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Refuting The Myths Of The (First) Great Depression
Every now and then it is prudent to repeat what is promptly becoming the most critical phrase of the 21st century, which is odd considering that it was uttered over 70 years earlier by then Treasury Secretary Henry Morgenthau, who wrote: “We have tried spending money. We are spending more than we have ever spent before and it does not work.... We have never made good on our promises.... I say after eight years of this Administration we have just as much unemployment as when we started ... and an enormous debt to boot!" And since this Great Depression is not really all that different from the first one, we would like to again present the must read analysis by the Mackinac Center "Great Myths of the Great Depression", which so far is predicting exactly where our own economy will be in about a decade: "At the end of the decade and 12 years after the stock market crash of Black Thursday, 10 million Americans were jobless. The unemployment rate was in excess of 17 percent. Roosevelt had pledged in 1932 to end the crisis, but it persisted two presidential terms and countless interventions later." And let's not forget the conclusion: "Along with the holocaust of World War II came a revival of trade with America’s allies. The war’s destruction of people and resources did not help the U.S. economy, but this renewed trade did. A reinflation of the nation’s money supply counteracted the high costs of the New Deal, but brought with it a problem that plagues us to this day: a dollar that buys less and less in goods and services year after year." Why should this time be any different? And even post what many perceive to be an inevitable war outcome (because history sure does rhyme), what will America export this time around to start a new US Golden Age? Unfortunately financial innovation is no longer the hot commodity it once used to be.
Great Myths Of The Great Depression (pdf)
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Misperceptions Bitchez!
Can we all agree to stop the bitchez thing soon?
I concur.
thank you.
Perhaps there should be a poll opened up. I, for one, simplistically enjoy it. It's a touch amusing, sort of relevant, and reflects the often-times juvenile nature of the comments sections. Makes light of some disturbing news at times...
I just thought it was the signpost of going full trade-tard.*
(re: Tropic Thunder)
I'm with Joe. I think it's funny, but I'll abide by the majority.
Readers' poll, bitchez?
freedom of speech, bitchez. I'm not gonna be ruled by a ZH democracy. :)
I vote "Bitchez" gets retired only after every user has posted it once.
Kinda like "If it's your first time at Fight Club, you have to fight."
Here's mine:
You're wrong, Bitchez.
I feel better now.
I asked that on Friday and was told to be quiet.
That's because it doesn't work!
See "Streisand Effect"
It is sophomoric and brings down the level of discourse. That said, you have to understand that juvenalia is part and parcel with a certain subset of college training and beyond. (As an Ivy grad, OSU and UF and ASU have nothing on us as far as jarheads go.) Everyone luvs the pithy one-liner, so more reasoned, explanatory discourse is not necessary.
In 15 years I'd like to be able to have the god's eye view and survey the success rate of every ZH participant who abused "bitchez" in their posts.
But I am an atheist. Sigh.
never ending, bitchez ;)
Agreed.
Food, bitches!!!!!!!!
Habitat Restoration. After all, people have to live somewhere.
"Food,"
Yup, except for the refusal of many trading partners to accept GMO crops and growth hormone laden meats. Besides, we need potash from Canada (fertilizers), fuels from imported sources for our tractors, as well as the imported machines themselves. Can we really get ahead that way?
History lessons bitchez ;-)
The worst policy error has been in completely ignoring the analysis and policy needed to cushion the crash and slump phases in an eager and ignorant rush into the simpler and seemingly more glorious depression/stimulus phase policies. The bank collapses in 1930-31 are being mimicked by todays TBTF bankers' strike, with identical results, except that the TBTF execs are getting huge bonuses while Main Street dies.
Meanwhile the stimulus is too early and when we get to the real depression, the fiscal quiver is empty.
It took about two and half years to get into the mechanics of banks and credit back then and work out the Reconstruction Finance Corporation and put federal agents behind bank lending desks. So far this time, Washington is badly behind the curve.
2011, meet 1932. Only now, no one seems interested in actual analysis, just ideology. So it will likely be a worse outcome.
Jim, I think that you struck an important point. What few good effects Roosevelt's excessive federal spending had on the economy came after the majority of the debt bubble collapsed. Some stimulus saw a light of day. Today, it is just being sucked into a giant debt black hole and ending up in our insolvent banks. The last stimulus and any further stimulus is a waste of money. The debt bubble has to pop!
Correct. And this also touches upon a point that the original document left out. Namely, that it was the Gold confiscation which allowed FDR to raise an additional $2 Billion for spending. This was after the Fed had already spent $1 Billion, and didn't want to spend any more. This point would've added to the Thesis about failed policies, IMO.
"Meanwhile the stimulus is too early and when we get to the real depression, the fiscal quiver is empty."
Agreed, and the arrows in that financial quiver had the equivalent effect my little son's rubber-plunger tipped ones have. Even if they were to reach the intended target (unlikely) though noticed, would be largely ineffective. (didya notice that? equivalent...quiver...never mind).
I think we may look back at the "Great Depression" as nothing more than a quaint prelim to the upcoming "Really Great Depression" before we're through. We'll have to see how the denizens of this generation handle the hardships. Why does something tell me not as well.
You never hear of the Depression of the '20-'21, it was/could have been as bad as the GD of FDR's day......save one thing.
Warren Harding, didn't prop up the economy and the failing entities.
He allowed FREE MKT rules to take them out of the system, IOW, capitalism worked.
It was basically over in less than a couple of years.
Then came FDR, and the GD, why was it the GD?.
Because the Progressive FDR, did exactly what is being done NOW.
Except we all know now, is far different than then.
We were on the Gold Std, and we were a wealthy nation.
Now, we are out of bullets, time, and assets of any value.(save the continent itself & natural resources).
I read somewhere that the Morgenthau quote is a myth.
That said, there is plenty of evidence that FDR's policies EXTENDED, did not curtail, the GD.
Here's one link--
http://newsroom.ucla.edu/portal/ucla/FDR-s-Policies-Prolonged-Depression...
Not a myth, but the statement is not an "on the record" statement. The statement is taken from his private diary.
What makes me upset with the huge flow of financial and political information these days is the lack of perspective. I think the analysis of how 1920 differed from 1929 is exactly the kind of thing we need. How was credit different? The banking system? The connections between Wall Street and Main Street? How exactly did failure occur and how was 'normalcy' restored?
To your point that blind ideology can wreck any society, even one far stronger than ours....all I can say is, Amen.
+1
This is utter nonsense. If the great depression had been anything like the '20-'21 recession, it would have been over before Roosevelt even took office. Instead, it was just getting started.
But you already knew that, so I waste my time...
No, then came Hoover and his attempt to engineer the economy, which was merely extended by FDR.
'20-'21 is like '90-'91. S&L's were taken out and the crooks sent to jail. If we did that with wall street it would be over by now. Instead it is GD 2.0.
Rothbard does a good job of explaining the failed policies of the Depression, but he also talks about the failures of the 1920's the precipitated the crisis.
As long as we are exploding myths about the great depression let's start with the myth that it lasted from 1929 to 1941.
I was surprised to find that people at that time, meaning the 1930s, thought it was much shorter lasting only from 1931 to 1932 or 33.
You would have to go back to contemporary sources to find this out. But most indicators of bad times held off until late 1930. Even luxury car sales held up well that year. It was in 1931 and 1932 that people felt the full effects of hard times.
By 1934 people were wearing party hats that said "Wasn't the depression awful?" No kidding, that is a direct quote from a story by Joe Mitchell published in the New Yorker that year.
By 1936 the economy was so strong the government deliberately put the squeeze on the economy causing the Roosevelt Recession of 1937 and 38. They feared a 1920s style boom that would inevitably lead to a 1930s style bust so the "managed" the economy to prevent it.
I must also laugh at the idea that WW2 started in 1941. Maybe in the USA but it started in Manchuria in 1934, in Europe in 1939, and in other places it never started at all.
Rearmament orders began in England and Europe around 1936 to 1938. But even in Germany they were not as big a factor in the economy as most people imagine. Germany for example, was doing their best to look warlike but it involved a lot of smoke and mirrors. For example there would be a report in the papers, complete with pictures, that Squadron So and So had got their new Messerschmidt fighters. The next week the same planes, with a new paint job, would be "delivered" to another squadron. In this way they could make a dozen planes look like hundreds. After the war Hitler's personal limousine was found to have 7 paint jobs, dark blue (almost black), army green, blue, green, blue, green, and blue. He did not have several cars as had been believed, but one parade car that was repainted as necessary for state or military occasions.
There was a lot of such propaganda at the time, aimed at intimidating Germany's neighbors. At the outbreak of the war Germany was a lot less prepared than they let on.
The point of all this is not to be sucked in by propaganda. One reason the economy is in the shape it is, is that for years people have believed that the war spending ended the depression - this is bullshit but for years people have believed it and therefore believed that uncontrolled government spending is the secret to prosperity.
Diogenes, I pose this challenge to you. Who was celebrating in 1934? Was it the wealthy who lost a fraction of their wealth and still had everything or was it the millions of unemployed? I think someone bought into the propaganda of the American 1930's.
Everybody wasn't unemployed. Thousands found jobs working for the government. They had plenty to celebrate.
It is also a little silly to say EVERYONE simultaneously felt exactly the same. That is not true now and was not true then. Even in the midst of the depression people got married, held parties, and found things to celebrate.
You would have to read what people had to say AT THE TIME to understand this. That is my point.
"You would have to read what people had to say AT THE TIME to understand this."
You seem to have trouble reading (or maybe comprehending) what the Secretary of the Treasury said at the time. Here it is again, from May 9, 1939:
I prefer the beginning of that quote actually:
"“We have tried spending money. We are spending more than we have ever spent before and it does not work.... We have never made good on our promises...."
According to Wikipedia it lasted 43 Months............
http://en.wikipedia.org/wiki/Great_Depression
The world's most trusted source of made-up facts.
Re: "As long as we are exploding myths about the great depression let's start with the myth that it lasted from 1929 to 1941."
Exactly. According to my mom, who lived through it, it lasted until 1948.
Actually, the GD really lasted until the early 1950s (look at the GDP data) when the returning GIs, after taking advantage of the GI Bill, started procreating with a vengeance and needed housing.
I guess we need WWIII
Do we need a world war in which in excess of 100,000,000 people are murdered to create authentic economic recovery?
That would be the oilgarchs solution. They keep harping on overpopulation so that would make sense to them. It would never occur to them that maybe they and their entrenched interests are the problem.
I sincerely hope not. That whole hideous "war creates business" meme my father used to spout (rather ironically since he was a refugee from such for years) should be thrown out. Guess what? If we can "create business" because of war, we can create it for a pro-survival purpose. We do not have to agree to the psychotic wishes of homicidal oligarchs.
Spot on. The "war creates business" meme, is just the Broken Window Fallacy ( http://economics.about.com/od/warandtheeconomy/a/warsandeconomy_2.htm ) taken regionally or globally, to much more horrific extent than mankind's inhumanity to man can quantify.
Absolutely not, that is the biggest myth and the one that has done the most harm. WW2 DID NOT end the depression, no matter what certain people would like us to believe.
Quite the opposite in fact.
Today exports account for a very small portion of US GNP and the other outcome is what? Paying Americans a dollar a day like slaves overseas? WTF
Also, our economy today is not agricultural like back then.
So outsourcing is good ?
I would really like to hear your thougts on this Oh Great Oracle (that would be you Tyler).
Re: "So outsourcing is good?"
Of course it's good! You never heard of bankers taking home eight digit bonuses in an economic downtrun before outsourcing, did you? Hedge fund managers hauling down $11 million per day? Heck, that money would have gone to American workers if their jobs hadn't been offshored!
This is an interesting historical view. The problem is, today's politicians who would deride the New Deal and Roosevelt's policies as having prolonged the agony are following their own flawed ideology, and will only selectively learn the lessons presented here. For instance, they will say that New Deal stimulus and 'anti-business' measures such as the Wagner Act kept business down, but they will not challenge easy monetary policy by the Federal Reserve and its consequent effects that make speculation and 'financial innovation' rampant. They will issue a well-deserved challenge to the government debt printers, but will deride any attempts to make banks and large corporations accountable as 'anti-business'. Therefore, our lot will be to swing back and forth between stimulus and monetary policy economics while the real economy dies, and nobody will take a balanced look at the real prescriptions that are required because it violates their ideology in some way to do it, and ideology trumps all, as said by Jim.
ex VRWC
Musical? Add your voice to the chorus at http://economicprotestproject.blogspot.com/
In this myth-breaking, somehow or other a number of important variables were conveniently missing --- as usual!
Anybody recall Prohibition? Millions of dollars were siphoned off the official economy, then were laundered through all that hyper-speculation on Wall Street and the stock markets.
A very, very important point.
Another crucial point: securitization. Which began very slowly in the early 1900s and took off in the 1920s, and was ended after the Great Crash/Great Depression era due to legislation passed as part of the New Deal.
Of course, it wasn't called securitization back then, and again securitization has been the artificial price-expansion driver; for whenever one finds securitization (home mortgages, auto loans, student loans, credit card loans, etc., etc., etc., plus the major securitizations of the banks, hedge funds, private equity firms, insurance and health insurance and pharmaceutical companies, etc., etc., etc.), one finds the exorbitant super-increases --- and more importantly, debt-ultraleveraging and debt-based ultraleveraged speculation.
And no, just getting rid of the peddling of securitized debt won't be the end-all panacea (although a postive start), but the crooks need to be rounded up and incarcerated, regardless whether they are with Goldman Sachs, McKinsey, Morgan Stanley, JP Morgan Chase, the US Treasury, the Federal Reserve Bank, the World Bank, etc., etc., etc.
Time's awasting....
Last I heard the FDIC(!) had started peddling mortgage backed securities... So I think that lesson has not quite sunk in yet.
Tyler, why don't you just come out with it and advocate (the absurd and wrong idea) what it is that you really think will cure the world's ill: the return of the gold standard.
Here a question for you: what was the reason for the Fed's inception in 1913?
Hint: what was the primary source of sovereign insolvency in the period from the Roman Empire through 1913.
"I know, I know" (raises hand energetically to get teacher's attention).
To create a private institution owned by bankers in order to siphon as much wealth as possible from every other industry?! To create a global Ponzi scheme that charges interest to the entire system and eventually ends up with the ownership of vast swaths of productive assets - after creating money/credit out of thin air? A (for the bankers/owners of the Fed) risk-free proposition? And after capturing vast wealth, being able to capture the political system with various bribes, contributions, lobbying, etc.?
(Looks admiringly at teacher, thinking with anticipation - "did I get it right, did I get it right?!")
"I care not who runs the country as long as I control the money", or something like that.
by money-grubbing scum.
(raises hand lethargically)
i don't know. when's recess?
Why not change your name to Montague Norman?
Wasn't income tax created in 1913 too ? For you and me, anyway. The Fed doesn't pay tax
Geez whiz, I would guess the very same reason that the oil depletion allowance and the federal income tax's inception in 1913.
And the creation of the policy of numbered bank accounts in the Swiss banking system in 1912.
So you prefer to go back to antiquity and use a system that has failed repeatedly? Someone as smart as you should be able to come up with a new system. Perhaps in a hundred years time our descendents will bring up YOUR name and proclaim themselves "Tyler Durdenists"?
I think not. You provide nothing new -- only conjecture, hysteria, fear mongering and nothing that adds to actually addressing the problem. Strong sense of sour grapes, but over what? Your econ thesis didn't get published?
What's your proposal?
I don't have a proposal. I am only questioning the validity of a blog that is the 21st century Jonah in Ninevah.
What's the point of ridiculing everything if you don't offer a solution of your own? Everything here seems to be nihilistic.
In all respect, the site does provide some value. I went long US Treasury futures in April partly b/c of the constant hysteria this blog posted about interest rates skyrocketing, bits about Taleb saying "every human should short" treasuries, etc. In some respect, it's good to come here to get the paranoids' view.
The trajectory of this blog is going the way of UFO seekers.
Bullshit. I've been reading this blog for half a year and have never seen "interest rates to da moon" crap, especially by TD.
Post some links.
Taleb has been saying that but it's all a matter of timing, isn't it? It ain't over yet.
You might have to wait longer than you think. I too have not seen posts of "interest rates to da moon" but the general feeling here is that US debt = toilet paper and a reference to the bond market as retarded when 10 yr yields went under 2.7%.
The fact yields are that low are what? Because the US is so credit worthy and has a great balance sheet? Right. The only reason the dollar is still alive is because the world has nothing to replace it with yet. That's why they attacked the euro during the spring. You really think that's going to continue forever as the economy keeps losing its lipstick? For it is a pig.
China's wealth is what would have been America's middle class if it hadn't been for the scumbag oligarchs who hijacked our country. There is no way out of this but down, fella.
Oh, yeah, those are my sour grapes.
From your comment:
"I don't have a proposal...What's the point of ridiculing everything if you don't offer a solution of your own?"
IRONY!
After that, I have nothing to say. I don't think you "get" the general meme's of this site...
I was unaware that a news site had to provide answers...
All right! Thank you for YOUR solution. I'll get right at implementing your major points.
The only monetary solution I know of that has a 100% record of failure going back to antiquity is fiat currency.
TDs question was why was the Fed created in 1913. In addition he provided a hint; What has caused most soverigns to go BK back to Rome...paraphrased.
The result of the Fed being created was that the creation of money (FRNs) was removed from congress.
I would say most empires have gone broke becuase they expanded their 'business model' into unprofitable channels and at the same time provided unaffordable social programs at home...bread and circus...transfer payments and tv. All around mismanagement of the purse.
Just my WAG...
The only monetary system that have failed through history is paper money.
Paper money is old and has been tried hundreds of time, with the same result: Failure.
That is not accurate. Debasement of currency has lead to 100 % failure. States have historically found lots of ways to debase gold currency as well. Probably one of the reasons the Fed exists...there is a deep echo in the vaults of fort knox.
To privitize the "benefit" of currency debasement, while cost shifting onto the public the reduced purchase power, and extracting responsibility cover from the political minions of the banksters... The political minions can always be thrown under the bus, while the bankster oligarchs drive on, plundering the real economy.
Torches and Pitchforks... 12 Fed Districts plus the hydra's head in the District of Corruption.
Correct, but to debase the currency you need a government monopoly over gold money first.
Both the Continental currency and Civil War greenbacks were fiat and they worked very well for this country. In fact, despite massive British counterfeiting of continentals, they still retained much of its value. Samuel Breck recognized, "It's (the Continentals) powerful if not indispensable agency in gaining our independence." Ben Franklin had written, "This effect of paper currency is not understood on this side of the water [in England]. And indeed the whole mystery even to the politicians, how we have been able to continue a war four years without money, and how we could pay with paper that had no previously fixed fund appropriated specifically to redeem it. This currency as we manage it is a wonderful machine...It performs its office when we issue it, and when we are obliged to issue a quantity excessive, it pays itself off by depreciation."
In short....I think there's a big different between fiat currency in the hands of the people and fiat owned and controlled by the "partial schemes of private men".
+1
Honestly, you should stop reading to the cranck that promotes this theories and manipulates history in an obvious way.
Saying the greenbacks or the continental worked when they hyperinflated and destroyed the economy is just ridiculous.
Yeah Tyler, what are your thoughts on how we should restructure society and the economy?
Debasement of the currency through profligate monetary creation.
Debasement of the government through profligate intelligence creation.
Over-extension of debt leading to the inability of the people to produce enough to pay it down before the cashflow river ran dry. The fix was to give the ball to the FRS and its member banks. Big Daddy will take care of us!
Now we are all that ZH' dreaded b-word.
Fiat money and fractional credit banking are optimized a whole lot closer to 10:1 than where FNM and FRE went with their fake and black-type not-govie credit.
The essential key to a robust economy and maximum sustainable credit is trust and confidence. Trust takes a long time to gain, yet quick to lose, and many years to regain.
Better start growing your own.
Troll. Why bother coming and posting? What are you trying to accomplish? Are you willing to pose an alternative view with arguments, sources, etc. - or just criticize? Yahoo/CNBC/Marketwatch have some comment sections that might be more to your liking. If you want to post an alternative view, great.
Funny, this site seems to be the evil twin of CNBC -- only one sided in the extreme opposite.
Yes, the readers have a certain leaning. Most sites do. People like the confirmation of their own beliefs. Therefore, most people likely gather their news/perspectives/propaganda from various sources. Alternative views are welcome when articulated. Trolling - where one criticizes without adding any real value - is just a waste of everyone's time, including your own.
Yes, my thoughts are wasted here. It's a proverbial Jonestown.
You were providing thoughts?
Which Proverb was Jonestown in again? LOL, just piling on....
We sure are a Jonestown... and our Kool Aid is sunlight.... as in the best disinfectant for all that ails the financial system, heck, our democracy. (For U.S. readers) I don't know what PD office you are broadcasting from, but your time is almost up. If I were you, I would take what is left of my multi-million dollar bonus paid for by myself and every other American citizen and buy plenty of physical. Then, I would high tail it to some quiet, unknown island. When the ponzi comes crashing down, we are coming looking for you and your kind. By God, if you don't pay in the purse, you sure as hell will pay your debt in a more uncomfortable fashion.
Try the hyperinflation thread - it's about as one-sided as a hypercube.
"...our Great War's a spiritual war. Our Great Depression is our lives."
This report also perpetuates several myths of the Great Depression.
Such as?
Such as Smoot-Hawley being the thing that crushed international trade, when it fact it was lingering soveriegn war debts left over from WWI that caused the collapse in world trade.
Example: all of our WWI allies, including Britain, defaulted on their WWI debts to America by 1934. Not everyone can run trade surpluses, in order to pay outstanding debts, at the same time.
mid,
Hell, we FORGAVE the debts owed us by Russia,and Japan, and Germany.....
We also rebuilt almost all the SOB's
We & the Brit's, destroyed............with what else?.
Again, America's people ultimatley ate the bill.
But,we did wind up with 28,000 tons of Gold after Bretton Woods.
By virtue of my altruistic demeanor, I humbly thus propose a Knukles Woods.
I agree. I've seen similar analyses on both sides of the isle, including one that concluded that the principle cause of the Depression was the determination to protect dividend wealth at the cost of everything else, and that the second leg of the Depression in 36-37 was due to Roosevelt attempting too early to reduce the Keynesian stimulus that had been in place since the early 30s. Not sure that I agree with that, but I do have to admit that the argument was about as valid as some of the BS given above.
My own take has long been that the Depression was not in fact due to monetary policy but rather due to new communication mechanisms that increased the appetite for "financial innovation". The 1920s saw the wide-spread adoption of the telephone, which transformed the financial industry. The 1990s and into 2000 saw the rise of the Internet. In both cases these innovations provided the means radically increase the volume of transactions as well as to obscure a lot of what was going on. Add into that the catalyst of laissez-faire governance (which I would argue was very much a trait of both Hoover and Bush II) and the parallels are pretty striking.
I agree. I've seen similar analyses on both sides of the isle, including one that concluded that the principle cause of the Depression was the determination to protect dividend wealth at the cost of everything else, and that the second leg of the Depression in 36-37 was due to Roosevelt attempting too early to reduce the Keynesian stimulus that had been in place since the early 30s. Not sure that I agree with that, but I do have to admit that the argument was about as valid as some of the BS given above.
My own take has long been that the Depression was not in fact due to monetary policy but rather due to new communication mechanisms that increased the appetite for "financial innovation". The 1920s saw the wide-spread adoption of the telephone, which transformed the financial industry. The 1990s and into 2000 saw the rise of the Internet. In both cases these innovations provided the means radically increase the volume of transactions as well as to obscure a lot of what was going on. Add into that the catalyst of laissez-faire governance (which I would argue was very much a trait of both Hoover and Bush II) and the parallels are pretty striking.
Ugh. If the governance of Hoover and Bush II can be considered anything related to "laissez-faire" I would hate to speculate what you would consider to be an "active" governance.
Myths of the Great Depression continue on with this post today.
by gaugamelaon Mon, 08/23/2010 - 14:28
#538087
Tyler, why don't you just come out with it and advocate (the absurd and wrong idea) what it is that you really think will cure the world's ill: the return of the gold standard.
by Tyler Durden
on Mon, 08/23/2010 - 14:34
#538109
Here a question for you: what was the reason for the Fed's inception in 1913?
Hint: what was the primary source of sovereign insolvency in the period from the Roman Empire through 1913.
Tyler,if the Central Bank model doesn't work(as it clearly doesn't),and if, as above you think the Gold Fix model does not either - what exactly is your preferred solution?
Western (Roman) empire = silver debasement = government run amok = collapse.
Perhaps no debasement = gov't can't run amok = stability.
What are examples of a gold fix either working or not working?
King World News interview with Rickards suggests the Bynzantine empire as an example of a gold fixed and stable system.
A gold standard, by definition, cannot work in the modern era. Why? Because there is a finite amount of the stuff. Such a system cannot accommodate growth nor encourage it. A return to gold standard would be like going back to the stone age. Everyone would hoard money. Such a society would make May 1945 Berlin look like paradise.
Let us try Hayek.
Your posts have been few and far between since you joined ZH, but I'm glad to see your missives are consistently non-sensical.
Look, I'm almost entirely agonostic on the whole "gold standard" vs. "fiat currency" food fight, but this statement:
...is simply beyond silly. Unless you consider the mid-1920's USA to be the 'stone age' - in which case it's delusional and silly.
I compare the ratio of today's world GDP vs. the amount of gold that exists against the ratio of 1920's GDP against the amount of gold that existed then (almost the same as today's level) and I completely stand by my statement that a return to the gold standard TODAY would greatly reduce the money supply to the point that bartering would become a preferred method for economic transactions.
A return to the gold standard would be like going back to the stone age. Everyone would hoard money. Such a society would make May 1945 Berlin look like paradise.
You mean it would be worse than $1.00 in 1913 (creation of the Fed) being worth approximately $0.02 today?
First off what is wrong with bartering? People barter things all the time presently. There are websites created specifically for bartering between service providers, manufacturers, retail...
You make it seem as if people shouldn't have any control over what they value nor the ability to exchange it for something of greater or lesser value.
There is more than enough gold and silver in the world if it is valued highly enough.
Here is a recent article...
Rethinking Gold: What if It Isn't a Commodity After All?http://online.wsj.com/article/SB1000142405274870390870457543367077174288...
I thought you people where fans of Ayn Rand? You want to get into the horse and cart that presents itself at the end of "Atlas Shrugged"?
"Yes, my thoughts are wasted here. It's a proverbial Jonestown."
OK, wokamole,
Please drink the Kool-Aid now, there's hope for you in the hereafter.
I'm also against returning to the gold standard, but you're not making much sense. If people were talking about using physical gold as daily money, that would be like trying to get into the horse and cart at the end of "Atlas Shrugged". But the gold standard isn't all that radical. We abandoned it only in 1971, not in the 1920s. The bigger scale of modern GDP versus the total amount of gold just means a higher value on gold.
The gold standard is just another currency peg. Like any peg, it puts the government in the position of having to defend it, which causes various problems, including occasional disastrously de-monetizing runs on the currency.
I understand that with humans doing such a poor job of managing national currency regimes, many people would like to give the job over to something completely unintelligent and inert. But it's a false cure. We have to get smarter.
"The bigger scale of modern GDP versus the total amount of gold just means a higher value on gold."
Ah, but you miss the point of the gold standard. Suppose we go on it tomorrow. The price of gold goes up. But to what price? If it remains floating, then you just have a fiat currency. But to have a real gold standard you have to have governments agree to a FIXED price of gold and for the governments to have a monopoly on the purchase/sale of gold.
In other words, you diminish the power to control the supply of the currency. This has implications on growth, particularly when wages adjustments are not flexible.
Even if I buy your attempts at hyperbole - so what?
First off, there's nothing wrong with barter - your attempts to toss that off as if it were the equivalent of necrophilia notwithstanding. Second, I'm not seeing what is necesarily tragic with a great reduction in the supply of something that has lost 96% of its value over the last century.
Again, I don't officially have a position on this - but you're certainly not making the case for "all fiat all the time" any easier to swallow especially in the face of what we have before us in this global fiatco regime.
So its better to have Quadrillions of FRNs worth of Derivatives backed by nothing providing Banksters mega-bogus bonuses to play pass the hot potato, while inflating asset bubbles of fraudulent accounting that woven the Emperor's New (Old) Clothes?
You must be (employed by) a Bankster or an eCONomist stooge of a Banskster.
There is plenty of gold to return to a gold backed currency. The question is one of how many fiat units per unit of gold.
Honest money is the bane of crooked men.
Man, Myth and Moola...
The actual essay in the post is a slag job on FDR papered over by a slag job on Hoover. But that's OK, because the mechanics and policy debates in the 1920s-1930s are actually important...hopefully more to review than to 'repeat' as Tyler (mis?)states in the intro. Quite right. And who enters that debate without bias? Again, perfectly acceptable.
But, here is the thing: no one in positions of power honestly gives a rat's ass about those mechanics or policy debates, or has any actual research done. I will bet you a bloody nose against a sore ass that there is not one single solitary teeny weeny little 3-page policy memo in DC or NY right now discussing options for inserting Federal agents into banks, busting up existing management structures, and doing other things that were not only debated then, but actually carried out.
This is one primary indicator that we are doomed to decades of zombie financial Hell. The status quo holds fast, right past the point of no return. Literally and financially.
That was my point. The Big Policy Call is No Bond Haircuts, and the rest follows. No defaults, no cleansing, no rebirth of the business cycle, no relief for small business or employment, no demand, no....nada....'ceptin' the faint hope that new middle class buyers in the BRICbloc will allow for profits in the S&P 500, which is tantamount to manning the lifeboats and letting the USS Republic sink beneath the waves.
Perhaps it is all necessary, the other options were scoped and duly considered, and this is the best possible option. Wouldn't that be reassuring. Well, here's another news flash: no one will tell the truth about such discussions, even though that would be healthy and increase overall respect for and support of the 'system'.
Why no honesty? Well, that would be a question of managerial accountability....another worthy topic......
"I will bet you a bloody nose against a sore ass that there is not one single solitary teeny weeny little 3-page policy memo in DC or NY right now discussing options for inserting Federal agents into banks, busting up existing management structures"
Whew! Thank goodness. Of course GM doesn't count?
I agree - it's not a 3 page policy memo setting up "agents" in the banks - it was called the Patriot Act. Try to get $10,000 cash out of your savings account without having to play 30 questions.
Er...OK...certainly plenty of other mischief afoot but I don't find those points germane to the topic at hand. Please go ahead and relate GM and the Patriot Act to Great Depression economic policy. Do you mean TPTB are considering all options and making judicious selections? Or what?
A return to gold standard would be like going back to the stone age. Everyone would hoard money. Such a society would make May 1945 Berlin look like paradise.
You mean it would be worse than $1.00 in 1913 being worth approximately $0.02 today?
Did you forget that wages are sticky? Are you willing to take a pay cut for the benefit of the nation? You want to bring the US Dollar to parity with itself? What about labor costs?
I guess you are not familiar with the economic concept of nominal values vs. real (inflation-adjusted) values. Unfortunately, you and 99.9% of the citizenry look at the world through your nominal lenses. You are confusing higher standards of living based on higher nominal values which includes inflation vs. real values.
That is not the point. If you restrict the money supply, you are effectively restricting costs which means that people's salaries change. People's reactions to such a scenario is just as important as any other economic model. You have to factor that into the equation even if you think people are stupid.
So it's a good thing that purchasing power has declined by over 98% since the creation of the Fed in 1913 because nominal values have increased?
That is irrelevant. We don't live in 1913 and never will again.
1913 BC, perhaps. (If I can be excused a brief tinfoil moment.)
An trite answer that totally ignores my question. So inflation and real purchasing power doesn't mean anything? I guess hyperinflation would be your solution which would result in soaring nominal prices.
I did answer it: when I purchase something today, I don't think "Gee, I would have been able to purchase more in 1913". It doesn't matter. It doesn't matter if the dollar's purchasing parity is lower versus last decade only purchase power parity vis-a-vis your neighbor (i.e. other countries).
No, you didn't answer my question. Purchasing Power Parity is about relative exchange rates and the relative price level. I am talking about ABSOLUTE real purchasing power and (stealth) inflation which is a direct result of excessive money printing by the Fed and the abandonment of the gold standard in 1971.
I will make my example even more simple for you: If nominal prices increase by 10% in a month and your wages are flat that month, you would be indifferent? I don't think so....
I think 0.02 USD 2010 buys a lot more computing power than a trunkful of Double Eagles did in December, 1913.
Try investing in Intellectual Property; people readily pay up for a better way than the old Ostrich way.
It's tough to eat a CPU or live in a computer. What about the myriad of other products and services. I'm sure you believe in CPI ex food and energy as well.
Point being. Yes, you have your $1 and you could buy a steak, read a book at the Carnegie Library, and sleep at the Plaza Hotel and have change to spare for a Yankee game. Wanna jump in the go-back machine, or Play the game of the Age and try to enjoy the ride?
It's not about living in 1913 or the go-back machine. This is not about the benefits of technological progress. It's about the pernicious affects of excessive money printing c/o the Federal Reserve and the subsequent abandonment of the gold standard. This has caused (stealth) inflation which has negatively impacted the vast majority of the populace. The result - median real family income essentially flat over the past 25 years, inability for most people to afford a 20% downpayment for a house and one earner can no longer support a family - much of it due to asset & goods inflation from a decline in the absolute real purchasing power of the US$.
Have you read up in the ZH, in forums tab , macroeconomics?
http://www.zerohedge.com/forum/central-banking-vs-repubic
So what's your point? Your comments in the forums tab would seem to agree with all of my above comments.
Recommend Garet Garrett's 1932 book, "A Bubble that Broke the World".
An excellent point in time book detailing the global variables preceding & during the Great Depression.
I have downloaded it in the past from this location:
http://mises.org/books/bubbleworld.pdf
Mackinac Center is on Right Wing Watch list.
The fundamental precept underlying FDR's and O's stimulus is that governmental spending exhibits a significant positive multiplier effect on economic activity.
There exists no credible body of fact based non-judgmental research supporting that contention. Indeed, the majority of viable research indicates a significant negative effect.
Updated S&P500 chart:
http://stockmarket618.wordpress.com
I get really, really tired of rightwingers and leftwingers playing their endless badminton blame game with the history of the Great Depression. Please, get over it already.
They were different times. The right-wingers made lots of mistakes. The left-wingers made lots of mistakes. Please, get over it already!
I agree that this recession is the start of something more serious and protracted, which looks like it will turn out to be as bad as the Great Depression, some years down the road. But don't belittle the Great Depression by comparing it to what we're seeing now, which is a lot of very spoiled people voting to extend the populist pampering that they can't afford. If you want to win a seat in Congress you have to propose either less taxes or more spending. Anybody who tried to propose serious fiscal consolidation would be laughed out of town.
Hard-line critics of the New Deal should go spend a weekend at Oregon's Timberline Lodge. If there were people capable of building something like that, willing to work for the peanuts that the WPA paid, would you really not want to put them to work? Keep it real.
http://keynesianfailure.wordpress.com/
All this crap about a $ losing 98% of its value since 1913 is bogus. Are you making a nickel a day?
I don't know about 98%, but what is there really to refute? I am the third generation in my family to do the same work. I make umpteen times the dollars that my grandpa did, but we live relatively the same lifestyle. I make 1/2 of umpteen times what my dad did.... same work, same middle class living.
Facts are annoying...
http://www.measuringworth.com/uscompare/
Until we get twenty million folk back to work and both manufacture most of our own plastic fantastics and hopefully build a few quality goods once again, while changing our energy ways... we are doomed.
I don't care if Keynes was the devil, I just don't see how we can make those changes without government spending, which would also tell the oligarchs where the money has to be.
No matter the currency, there seems to be many more important factors which decide value.
You can only come up with so many ways to rob Peter to pay Paul before you end up repeating yourself!
Federal Reserve is the at first the Money Monopoly Bank Protection Society...no matter how many miss takes they make, they get to bury the crap under the vast rug of the taxable base and enforcable rug or Tarp of the economy. Bernanke learned from the Great Depression that he could print his way out of anything (helicopter Ben by his own words if not quick capsule of his remarks) but as Japan has not taught him, saving face seems to sell for awhile 'till something else happens in the printing to bubble machine. He has the axe but has tried to do the impossible. Alas, gangrene has but one cure.
The whole point of this analysis is that government intervention of any stripe (and whatever flavor it's coated, it's all statist by definition) is not only worthless/useless, but actually perpetuates the disaster and makes it far worse than it would have been sine intervention. So please drop the noise about parties--for what it's worth, as the article demonstrates, they were all one then (and liars), and they are all one now (and liars). And the lies have been perpetuated unto numerous generations now; one can only imagine the historical reflections on Bush II and Obama, a nearly certain one-termer, thirty years hence. All useless noise, perpetuated by media, transmuted into "serious thought and analysis." But he who perseveres gets the honorable mention in the history books. (as an aside, I think both will be trashed, at least in the near term.)
There was a real reason Hoover lost in 1932; it was the business cycle writ large, itself a product of social mood. Robert Prechter forecast that a Democrat would win in 2008; although he expected the chosen one to be Hillary, he anticipated that whoever won the election would be reviled as the holder of office when TSHTF. By Prechter's analysis, that event is not far off at all, but 2008 was only a very small dress rehearsal.
Yes, we are using much the same idiotic methods as Hoover and Roosevelt, albeit far larger in scale and more "sophisticated," i.e. even more illegal, and we can expect far more catastrophic results. Just remember that both Hoover and Roosevelt were members of the Club, just like the Bushes and Obama, and the Clintons. Nothing ever really changes in this respect; only their goals did. And we get to reap the benefits...
How harsh coming from some one that hasn't commented with any thoughts! I guess you have never read what Tyler has written? Or has your mother not read any of Tyler's thoughts to you? Maybe your mother didn't want to burden you with hell's coming?
Hail Obama!
I'm just wondering why the only alternatives are fiat currency or the gold standard. It seems like the real problem is the Fed. If we followed the constitution and only allowed congress to print money perhaps we could have a fiat currency that would work. With the Fed, there is no accountability and it is clear that they operate against the citizenry for the benefit of the elites. It is outrageous that such an entity can exist in a so-called constitutionally based democratic state. The Fed is probably most responsible for the creeping fascism we see. To the extent that the people have no say in whether the Fed can continue to exist, all attempts to ameliorate the system are useless. Getting rid of the Fed should be the overwhelming goal of the American people. That said, I'm a pessimist. When you look back at history, it is clear that we are reverting to the mean: dominance of the strong over the weak--precisely what the constitution was designed to avoid. We've had our day in the sun. Democracies can't run on autopilot.
A note on ideology: I find this the most depressing aspect of American life. When people are junked because of disagreement with their ideas, that is ideology speaking. Ideology prevents fruitful discussion and acts as a sort of censorship of ideas. Sure people can come from the right or the left--those attitudes seem to be hardwired in us as human beings and probably have more to do with psychology than truth, but that is not a problem if people are willing to listen to each other. Not everyone who disagrees is a troll, though it is clear that there are paid minions who do all they can to interrupt threads and junk comments they perceive as threatening to their interests. Witness Johnny Bravo. We've seen "them" hijack whole threads.
Hail Obama!
I'd have to disagree and call this entire article revisionism.
The kind of revisionism that tries to change the narrative regarding FDR for political reasons.
Brilliant observation..love the term "revisionism". As I recall, as long as FDR was alive we had a breakdown of the economy interrupted by a war effort to support our principles on the World stage. After FDR, the demand and technology and availability of raw materials got the natural system of working out our needs started again. What's your FDR narrative?
In my opinion, the only way this mess can be fixed is a reset. We need to go back to local barter (by whatever means). This will start killing off big corporations, their assets will gravitate to the individuals. We will then have a use for all the dark lamp-poles.
War (death and destruction) did not end the depression, it was the redistribution of wealth that came after. War was, and still is a particularly inefficient and expensive way of population destruction, this time it will have to be the four horse-men. 7 billion, going on 9 billion - how will this bubble end, if not in tears.
As for Tylers hint, one word - USURY.