Tag Archives: Great Depression

The Economic Superbowl: 1920-1921 versus 1930-1931, by George F. Smith

Posted on December 13, 2022 | Leave a comment

How to stop a depression in it’s tracks, and how to prolong one. From George F. Smith at lewrockwell.com:

It’s been said there’s no such thing as a controlled experiment in the social sciences, including economics.  But we had something close to a laboratory experiment back in 1920-1921 and 1930-1931.

In each of these periods there was a depression.  Unemployment was high – for awhile — it was higher in the 1920s than in the 1930s.  Prices were falling in both periods.

In the 1920-21 depression, the Federal Reserve Bank of New York crashed the monetary base, thereby reducing the money stock, and jacked interest rates to record highs.

In the 1930-1931 depression, the federal reserve gradually increased the monetary base and lowered the interest rate.

In the 1920-21 period the government slashed spending and allowed nominal wages to fall.

In the 1930-31 depression the government increased spending and deficits while pressuring industrial leaders to maintain wage rates.

Tax Policies

Coming out of World War I the highest marginal income tax rate was 77%.  First Harding, then Coolidge (following Treasury secretary Andrew Mellon’s advice) lowered tax rates steadily in the early 1920s.  By 1925 the highest tax rate was around 25%.  Tax receipts began to climb, as people stopped playing defense and looked for ways to grow their income.  As incomes increased, so did tax revenue in spite of the lower rates.

In 1932, Hoover pushed through one of the highest peacetime tax increases in U.S. history.  A person making above a million dollars in 1931 could keep 75 cents on the dollar; a year later the amount plunged to 37 cents.  In the lowest bracket, rates more than doubled.  Along with this were countless taxes on items that had never been taxed.  From 1931 – 1933, revenue from the individual income tax dropped by more than half.  By 1933, the economy was at the depth of the Depression.

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An Incompetent Federal Reserve Board Caused the Great Depression and the New Deal that Gave Congress’ Power to New Executive Branch Regulatory Agencies, by Paul Craig Roberts

Posted on November 20, 2022 | Leave a comment

The New Deal helped transform the U.S. government from mostly benign to the monstrous blob we know and hate today. From Paul Craig Roberts at paulcraigroberts.org:

An Incompetent Federal Reserve Board Caused the Great Depression and the New Deal that Gave Congress’ Power to New Executive Branch Regulatory Agencies. The 1930s saw the Great Depression used to vitiate legislative power and put it into the hands of executive branch agencies.  It was a major step in destroying the accountability of government.

The Fed’s “Depression” and the Birth of the New Deal

Market failure reconsidered

Paul Craig Roberts, Wm. E. Simon Chair in Political Economy, Center for Strategic and International Studies,  Senior Research Fellow, Hoover Institution, Stanford University, and Chairman, Institute for Political Economy

Lawrence M. Stratton, Research Fellow, Institute for Political Economy

Published in 2001 by the Hoover Institution, Stanford University, in Policy Review (No. 108)

According to new deal historians, capitalism failed in the 1930s. What, then, is it doing flourishing in the United States, Britain, and Europe and taking root in Latin America and China, where it was never previously present? For the past 20 years there has been a large and growing incompatibility between the verdicts of historians and the performance of capitalism.

In 1981 the United States reduced tax rates and reined in money growth. For two decades the economy has experienced an economic boom characterized by large income gains, high employment, and negligible inflation. In the U.K. similar reforms introduced by Margaret Thatcher have produced similar results. Heavily socialized countries such as France, Italy, and Spain have abandoned public ownership and privatized their economies. Political regimes in Eastern Europe and the Soviet Union, where a planning model had operated, failed both economically and politically and collapsed. Capitalism has appeared in Latin America and has taken hold of the Mexican, Chilean, and Argentinean economies. Even China’s rulers have found it necessary to risk their political power by endorsing markets and private property in order to participate in the global economy.

Big government (in terms of its presence in the economy) is everywhere in retreat. A Democratic president, Bill Clinton, declared that “the era of big government is over.” Yet the history books and much analysis of public policy during the 1930s remain unadjusted and still proclaim the failure of capitalism. The disconnect between historians and reality grows with each passing day, because historians cannot explain the Great Depression except in terms of capitalism’s failure.

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The Great Depression II, by Jeff Thomas

Posted on March 20, 2022 | Leave a comment

The coming second Great Depression will be worse than the first. From Jeff Thomas at internationalman.com:

Whenever a movie has been a huge hit, the film industry tries to follow it up by doing a sequel. The sequel is almost invariably far more costly, as there’s the anticipation by those who create it that it will be an even bigger blockbuster than the original.

The Great Depression of the 1930’s is seen by most people to be the be-all and end-all of economic catastrophes and there’s good reason for that. Although the economic cycle has always existed, the period leading up to October 1929 was unusual, as those in the financial sector had become unusually creative.

Brokers encouraged people to buy into the stock market as heavily as they could afford to. When that business began to level off, they encouraged people to buy on margin. The idea was that the buyer would only put up a fraction of the money for the purchase and the broker would “guarantee” full payment to the seller. As a condition to the agreement, the buyer would have to relinquish to the broker the right to sell his stock at any point that he wished, should he feel the need to do so to get himself off the hook in the event of a significant economic change.

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2020—2022 versus 1929—1932, by Alasdair Macleod

Posted on July 23, 2021 | Leave a comment

If the earlier period is an analogue, then we’re headed for a severe depression. From Alasdair Macleod at goldmoney.com:

Current levels of equity markets are not only divorced from their underlying economic and business realities but are repeating the madness of crowds that led to the Wall Street crash of 1929—1932. The obvious difference is in the money: gold-backed dollars then compared with unbacked fiat today.

We can now begin to see how markets and monetary events are likely to develop in the coming months and this article provides a rough sketch of them. Obviously, the financial asset bubble will be burst by rising interest rates, the consequence of rising prices for consumer essentials. Fiat currencies will then embark on a path towards worthlessness because the monetary authorities around the world will redouble their efforts to prevent interest rates rising, bond yields rising with them, and equity values from collapsing; all by sacrificing their currencies.

The ghost of Irving Fisher’s debt-deflation theory will soon be uppermost in central bankers’ minds, preventing them from following anything other than a radically inflationary course regardless of the consequences.

Current views that tapering must be initiated to manage the situation miss the point. More QE and even direct purchases of bonds and equities are what will happen, policies that will certainly fail.

Anyone seeking to survive these unfolding conditions will be well advised to put aside some sound money — physical gold and silver.


Introduction

In the past I have compared the current market situation with 1929, when the US stockmarket suffered a major collapse that October. With memories short today, many will have even forgotten that between 12 February and 23 March last year the Dow Jones Industrial Index fell 38.4% top to bottom in less than six weeks, paralleling the 66% fall between 4 September and 13 November 1929 on an eerily similar timescale. Figure 1 shows the Dow of ninety years ago superimposed on top of that of today, shifted so that November 1929 coincides with March last year.

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Doug Casey: Comparing the 1930s and Today

Posted on February 4, 2021 | 1 comment

America is a lot less able to handle the Greater Depression that has already begun than it was to handle the Great Depression in the 1930s. From Doug Casey at internationalman.com:

1930s and Today

You’ve heard the axiom “History repeats itself.” It does, but never in exactly the same way. To apply the lessons of the past, we must understand the differences of the present.

During the American Revolution, the British came prepared to fight a successful war—but against a European army. Their formations, which gave them devastating firepower, and their red coats, which emphasized their numbers, proved the exact opposite of the tactics needed to fight a guerrilla war.

Before World War I, generals still saw the cavalry as the flower of their armies. Of course, the horse soldiers proved worse than useless in the trenches.

Before World War II, in anticipation of a German attack, the French built the “impenetrable” Maginot Line. History repeated itself and the attack came, but not in the way they expected. Their preparations were useless because the Germans didn’t attempt to penetrate it; they simply went around it, and France was defeated.

The generals don’t prepare for the last war out of perversity or stupidity, but rather because past experience is all they have to go by. Most of them simply don’t know how to interpret that experience. They are correct in preparing for another war but wrong in relying upon what worked in the last one.

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The new deal is a bad old deal, by Alasdair Macleod

Posted on July 13, 2020 | 3 comments

The Internet’s best economist explains why the New Deal was a huge mistake, and why we’re about to repeat it, except this time only huger. From Alasdair Macleod at goldmoney.com:

So far, the current economic situation, together with the response by major governments, compares with the run-in to the depression of the 1930s. Yet to come in the repetitious credit cycle is the collapse in financial asset values and a banking crisis.

When the scale of the banking crisis is known the scale of monetary inflation involved will become more obvious. But in the politics of it, Trump is being set up as the equivalent of Herbert Hoover, and presumably Joe Biden, if he is well advised, will soon campaign as a latter-day Roosevelt. In Britain, Boris Johnson has already called for a modern “new deal”, and in his “Hundred Days” his Chancellor is delivering it.

In the thirties, prices fell, only offset by the dollar’s devaluation in January 1934. This time, monetary inflation knows no limit. The wealth destruction through monetary inflation will be an added burden to contend with compared with the situation ninety years ago.

Introduction

Boris Johnson recently compared his reconstruction plan with Franklin D Roosevelt’s New Deal. Such is the myth of FDR and his new deal that even libertarian Boris now invokes them. Unless he is just being political, he shows he knows little about the economic situation that led to the depression.

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When Giants Fall, by James Howard Kunster

Posted on May 22, 2020 | 1 comment

The Greater Depression has resumed after its hiatus since 2009. Will the economy that emerges be more decentralized and localized? It’s a good bet that it will. From James Howard Kunstler at kunstler.com:

It was only a few decades ago that Walmart entered the pantheon of American icons, joining motherhood, apple pie, and baseball on the highest tier of the altar. The people were entranced by this behemoth cornucopia of unbelievably cheap stuff packaged in gargantuan quantities. It was something like their participation trophy for the sheer luck of being born in this exceptional land, or having valiantly clawed their way in from wretched places near and far ­— where, increasingly, the mighty stream of magically cheap stuff was manufactured.

The evolving psychology of Walmart-ism had a strangely self-destructive aura about it. Like cargo cultists waiting on a jungle mountaintop, small town Americans prayed and importuned the gods of commerce to bring them a Walmart. Historians of the future, pan-frying ‘possum cutlets over their campfires, will marvel at the potency of their ancestors’ prayers. Every little burg in the USA eventually saw a Walmart UFO land in the cornfield or cow-pasture on the edge of town. Like the space invaders of sci-fi filmdom, Walmart quickly killed off everything else of economic worth around it, and eventually the towns themselves. And that was where things stood as the long emergency commenced in the winter of early 2020, along with the Covid-19 corona virus riding shotgun on the hearse-wagon it rolled in on.

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No One Gets Out of Here Alive, by Jim Quinn

Posted on February 16, 2020 | Leave a comment

It’s just about time for the Fourth Turning to resume in earnest. From Jim Quinn at theburningplatform.com:

“The seasons of time offer no guarantees. For modern societies, no less than for all forms of life, transformative change is discontinuous. For what seems an eternity, history goes nowhere – and then it suddenly flings us forward across some vast chaos that defies any mortal effort to plan our way there. The Fourth Turning will try our souls – and the saecular rhythm tells us that much will depend on how we face up to that trial. The saeculum does not reveal whether the story will have a happy ending, but it does tell us how and when our choices will make a difference.”  – Strauss & Howe – The Fourth Turning

As we wander through the fog of history in the making, unsure who is lying and who is telling the truth, seemingly blind to what comes next, I look to previous Fourth Turnings for a map of what might materialize during the 2nd half of this current Fourth Turning. After a tumultuous, harrowing inception to this Crisis in 2008/2009, we have been told all is well and are in the midst of an eleven-year economic expansion, with the stock market hitting all-time highs.

History seemed to stop and we’ve been treading water for over a decade. Outwardly, the establishment has convinced the masses, through propaganda and money printing, the world has returned to normal and the future is bright. I haven’t bought into this provable falsehood. Looking back to the Great Depression, we can get some perspective on our current position historically.

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Will the Federal Reserve Make Trump a New Herbert Hoover? Is the US Economy Primed for a 1929-Style Shock? by F. William Engdahl

Posted on October 11, 2019 | 1 comment

The US has so much debt that even a minor economic perturbation can cause an cataclysm. From F. William Engdahl at lewrockwell.com:

In recent months US President Trump has pointed repeatedly to his role in making the American economy the “best ever.” But behind the extreme highs of the stock market and the official government unemployment data, the US economy is primed for a 1929-style shock, a financial Tsunami that is more influenced by independent Fed actions than by anything that the White House has done since January 2017. At this point the parallels between one-time Republican President Herbert Hoover who presided over the great stock crash and economic depression that was created then by the Fed policies, and Trump in 2019 are looking ominously similar. It underscores that the real power lies with those who control our money, not elected politicians.

Despite proclamations to the contrary, the true state of the US economy is getting more precarious by the day. The Fed policies of Quantitative Easing and Zero Interest Rate Policy (ZIRP) implemented after the 2008 crash, contrary to claims, did little to directly rebuild the real US economy. Instead it funneled trillions to the very banks responsible for the 2007-8 real estate bubble. That “cheap money” in turn flowed to speculative high-return investment around the world. It created speculative bubbles in emerging market debt in countries like Turkey, Argentina, Brazil and even China. It created huge investment in high-risk debt, so called junk bonds, in the US corporate sector in areas like shale oil ventures or companies like Tesla. The Trump campaign promise of rebuilding America’s decaying infrastructure has gone nowhere and a divided Congress is not about to unite for the good of the nation at this point. The real indicator of the health of the real economy where real people struggle to make ends meet lies in the record levels of debt.

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An Inflationary Depression, by Alasdair Macleod

Posted on October 5, 2019 | 1 comment

The current times bears some ominous parallels to the 1929-1932 period. From Alasdair Macleod at goldmoney.com:

Financial markets are ignoring bearish developments in international trade, which coincide with the end of a long expansionary phase for credit. Both empirical evidence from the one occasion these conditions existed in the past and reasoned theory suggest the consequences of this collective folly will be enormous, undermining both financial asset values and fiat currencies.

The last time this coincidence occurred was 1929-32, leading into the great depression, when prices for commodities and output prices for consumer goods fell heavily. With unsound money and a central banking determination to maintain prices, depression conditions will be concealed by monetary expansion, but still exist, nonetheless.

Introduction

The unfortunate souls who are beholden to macroeconomics will read this article’s headline as a contradiction, because they regard inflation as a stimulant and a depression as the consequence of deflation, the opposite of inflation.

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