Economic Plan based on history

[glenn kangiser]

John {Redover] sent me a current economic plan - oh  - wait ... its the old one from 1934...

This plan has been in effect for a very long time...




This  cartoon was in  the Chicago Tribune in 1934.  Look carefully at the plan of action in  the  lower left corner.

"Those who forget history are doomed to repeat it."



    The Constitution is not an instrument for government to
    restrain the people, it is an instrument for the people
    to restrain the government, lest it come to dominate
    our lives and interests. -Patrick Henry

    The rights of the individuals are restricted only to the
    extent that they have been voluntarily surrendered by the
    citizenship to the agencies of government.

[ScottA]

Yup.

[Squirl]

Isn't that exactly what they did?
Wasn't there this "pinkie from Harvard" named Roosevelt?
How did that work out from 1934-1940?

[glenn kangiser]

"The economy improved rapidly from 1933 to 1937, but then went into a deep recession."


http://en.wikipedia.org/wiki/Franklin_D._Roosevelt

I guess we have seen the improvement as the banks were bailed out.

Don't get me wrong.  I don't think one side is better than the other.  The puppets strings are all pulled by the same master.

I think they want the world in such a state that all will ask for a NWO.   One world government.  When we are successful, and we will be......

http://www.youtube.com/watch?v=Rc7i0wCFf8g

Obama continues  the march.. http://www.youtube.com/watch?v=xe7Gf1H0hmg&feature=fvw

Hmm... the false flag attack at Pearl Harbor occurred during FDR's tenure also.....

http://georgewashington.blogspot.com/2006/02/false-flags-in-america.html

[Ajax]

Isn't that exactly what they did?
Wasn't there this "pinkie from Harvard" named Roosevelt?
How did that work out from 1934-1940?

It worked quite well

Year   GDP    Change   Govt    Change 1929   103.6    NA       1.7     NA 1930   91.2   -12.0%   1.8     5.9% 1931   76.5   -16.1%   1.9     5.6% 1932   58.7   -23.3%   1.8    -5.3% 1933   56.4    -3.9%    2.3    27.8% 1934   66.0    17.0%   3.3    43.5% 1935   73.3    11.1%   3.4     3.0% 1936   83.8    14.3%   5.6    64.7% 1937   91.9     9.7%   5.1    -8.9% 1938   86.1    -6.3%   5.7    11.8% 1939   92.2     7.1%   6.0     5.3% 1940   101.4   10.0%   6.5      8.3%

FDR took office in March of 33.  From 1933 until 1940 GDP grow at an average of 8.7% per year.  GDP only fell in one year, 1937, after federal spending was cut in 1936.  The New Deal worked.

[muldoon]

I think Carlin said it best when he said, "it's a big club and you aint in it".

Nothing new here at all.  You can say the new deal worked, and for some it certainly did work.  The government heaped out a lot of cheese to many folks.  But where did that money come from?  There is no free lunch, the government cannot spend without limits because the government does not "create wealth".  the money the government used for the new deal was wealth extracted from the country. 

Who got the money?  The "First New Deal" in 1933 went to banks and railroads.  (not too much unlike ours banks & car companies).
The "Second New Deal" from 1934-36 went to create labor unions (the Wagner act), WPA works programs, social security, SEC, programs for migrant workers,
The "Third New Deal" in 1937 was the United States Housing authority, Agriculture adjustment act, FDIC, TVA and others.   

So the government bought down interest rates penalizing savers, confiscated gold, raised taxes, increased regulations, and gave the money to the people politically connected.  Literally they took wealth from the country via taxation, direct confiscation or via inflation and debt - then gave it to themselves and their choosen few. 

It worked for who? Maybe if they had not intervened the "great depression" would have looked alot more like 1987 where the event was all of 4 months in lenght.  There are all kinds of unintended consequences when you through away rule of law, encourage fraud, and reward criminals.  The downside is that people tend to not trust others because there is no recourse when they are defrauded.  So assets decline, money multiplier drops, investing falls, and without capital formation you do not get jobs. 

According to the fed government we left the recession in June of 2009 so I guess the plan worked this time to.  It works alright, it works exactly like it was designed to work. 

[archimedes]

http://www.nytimes.com/2010/10/01/business/01tarp.html?_r=1&scp=2&sq=tarp&st=cse

[Ajax]

Maybe if they had not intervened the "great depression" would have looked alot more like 1987 where the event was all of 4 months in lenght. 

By the time FDR took office we were 40 months into the depression.  To that point in time the response of the Hoover administration and the FED had been to do nothing.  As a result, the economy continued to circle the drain.  To state that it could have been similar to 1987 is not supported by the facts.  1987 was a stock market issue, the depression was the entire economy.

[muldoon]

Ajax, I think we have different viewpoints. 

All of the three events relate to fraud and overabundance of credit - materially credit and credit derivitives with no underlying asset to cover the decline in said asset.  1987 was indeed a credit event, specifically tied to junk bonds which are not that unlike MBS of this go-round.  While you may think it was a single day stock market drop, ask Japan how what it did to their entire economy.   1987 was directly attributed to portfolio insurance, aka hedging, aka todays swaps.  1987 directly wiped out huge numbers of banks, and some countries jumped in to save their banks and crashed because of it.  Others like the us under Reagan did nothing and recovered in a year.   It is specifically because of the lack of interaction that we had a market blip as assets were revalued and it was over.   Your solution of taking from the productive to give to the bankrupt leads to incentivizing poor choices (moral hazard) and stifling growth.  Without capital formation there are no jobs, when creating jobs is punished it wont happen. 

[muldoon]

I had to find a good source before making this statement.. 

By the time FDR took office we were 40 months into the depression.  To that point in time the response of the Hoover administration and the FED had been to do nothing.  As a result, the economy continued to circle the drain. 

Factually incorrect, the fed purchased securities and commodities all along starting in June 1930. 

From page 304, meeting minutes of the fed:

http://books.google.com/books?id=190xVQDRtHAC&pg=PA304&lpg=PA304&dq=fed+minutes+%22june+1930%22&source=bl&ots=lXcHZszv7g&sig=_UtvXR8wUAsWNg59gCeufI7ftHY&hl=en&ei=FzurTNvdLoSclgedg7n0CA&sa=X&oi=book_result&ct=result&resnum=2&ved=0CBUQ6AEwAQ#v=onepage&q&f=false

Note what happens as a result of this policy -- go to the second paragraph in page 311:

[muldoon]

or another source, if you desire.

http://www.amazon.com/Forgotten-Man-History-Great-Depression/dp/0066211700

The Forgotten Man by Amity Shlaes

Amity Shlaes's The Forgotten Man: A New History of the Great Depression is a skillful, understated corrective to this partisan interpretation. A senior fellow at the Council on Foreign Relations and a syndicated financial columnist, Shlaes does not tackle previous accounts head-on, nor does she advance a general interpretation of her own. Instead, she tells the story of the Great Depression and the New Deal through the experiences of some of the more influential figures of the period—Roosevelt men like David Lilienthal, Rexford Tugwell, Henry Morgenthau, Felix Frankfurter, and Harold Ickes; businessmen and bankers like Andrew Mellon, Samuel Insull, and Wendell Willkie—and of genuinely "forgotten men" like the Schechter family of Brooklyn, small-businessmen who ran afoul of FDR's regulatory ambitions.

What emerges from these stories is a New Deal that was more experimental in its policies, more hostile to business, more vindictive toward its foes, and far less successful in reviving the economy than previous writers have acknowledged. The sluggish economic response to New Deal policies, Shlaes suggests, was due partly to Roosevelt's need to bait businessmen and bankers for their supposed role in bringing about the crisis. They were "economic royalists" who had hoarded profits, exploited workers, fixed prices, and grown rich by speculation. FDR even egged on Morgenthau, his Treasury Secretary, to initiate tax-evasion cases against Mellon and Thomas Lamont (the head of J.P. Morgan), going so far as to urge prosecution for their having taken deductions that were perfectly legal when their tax returns were filed.

As for Roosevelt's policies themselves, part of the "second" New Deal in 1935 was an undistributed-profits tax, which forced businesses to disgorge proceeds typically withheld for investment. That same year, the Wagner Act, authorizing a process of collective bargaining between unions and business, led to a rapid increase in wages—and thus in corporate costs. As Shlaes emphasizes, the New Dealers tended to see business as an institution to be squeezed rather than as a source of investment, invention, and growth. Their moves against private enterprise, and their threats to regulate large sectors of the economy, created a political climate hostile to investment.
If there is a hero in Shlaes's account, it is Wendell Willkie, who supported FDR in 1932 but emerged later in the decade as the most articulate critic of the New Deal. As the president of Commonwealth and Southern, a large utilities holding company, Willkie clashed with David Lilienthal, FDR's hand-picked director of the newly created Tennessee Valley Authority, over the extent to which the new entity would compete with private companies in the distribution and sale of electric power. Lilienthal eventually got the better of Willkie, who was forced in 1939 to sell Commonwealth and Southern to the government.

Having seen at first hand the danger posed by federal intervention in the economy, Willkie won a large following with books, articles, and speeches challenging the anti-business premises of the New Deal and arguing that production and growth fit the needs and wishes of Americans far better than did redistribution. The idea of America, Willkie argued, was to encourage private enterprise, not to make war on it. So compelling was his case that he persuaded the Republican convention to nominate him in 1940 to run against Roosevelt on the issue of the government's proper role in the economy.

With Hitler on the march in Europe, however, and Britain under siege, voters were preoccupied with issues of war and peace—on which Willkie differed very little from FDR. Though unsuccessful in dislodging the President, Willkie's campaign suggested that, in its domestic interventionism and its animus against business, the New Deal had gone too far.

Nothing new under the sun.  The machine is working exactly as intended. 

[Pox Eclipse]

I know it is not what you intended, but that cartoon reinforces my conviction that the federal government has not spent enough, and rational people should ignore the shouters who are unwilling to learn from history.

If the Great Depression taught us anything it is that not only can we spend our way out of depression, we must.  Cutting spending only makes it worse.  There will be consequences as a result of the debt, but inflation and higher taxes are not the worst things that could happen to your grandchildren.  At least they will have jobs, and hope for the future.

Perhaps this time we will learn the hard lesson that tax cuts without spending cuts, unfunded wars and deregulation are the road to ruin.

[muldoon]

I dont really have too big an issue with spending, it is the manner in which it is being spent that I have a problem with.

Had we spent dollars on roads, damns, schools, power plants, waterways and other infrastructure I think I would agree with your point.  Instead of giving 700billion to banks if we had said the US needs banks, FDIC insurance is unlimited for demand and savings accounts, we are funding 10 new banks with clean balance sheets to provide stable service.  If if if.

But that's not what happens.  It's lets reward the very people who created the situation.  Let's make sure they have incentive to do it again, and again.  Let's not indict a single C level exec at any bank or insurance company.  Lets change FASB accounting so no one goes to jail.  Let's inflate and destroy the savers and fixed income folks.  I can agree with the concept of the government stepping in to keep the wheels going to some extent, but what I cannot and will not accept is that corruption should be rewarded via that channel.  That it is ok to steal from the people making good choices to reward those who made bad choices.  And in the process of doing so, guarentee that the monetary policy remains broken for a decade.  Thats my fundamental view on it. 

[Pox Eclipse]

Had we spent dollars on roads, damns, schools, power plants, waterways and other infrastructure I think I would agree with your point.  Instead of giving 700billion to banks if we had said the US needs banks, FDIC insurance is unlimited for demand and savings accounts, we are funding 10 new banks with clean balance sheets to provide stable service.  If if if.

 

I have no argument with you there.  The initial TARP bailouts were misdirected, and should have gone into the things you mentioned.  However, much of those has been repaid, and should be now be reinvested on infrastucture and job creation.

[muldoon]

Pox, I love how you stick to your views.  I honestly do. 

I would offer two statements that I find to be truth, I am curious if you disagree with either of them in principle.

1) the government cannot give anything to anyone without taking it from someone else first.
2) you cannot spend and borrow your way to prosperity. 

The government or the fed cannot spend money without repercussions.  Printing or QE devalues the dollar.  They are taking the value of the outstanding dollars.  Taxation, confiscation, regulation, fees, permits ..  all are forms of diverting money from one sector into the government coffers.  That the government then spends it does not make it "free money".  It means that money was first removed from capital formation, and then redistributed with some "cut" removed from it.  The net effect being for every dollar redistributed, some of it was lost.  A net lose.  You can see the effects of such policies by watching the velocity of money. 

As for the second entity, show me how debt can be used successfully in that capacity on any level, personal, corporate, small business, city, county, state, federal, any sovereign, where anywhere does this approach work? 

The combination of ignoring both looks dangerous to me, but it is exactly the course you and others are cheering for.  Do you believe either of the above statements are accurate?  If lies and manipulated rates and papering over losses is the answer, can you explain why the Nikkei is still 25% of it's original highs after 20 years of the same approach?  Why did Japan never leave their recession after nearly two decades of this approach? 

If spending is the answer, why was there a debt crises in Europe?  Because you cannot spend yourself into prosperity.  However, spending .. err let's be intellectually honest here...  stealing and giving the money to the people who create the problem is very profitable.  In fact, one may soon enough get the idea that after several dozen sovereign crashes with the same people involved in every single one of them, one may soon get the idea that this is exactly the intended result.  And that intended result is to extract wealth of a nation from citizens and deliver it to the banks.  And every call for bailouts and spend more, spend more, spend more in the name of "helping the people" all lead down the same road. 

[MountainDon]

I would offer two statements that I find to be truth, I am curious if you disagree with either of them in principle.

1) the government cannot give anything to anyone without taking it from someone else first.
2) you cannot spend and borrow your way to prosperity. 

How can anyone not agree with those?