Second Great Depression Looming?

[AquaAthena]

9/3/2010

Economist and New York Times columnist Paul Krugman, has this to say in The Times earlier this summer, declaring that those opposing more government spending were pointing us towards disaster: "It raises memories of 1937, when F.D.R.’s premature attempt to balance the budget helped plunge a recovering economy back into severe recession."

Snip:

Does the 1937-38 economic collapse, the so-called "depression within the Depression" offer any lessons on what we should do now? In 1937, it seemed that things were improving, some light was seen in the Great Depression, but unemployment suddenly jumped from 14.3 percent in June 1937 to 19 percent in June 1938. With the unemployment rate stuck at 9.6 percent, the Obama administration is planning to unveil what would be its third stimulus package. Supporters are pointing to the late 1930s to justify yet another increase government spending.

Today Keynesians are out in full force defending the massive $1.3 plus trillion deficit that we have run since Obama became president, warning that cutting it would lead to a scenario similar to what we saw in the late 30s.

Snip:

A recent Wall Street Journal survey during August of 53 prominent, forecasting economists provides something of a guideline. The view of 63 percent of the economists who opposed any more fiscal or monetary stimulus is summarized well by Stephen Stanley of Pierpont Securities: "The economy needs government to get out of the way."

And from economist John R. Lott:

The real lesson from the 1937-38 is that government made the situation much worse by always trying to fix things. Unfortunately, this is precisely what we have seen under Mr. Obama's presidency with the failed stimulus spending and all the regulatory chaos they have created.

More: FOXNews.com - Obama Is Repeating the Mistakes of the 1937 Economic Collapse

 

[Truthmatters]

Wrong, FDR backed of and tried to bring the budget into balance in 1937 due to public outcry.

The economy tanked and he had to reup the new deal programs.

then they economy began recovering again.

Its history.

Now where in history is an example of no government invention doing what you claim it will?

 

[AquaAthena]

Wrong, FDR backed of and tried to bring the budget into balance in 1937 due to public outcry.

The economy tanked and he had to reup the new deal programs.

then they economy began recovering again.

Its history.

Now where in history is an example of no government invention doing what you claim it will?

Good morning, Truthmatters Have a great holiday and thanks for your post.

Aqua*

 

[johnrocks]

Wrong, FDR backed of and tried to bring the budget into balance in 1937 due to public outcry.

The economy tanked and he had to reup the new deal programs.

then they economy began recovering again.

Its history.

Now where in history is an example of no government invention doing what you claim it will?

Digg - 1921 Depression: How "Doing Nothing" Saved America


FDR prolonged the depression;imho.

 

[code1211]

Wrong, FDR backed of and tried to bring the budget into balance in 1937 due to public outcry.

The economy tanked and he had to reup the new deal programs.

then they economy began recovering again.

Its history.

Now where in history is an example of no government invention doing what you claim it will?

Was there a debate within the FDR administation on whether to have a moderate Tax increase or go with th largest Tax Increase in History?

There are some today who want to sun set all of the Bush Tax Cuts, some who only want to penalize the rich and some who want to extend all of the tax cuts for anywhere from one year to pemanent.

"No government intervention" is not an option in this economy. It is only a matter of how big the intevention will be and form it will take.

Since every decision he has made so far has made things worse, I'd be tempted to find out what the Big 0 wants to do and then do the opposite. Whatever that is, it couldnt be worse than than recent history.

 

[edthecynic]

Just CON$ervative wishful thinking!

 

[loosecannon]

Digg - 1921 Depression: How "Doing Nothing" Saved America


FDR prolonged the depression;imho.

That is essentially what roubini is saying, that all the stimulus and bailouts have done is kick the can further down the block.

You can't fix insolvency with deficit spending.

 

[Madeline]

I realize it is popular now to posit that FDR's policies actually caused the Great Depression....but I dun think that most economists agree. I think that is still a radical POV, and personally it makes no sense to me.

There are a few things that happened then which don't seem to be happening now.

* The stock market collapsed. It was more than just plunging share prices. Lack of regulation led to a sudden loss in faith that intangible assets had value.

* The Dust Bowl caused the collapse of American agriculture and the displacement of millions.

* The entire world had a Great Depression, not just the US.

Comparatively speaking:

* We have a strong faith in our financial markets and so does the rest of the world.

* There's no pandemic or other widepsread natural disaster afflicting America (despite BP's best efforts).

* There's growing economic strength in other parts of the world, notably China.

I'm not convinced that it is still possible for the US to suffer another Great Depression. Severe recessions, yes...but nothing like the 1930's.

 

[Annie]

Wrong, FDR backed of and tried to bring the budget into balance in 1937 due to public outcry.

The economy tanked and he had to reup the new deal programs.

then they economy began recovering again.

Its history.

Now where in history is an example of no government invention doing what you claim it will?

Was there a debate within the FDR administation on whether to have a moderate Tax increase or go with th largest Tax Increase in History?

There are some today who want to sun set all of the Bush Tax Cuts, some who only want to penalize the rich and some who want to extend all of the tax cuts for anywhere from one year to pemanent.

"No government intervention" is not an option in this economy. It is only a matter of how big the intevention will be and form it will take.

Since every decision he has made so far has made things worse, I'd be tempted to find out what the Big 0 wants to do and then do the opposite. Whatever that is, it couldnt be worse than than recent history.

We have tried spending money. We are spending more than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get a job. I want to see people get enough to eat. 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!"--Secretary of Treasury FDR administration Henry Morgenthau Jr.

This in the 7th year of the FDR administration.

 

[Intense]

FDR, The Savior of Union and Government worker's .... which the rest of us paid dearly for.

 

[Samson]

I'm not convinced that it is still possible for the US to suffer another Great Depression. Severe recessions, yes...but nothing like the 1930's.[/FONT][/SIZE][/COLOR]

Here's what the Washington Times said in 2007:

Not a worsening economy

Seventy percent of Americans now say the economy is getting worse, a belief contradicted by a growing work force, increased wages and household wealth, and a stock-market rally that has boosted worker-retirement investments.

 

[johnrocks]

Digg - 1921 Depression: How "Doing Nothing" Saved America


FDR prolonged the depression;imho.

That is essentially what roubini is saying, that all the stimulus and bailouts have done is kick the can further down the block.

You can't fix insolvency with deficit spending.

Yep and the phrase "kick the can further down the block" is a great point.

 

[Samson]

Digg - 1921 Depression: How "Doing Nothing" Saved America


FDR prolonged the depression;imho.

That is essentially what roubini is saying, that all the stimulus and bailouts have done is kick the can further down the block.

You can't fix insolvency with deficit spending.

Yep and the phrase "kick the can further down the block" is a great point.

"No pain, no gain."

 

[johnrocks]

That is essentially what roubini is saying, that all the stimulus and bailouts have done is kick the can further down the block.

You can't fix insolvency with deficit spending.

Yep and the phrase "kick the can further down the block" is a great point.

"No pain, no gain."

Another good saying and what is going to be needed at some point,imho.

 

[Samson]

Yep and the phrase "kick the can further down the block" is a great point.

"No pain, no gain."

Another good saying and what is going to be needed at some point,imho.

"Pain is only weakness leaving the body."

 

[Toro]

Raising taxes and cutting spending will probably plunge the economy back into recession, not depression, like it did in 1937. One of the differences though is that in 1937, the Fed increased reserve requirements, effectively tightening monetary policy. That would be like raising interest rates today, which would be insane. This won't happen.

There is still more adjustment that needs to occur in the economy. Rather than have a sharp but shorter recession, the politicians have decided to have a longer, shallower one. We tried that in 2000-02 and wound up with the Housing Bubble.

 

[Samson]

Raising taxes and cutting spending will probably plunge the economy back into recession, not depression, like it did in 1937. One of the differences though is that in 1937, the Fed increased reserve requirements, effectively tightening monetary policy. That would be like raising interest rates today, which would be insane. This won't happen.

Not sure about "insane."

But I would agree to irrelevant: It's not as if borrowing is heating up at lower rates, and higher rates would cool it down.

Simply maintaining current taxation, and a moderate spending decrease isn't going to "plunge" the economy anywhere. To the contrary, it would give it some stability.

 

[Dont Taz Me Bro]

Wrong, FDR backed of and tried to bring the budget into balance in 1937 due to public outcry.

The economy tanked and he had to reup the new deal programs.

then they economy began recovering again.

Its history.

Not quite. Unemployment went back up when FDR scaled back the Raw Deal because no recovery had taken place, period. The Federal government was propping it up with debt. It was a facade. Had the Raw Deal actually helped the economy recover then the unemployment rate wouldn't have started rising again when the government welfare stopped because the private sector would have been hiring.

 

[code1211]

Raising taxes and cutting spending will probably plunge the economy back into recession, not depression, like it did in 1937. One of the differences though is that in 1937, the Fed increased reserve requirements, effectively tightening monetary policy. That would be like raising interest rates today, which would be insane. This won't happen.

There is still more adjustment that needs to occur in the economy. Rather than have a sharp but shorter recession, the politicians have decided to have a longer, shallower one. We tried that in 2000-02 and wound up with the Housing Bubble.

I'm not sure that is good causal connection. The Bush Administration was bent on reducing taxes. Before the 9/11 attacks it was to give back the windfall. After the 9/11 attacks it was to stimulate the economy. Like the current administration, Bush wanted to do what he wanted to do and would lie in any direction to get it done.

The Housing bubble was caused by too many buyers chasing too few houses and by lending practices favorable to those who really had no business receiving the kind of money that they were approved to burrow. Whether it was sub prime burrowers or lenders counting on the growth of value to cover the loan amount or the home owners taking second or third mortgages against the imaginary increase in value, the entire country was participating in the fraud that led to the bubble.

The housing bubble that led to the toxic assets and then to the TARP was a truely bi-partisan, post racial, unified classes movement by our country. In this way, it was truely something to be proud of. No Party or class or race was outside of the influence and now pain of this thing.

Interestingly, the proposed intent of TARP was to correct the problem by eliminating the toxic assets. This purpose was perverted as soon as the money was approved and then, under the Big 0, was completely forgotten.

The toxic assets are still there and still toxic.

 

[code1211]

Wrong, FDR backed of and tried to bring the budget into balance in 1937 due to public outcry.

The economy tanked and he had to reup the new deal programs.

then they economy began recovering again.

Its history.

Not quite. Unemployment went back up when FDR scaled back the Raw Deal because no recovery had taken place, period. The Federal government was propping it up with debt. It was a facade. Had the Raw Deal actually helped the economy recover then the unemployment rate wouldn't have started rising again when the government welfare stopped because the private sector would have been hiring.

That is the thing. Any program must be judged by the results. The Big 0 set the standard by which the stimulus would be judged: To prevent unemployment from topping 8%. It did. He failed.