The Great Depression Vs Today's Recession

[Nevada_Ballin]

Is there anyting we can take from then that can be applied now as far as Recovery?


Marriner S. Eccles, who served as Franklin D. Roosevelt's Chairman of the Federal Reserve from November 1934 to February 1948, detailed what he believed caused the Depression in his memoirs, Beckoning Frontiers (New York, Alfred A. Knopf, 1951):

"As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth -- not of existing wealth, but of wealth as it is currently produced -- to provide men with buying power equal to the amount of goods and services offered by the nation's economic machinery. [Emphasis in original.]"


Information:

In the United States recovery began in the spring of 1933. There is no consensus among economists regarding the motive force for the U.S. economic expansion that continued through most of the Roosevelt years (and the sharp contraction of the 1937 recession that interrupted it). According to Christina Romer, the money supply growth caused by huge gold inflows was a crucial source of the recovery of the United States economy, and that fiscal policy and World War II were of little help. The gold inflows were partly due to devaluation of the U.S. dollar and partly due to deterioration of political situation in Europe. In their book, A Monetary History of the United States, Milton Friedman and Anna J. Schwartz also laid the recovery to monetary factors, and contended that it was much slowed by poor management of money by the Federal Reserve System.

Current Chairman of the Federal Reserve Ben Bernanke agrees that monetary factors played important role both in the worldwide economic decline and eventual recovery. Bernanke, also sees a strong role for institutional factors, particularly the rebuilding and restructuring of the financial system, and points out that the Depression needs to be examined in international perspective. Many economists, exemplified by Harold L. Cole and Lee E. Ohanian, believe that the economy should very quickly have returned to normal except for continued depressing influences, and point the finger to the lack of downward flexibility in prices and wages, encouraged by Roosevelt Administration polices such as the National Industrial Recovery Act. Some economists have called attention to the expectations of reflation and rising nominal interest rates that Roosevelt's words and actions portended.

[sanantonio]

By Phil Davis

Published: March 22 2009 09:07 | Last updated: March 22 2009 09:07

Pension trustees and insurance company portfolio managers look away now. Your increased commitment to government bond holdings in recent times is about to blow up spectacularly.

At least, that is the view of Ron Paul, the US congressman who ran against John McCain in last year’s Republican Party presidential nomination.

His is a minority view. Yields on government bonds worldwide have been falling fast over the past few months and in the UK, the commencement of “quantitative easing” this month sent bond prices soaring.

But the credibility of both western governments and their currencies is waning, and has been ever since the gold standard was abandoned in 1971, says Mr Paul. And that means even “safe” investments are far from safe, he claims.

“People will start to abandon the dollar as current and past economic policies create a steep rise in interest rates,” Mr Paul says.

“If you are in Treasuries, you will need to be watchful and nimble to time your escape.”

Unfortunately, cashing out will not protect the value of investments, he insists, because “fiat” currencies will all decline over the coming years as measures to try to haul the world economy out of recession fail. “The current stimulus measures are making things a lot worse,” says Mr Paul.

“The US government just won’t allow the correction the economy needs.” He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. “No one remembers that one. They’ll remember this one, because it will last 15 years.”

At some stage – Mr Paul estimates it will be between one and four years – the dollar will implode. “The dollar as a reserve standard is done,” he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s.

“Europe and the US will both have to fundamentally change their money systems,” he adds.

And don’t even mention shares to Mr Paul: “The last place you want to be is in the stock market,” he says. “It may not bottom out for 10 years – just look at Japan.”

Of course, everyone has a view on the credit crisis, its causes and putative solutions. What differentiates Mr Paul is that he has been warning of the dangers to the world economy for nearly 40 years. “The breakdown of Bretton Woods was my motivation for running for Congress. I have been talking about the dangers ever since and warning that the control by central banks over the money supply would create an enormous bubble.”

A deep recession had only been avoided up until now because of the efforts of successive governments to reflate the economy. But there are no more policy levers left, says Mr Paul. “This is the big one.”

Unsurprisingly, Mr Paul has been viewed as a crank in Washington, dismissed as a doomsayer and a party-pooper. His bill early this year to abolish the Federal Reserve was largely ignored. And his adherence to the Austrian School of economics, which predicted that fiat currencies would destabilise the world economy, has won him few friends.

“People don’t like the Austrians because they are against big government, against armies and against the welfare state. To accept Austrian economics, you have to accept limitations of credit expansion and that is what has kept the government and financial firms in business for so long.”

However, his views are, for the first time, being taken seriously in Washington. Like another politician who recently aimed for high office, Al Gore, Mr Paul’s uncomfortable truths are starting to be deliberated at elevated political levels. “Before last summer, in meetings nobody really knew I was there. Now they often defer to me on economic matters. But you won’t catch any of them admitting that publicly – not yet at least.”

He believes that markets will fall much further and inflation rise much higher before his fellow politicians recognise that the system has failed. “We are likely to see an inflation depression,” Mr Paul says.

“In the 1970s, we had stagflation, but not depression. Inflation depression is what you see in Zimbabwe.”

Even Nouriel Roubini, the renegade economist whose once “extreme” views are now mainstream, fights shy of this analysis. The investment options arising from the analysis are no more palatable. In fact, according to Mr Paul, there is only one: gold.

Such an unproductive asset (unless you are a jeweller) appears unattractive even with the gold price having risen three-fold during the Bush administration. But Mr Paul argues that the current price of about $900/ounce could look cheap in a few years.

“It is not so much that gold will go up but that fiat currencies will go down,” he says. He even advocates a return to the gold standard, which he says is not as difficult as it sounds to achieve.

Mr Paul, it should be noted, first invested in gold nearly 40 years ago when it was worth $35/ounce and holds a part of his wealth in the metal. But he is not alone: gold exchange traded commodities have seen record inflows in the past six months, most wealth managers now recommend a core holding and central banks are loath to sell their quotas. Indeed, Russia has even announced it is buying gold.

Nevertheless, most large institutions, including pension funds, have little or no gold holdings. Mr Paul argues this is a mistake and decries the widely held view that gold is an anachronism.

“Gold is natural money and has been for 6,000 years,” he says.

“You just can’t repeal those laws. A scrap of paper, which the government can just add a nought to, will not do.” He does not, though, expect the mainstream investment industry and its advisers to rush to the bullion vaults.

[Nevada_Ballin]

Ron Paul is a nut........ citing a 1921 "mini-depression" as a reason why this "recession" will last 15 years. What indicates a "mini-depression"?

anyways... i was looking for things that were done during the 30's that righted that righted the ship and could work today (if any, times may have changed too much for any of it to apply).


.

[sanantonio]

Ron Paul is a nut........ citing a 1921 "mini-depression" as a reason why this "recession" will last 15 years. What indicates a "mini-depression"?

anyways... i was looking for things that were done during the 30's that righted that righted the ship and could work today (if any, times may have changed too much for any of it to apply).


.

Nevada nothings changed in the way that money works and we are at the end of the rope my brother. Now you can hang on to your beliefs and that's ok but in the end that's all you'll have left is your beliefs. America has had more then one depression my friend, of course we only remember the big one.

Laissez-faire was, roughly, the traditional policy in American depressions before 1929. The laissez-faire precedent was set in America's first great depression, 1819, when the federal government's only act was to ease terms of payment for its own land debtors. President Van Buren also set a staunch laissez-faire course, in the Panic of 1837. Subsequent federal governments followed a similar path, the chief sinners being state governments, which periodically permitted insolvent banks to continue in operation without paying their obligations.[1] In the 1920–1921 depression, government intervened to a greater extent, but wage rates were permitted to fall, and government expenditures and taxes were reduced. And this depression was over in one year – in what Dr. Benjamin M. Anderson has called "our last natural recovery to full employment."

...and what Ron Paul is saying and has been proven is that government intervention doesn't work it only slows the process and doesn't allow for natural correction to take place. Which is why he say's this depression will last 15 years due to all of the bail outs and additional government intervention. Ron's not crazy the American people and Congress are the one's that are insane.

[Nevada_Ballin]

Nevada nothings changed in the way that money works and we are at the end of the rope my brother. Now you can hang on to your beliefs and that's ok but in the end that's all you'll have left is your beliefs. America has had more then one depression my friend, of course we only remember the big one.



...and what Ron Paul is saying and has been proven is that government intervention doesn't work it only slows the process and doesn't allow for natural correction to take place. Which is why he say's this depression will last 15 years due to all of the bail outs and additional government intervention. Ron's not crazy the American people and Congress are the one's that are insane.

We aren't in a depression...........

Stock Market up 274 at the time of this post.
.

[sanantonio]

Nevada nothings changed in the way that money works and we are at the end of the rope my brother. Now you can hang on to your beliefs and that's ok but in the end that's all you'll have left is your beliefs. America has had more then one depression my friend, of course we only remember the big one.



...and what Ron Paul is saying and has been proven is that government intervention doesn't work it only slows the process and doesn't allow for natural correction to take place. Which is why he say's the coming depression will last 15 years due to all of the bail outs and additional government intervention. Ron's not crazy the American people and Congress are the one's that are insane.

originally posted by Nevada_Ballin
We aren't in a depression...........

Stock Market up 274 at the time of this post.


My bad fixed it. By the way that market number is up due to artificial stimulus my friend don't count on that for the long haul.

[TheSphinx 2.0]

We aren't in a depression...........

Stock Market up 274 at the time of this post.
.

LOL using interday moves in the stock market to prove a point about the economy...priceless...

...because you know during the great depression the stock market obviously went down every single day in a straight line...there were never any up days or weeks or months becuase if there were then that would mean we weren't in a depression...

...too rich...

-TS

[Nevada_Ballin]

My bad fixed it. By the way that market number is up due to artificial stimulus my friend don't count on that for the long haul.

no it isn't, it's up on the release of how toxic assets are going to be handled... financial community seems to be approving worldwide. This is good news... now we'll have to wait and see if 1) it's sustainable and 2) if it works. But all in all, it's good news. Banks are feeling confident that they can start lending some more.

[sanantonio]

no it isn't, it's up on the release of how toxic assets are going to be handled... financial community seems to be approving worldwide. This is good news... now we'll have to wait and see if 1) it's sustainable and 2) if it works. But all in all, it's good news. Banks are feeling confident that they can start lending some more.

It's artificial in the sense that the government shouldn't be doing anything about the toxic assets.