David Pierre:

http://theburningplatform.com/blog/2010/07/28/ode-to-an-american-traitor/

[halvord]

This is not a surprise to Austrian school economists. 

Big Duh. Austrian Economists are always right. Just ask one.