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  • From: bob ford <bobford79 AT yahoo.com>
  • To: homestead AT lists.ibiblio.org
  • Subject: [Homestead] 'Not' your grandfather's depression
  • Date: Fri, 17 Oct 2008 17:01:37 -0700 (PDT)

Peter Schiff has been on the mainstream meadia a lot lately, because he was
the first legitimately recognized investment pro who started screaming about
the (now present) economic disaster. He wrote a book about his forcast
called Crashproof, in early 2007. .......bobford

This is from today:
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" October 17, 2008

Not Your Grandfather’s Depression


The current stock market crash has spurred a vital national debate about the
causes and catalysts of the Great Depression. The dominant school of thought
believes that the stubborn refusal of then president Herbert Hoover to
intervene after the stock market crash of 1929, and his preference for free
market solutions, led directly to the ensuing decade-long catastrophe.
Through this lens, our leaders assure us that the most recent raft of
government measures will prevent another episode of bread lines, Hoovervilles
and pencil salesmen. As usual they have it completely wrong. In my view, the
Depression was created precisely because Hoover followed the path that our
government is now taking.

When the stock market bubble of the Roaring Twenties (which was created as a
result of the loose monetary policy of the newly created Federal Reserve)
finally popped, Hoover would not allow market forces to correct the
imbalances. His policies were aimed at propping up unsound businesses,
artificially supporting prices, particularly wages, and providing Federal
funds for public works projects. These moves went well beyond the progressive
reforms of Teddy Roosevelt, and established Hoover as the most
interventionist president ever up to that point. In fact, much of what
eventually became the New Deal had its roots in Hoover’s policies.

However, at the time, there were those who recommended a different course.
Andrew Mellon, the long-serving Secretary of the Treasury whom Hoover had
inherited from the prior two Republican Administrations, was labeled by
Hoover as a “leave it alone isolationist” who wanted to “liquidate labor,
liquidate stocks, liquidate the farmers, and liquidate real estate.” Hoover
would have none of it. In fact, during his nomination speech for a potential
second term, Hoover bragged “We determined that we would not follow the
advice of the bitter liquidationists and see the whole body of debtors of the
United States brought to bankruptcy and the savings of our people brought to
destruction.”

Hoover chose to ignore the sound advice of his Treasury Secretary (in
contrast to today where the current Treasury Secretary Henry Paulson is
actually leading the charge over the cliff) and instead used every tool at
his disposal to “fix” the problem. As a result, rather than allowing a
recession to run its course, with healthy and rapid liquidations of the
mal-investments built up during the boom, Hoover inadvertently created what
became the Great Depression.

When Roosevelt took office he continued the same failed policies only on a
grander scale. The magnitude and the idiocy of many New Deal programs, such
as the wage and price setting National Recovery Administration (NRA),
compounded the problems. So while Mellon’s advice would have caused a sharp
but relatively brief economic downturn (which occurred after the Panic of
1907, for example), the Depression plodded on for nearly a decade until the
country began gearing up for the Second World War.

In an amazing feat of revisionist history, somehow Hoover’s interventionist
policies have been completely forgotten. It is taken as fundamental that his
inaction led to the Depression and Roosevelt’s “heroics” got us out.
Unfortunately, since we have learned nothing from history, we are about to
repeat the very mistakes that lead to the most dire economic circumstance of
the last century.

A major difference however, is that the structure of the U.S economy today is
far weaker than it was in the fall of 1929. Years of reckless consumer
borrowing and spending, and enormous trade and budget deficits have resulted
in a hollowed out industrial base and an unmanageable mountain of debt owed
to foreign creditors. Instead of the support of a strong currency backed by
gold, the public now must deal with a modern Fed free to print as much money
as politicians want. So rather than getting the benefits of falling consumer
prices (as happened during the Depression), consumers today will contend with
much higher consumer prices, even as the economy contracts.

With Barack Obama now waiting in the wings to conjure a newer New Deal, far
larger than even FDR could have imagined, and at a time when we cannot even
afford the old one, this will not be your grandfather’s Depression. It may be
much worse.



For a more in depth analysis of our financial problems and the inherent
dangers they pose for the U.S. economy and U.S. dollar denominated
investments, read my new book “Crash Proof: How to Profit from the Coming
Economic Collapse.”

http://www.europac.net/externalframeset.asp?from=home&id=14347

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  • [Homestead] 'Not' your grandfather's depression, bob ford, 10/17/2008

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