The Great Depression of 1920 only lasted one year, however, thanks to President Warren Harding’s inspired policy of cutting both government spending and taxes dramatically.
A most urgent question : will the current President have the courage to do what is right for the good of the nation as Warren Harding did, or will he succumb to baser instincts and refuse to cut spending and taxes dramatically?
Thomas DiLorenzo lays out the disasterous historical connection between politics, militarism and central banking. Heed the warnings contained or this nation will again see its wealth devestated.
Government can finance war (and everything else) by only three methods: taxes, debt, and the printing of money. Taxes are the most visible and painful, followed by debt finance, which crowds out private borrowing, drives up interest rates, and imposes the double burden of principal and interest. Money creation, on the other hand, makes war seem costless to the average citizen. But of course there is no such thing as a free lunch.
As a general rule, the longer a war lasts, the more centrally planned and government-controlled the entire economy becomes. And it remains so to some degree after the war has ended. War is the health of the state, as Randolph Bourne famously declared, and the growth of the state means a decline in liberty and prosperity. (Think Socialism, Communism, Totalianarism as epitomized by North Korea, Nazi Germany...who would want to live in a regime like those?)
Special interests joined the political coalition that created the Federal Reserve Board in 1913, which became an important source of finance for America’s disastrous participation in World War I four years later. The Fed did not just print greenbacks, as was the case during the Civil War. It printed enough money to purchase more than $4 billion in government bonds that were used to finance the war. The amount of money in circulation doubled between 1914 and 1920—as did prices. This was an enormous hidden war tax on the American people: wealth was cut in half, along with real wages, and just about everything consumers purchased became more expensive.
The boom created by the Fed’s war financing inevitably caused a bust—the Depression of 1920, the first year of which was even worse than the first year of the Great Depression of the 1930s. Gross domestic product declined by 24 percent from 1920-21, while the number of unemployed Americans more than doubled, from 2.1 million to 4.9 million. The Great Depression of 1920 only lasted one year, however, thanks to President Warren Harding’s inspired policy of cutting both government spending and taxes dramatically.
Showing posts with label great depression. Show all posts
Showing posts with label great depression. Show all posts
Friday, July 16, 2010
Thursday, July 8, 2010
Government not true to its Founding Principles?
Rather than remaining true to its founding principles, successive leaderships have led the country deeper and deeper into foreign entanglements, and further and further down the road of populism of the sort that has left Europe gasping for breath.
The situation has now reached a crossroads. In one direction, the direction we here at Casey Research steadily advocate, there is real hope. That hope is based on remembering the principles of self-reliance that made America so economically powerful in its early career – a haven with a relatively short list of reasonable laws and regulations, administered by a minimal bureaucracy supported by a modest and simplified tax code.
Economic historian Niall Ferguson recently commented on the surprising lack of dialogue about this path in America. You can, and should, watch this video by clicking on the headline above.
The situation has now reached a crossroads. In one direction, the direction we here at Casey Research steadily advocate, there is real hope. That hope is based on remembering the principles of self-reliance that made America so economically powerful in its early career – a haven with a relatively short list of reasonable laws and regulations, administered by a minimal bureaucracy supported by a modest and simplified tax code.
Economic historian Niall Ferguson recently commented on the surprising lack of dialogue about this path in America. You can, and should, watch this video by clicking on the headline above.
Wednesday, July 7, 2010
Young workers' jobless rate in the U.S. is reminiscent of the 1930s
A bleak reality awaits young Americans trying to get into the workforce, with 14% not finding a job and 23% not even trying anymore. The total, 37% without employment, is in a range that the U.S. hasn't seen since the 1930s.
The New York Times
The New York Times
Tuesday, June 9, 2009
The depression quietly deepens
The depression quietly deepens
It is lonely in the diminishing camp of bears, says Ambrose Evans-Pritchard
Those of us who still question whether the world has purged its toxins are reduced to the same tiny band of moaning Druids from early 2007, when we shook our heads in disbelief as the carry trade swept Iceland to fresh madness and bankers laughed off sub-prime rot at Bear Stearns.
We learned then to thicken our skins with walnut juice, lie down in dark rooms, and dissent from Goldman Sachs. Such seclusion is called for once again as Goldman replays its BRIC anthem and raises its oil forecast to $85 a barrel this year, betting that the world will roar back on a tidal wave of liquidity.
Related Articles
Savvy Gulf funds question global rally
Business as usual ? big bonuses for bankers
IMF tells Europe to come clean on bank losses
Real economy is biggest presidential challenge
Ed Balls deserves his chance at No 11It is perhaps unkind to mention that Goldman issued a $200 call at the top of the speculative frenzy last year, just before oil crashed, but they have broad shoulders.
Note that Total's Jean-Jacques Mosconi said markets are awash with so much crude that almost 100m barrels (a near record) are stored on tankers at sea. Note too that May electricity use fell 10pc in China's industrial hub of Guangdong from a year earlier. This is revealing, given that China's fiscal boost has reached peak and will fade later this year.
For guidance on where we are in this long-drawn saga, I look to Berkeley's Barry Eichengreen, author of the Great Depression classic Golden Fetters – which avoids the error of viewing the 1930s through a US prism.
He has crunched the latest data with Trinity College Dublin's Kevin O'Rourke for VoxEU, concluding that the global rupture over the last nine months has been more violent than in the early slump. This is logical. Global debt leverage is much greater this time.
The fall in industrial output has been roughly equal to the 1929-1930 stage for Germany and the Anglo-Saxons, but worse for Japan, France, Italy, and Eastern Europe. The collapse in world trade has been swifter: the global equity crash has been twice as bad. "It's a depression alright. The good news is that the policy response is very different. The question now is whether that response will work," they said.
The elastic was bound to snap back, just as it did in the bear rally of early 1931. Whether the underlying economy has begun to heal is another matter. World Bank chief economist Justin Yifu Lin said capacity utilization is running at an historic low of 50pc-60pc. Companies will have to fire a lot of workers. This is where the danger lies, and why he fears that deflation is creeping up on us.
Trade data from Asia are flashing warning signals again. Korea's exports were down 28.3pc in May, reversing the April rebound. Malaysia has slipped to -26pc, and India has touched a new low of -33pc.
US freight data is getting worse, not better. The Association of American Railroads said traffic was down 22pc in the third week of May from a year earlier. Canadian freight was down 34pc.
The American Trucking Association (ATA) said it saw fresh drops of 4.5pc in March and a further 2.2pc in April. Tonnage is down 13pc over 12 months. Bob Costello, the ATA's chief economist, said companies have not cut inventories fast enough to keep pace with declining sales. The contraction in truck volume has "accelerated".
Yes, the Baltic Dry Index for bulk shipping of resources has quadrupled since January, but this reflects China's bid to stockpile metals while prices are low.
Stephen Roach, Morgan Stanley's Far East chief, fears an "Asian Relapse", saying the region is prisoner to its fatal dependency on exports to the West. The export share of GDP has risen from 36pc to 47pc across developing Asia over the last decade.
"China's incipient rebound relies on a time-worn stimulus formula: upping the ante on infrastructure spending in anticipation of an eventual rebound of global demand," he said. The strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the "pre-bubble norm" of 67pc, if not more.
David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78m baby boomers face the looming threat of penury in old age. "The big story is that the personal savings rate hit a 15-year high of 5.7pc in April. I believe it could test the post-War peak of 15pc. Too many pundits are still living in the old paradigm of Americans shopping till they drop," he said.
If he is right, this will shatter the surplus economies of China, Japan, and Germany, unless they adjust fast to the new world order. Germany does not even seem to understand the problem it faces. Chancellor Angela Merkel lashed out last week at quantitative easing by the Fed, the Bank of England, and the European Central Bank, repeating the silly mantra that this will set off an inflationary storm.
How can it do so when the velocity of circulation has collapsed, and unemployment is rising everywhere? The Fed's "monetary multiplier" ended last week at 0.867, half its average of 1.7 over the last decade. The credit mechanism is still broken. This is what happened in Japan in its Lost Decade.
The ECB says the eurozone economy will contract until mid-2010, at best. Germany's trade association (Wirtschaftsverbände) warned Mrs Merkel last week that the credit drought threatens to become "life-threatening by the summer at the latest".
The list of countries in deflation is growing every month: Ireland (-3.5), Thailand (-3.3), China (-1.5), Switzerland (-1), Spain (-0.8), the US (-0.7), Singapore (-0.7), Taiwan (-0.5), Belgium (-0.4), Japan (-0.1), Sweden (-0.1), Germany (0).
Yet markets seem to think otherwise, and this has its own awful consequences. Inflation fears have driven 10-year US Treasury yields to 3.86pc, a full point above levels in March when the Fed intervened to force rates down. US mortgage rates have jumped to 5.29pc. Gilts have reached 3.92pc, and French 10-year bonds are at 4.05pc.
This bond revolt is enough to bring any global recovery to a shuddering halt. The irony is that those fretting loudest about inflation may themselves tip us into outright deflation, with all the perils of a debt compound trap. It is Angela Merkel who plays with fire.
http://www.telegraph.co.uk/
It is lonely in the diminishing camp of bears, says Ambrose Evans-Pritchard
Those of us who still question whether the world has purged its toxins are reduced to the same tiny band of moaning Druids from early 2007, when we shook our heads in disbelief as the carry trade swept Iceland to fresh madness and bankers laughed off sub-prime rot at Bear Stearns.
We learned then to thicken our skins with walnut juice, lie down in dark rooms, and dissent from Goldman Sachs. Such seclusion is called for once again as Goldman replays its BRIC anthem and raises its oil forecast to $85 a barrel this year, betting that the world will roar back on a tidal wave of liquidity.
Related Articles
Savvy Gulf funds question global rally
Business as usual ? big bonuses for bankers
IMF tells Europe to come clean on bank losses
Real economy is biggest presidential challenge
Ed Balls deserves his chance at No 11It is perhaps unkind to mention that Goldman issued a $200 call at the top of the speculative frenzy last year, just before oil crashed, but they have broad shoulders.
Note that Total's Jean-Jacques Mosconi said markets are awash with so much crude that almost 100m barrels (a near record) are stored on tankers at sea. Note too that May electricity use fell 10pc in China's industrial hub of Guangdong from a year earlier. This is revealing, given that China's fiscal boost has reached peak and will fade later this year.
For guidance on where we are in this long-drawn saga, I look to Berkeley's Barry Eichengreen, author of the Great Depression classic Golden Fetters – which avoids the error of viewing the 1930s through a US prism.
He has crunched the latest data with Trinity College Dublin's Kevin O'Rourke for VoxEU, concluding that the global rupture over the last nine months has been more violent than in the early slump. This is logical. Global debt leverage is much greater this time.
The fall in industrial output has been roughly equal to the 1929-1930 stage for Germany and the Anglo-Saxons, but worse for Japan, France, Italy, and Eastern Europe. The collapse in world trade has been swifter: the global equity crash has been twice as bad. "It's a depression alright. The good news is that the policy response is very different. The question now is whether that response will work," they said.
The elastic was bound to snap back, just as it did in the bear rally of early 1931. Whether the underlying economy has begun to heal is another matter. World Bank chief economist Justin Yifu Lin said capacity utilization is running at an historic low of 50pc-60pc. Companies will have to fire a lot of workers. This is where the danger lies, and why he fears that deflation is creeping up on us.
Trade data from Asia are flashing warning signals again. Korea's exports were down 28.3pc in May, reversing the April rebound. Malaysia has slipped to -26pc, and India has touched a new low of -33pc.
US freight data is getting worse, not better. The Association of American Railroads said traffic was down 22pc in the third week of May from a year earlier. Canadian freight was down 34pc.
The American Trucking Association (ATA) said it saw fresh drops of 4.5pc in March and a further 2.2pc in April. Tonnage is down 13pc over 12 months. Bob Costello, the ATA's chief economist, said companies have not cut inventories fast enough to keep pace with declining sales. The contraction in truck volume has "accelerated".
Yes, the Baltic Dry Index for bulk shipping of resources has quadrupled since January, but this reflects China's bid to stockpile metals while prices are low.
Stephen Roach, Morgan Stanley's Far East chief, fears an "Asian Relapse", saying the region is prisoner to its fatal dependency on exports to the West. The export share of GDP has risen from 36pc to 47pc across developing Asia over the last decade.
"China's incipient rebound relies on a time-worn stimulus formula: upping the ante on infrastructure spending in anticipation of an eventual rebound of global demand," he said. The strategy cannot work this time because Americans have exhausted their credit, and their desire to borrow. Consumption will fall from its peak of 72pc of GDP to the "pre-bubble norm" of 67pc, if not more.
David Rosenberg from Gluskins Sheff expects Americans to retrench ferociously as 78m baby boomers face the looming threat of penury in old age. "The big story is that the personal savings rate hit a 15-year high of 5.7pc in April. I believe it could test the post-War peak of 15pc. Too many pundits are still living in the old paradigm of Americans shopping till they drop," he said.
If he is right, this will shatter the surplus economies of China, Japan, and Germany, unless they adjust fast to the new world order. Germany does not even seem to understand the problem it faces. Chancellor Angela Merkel lashed out last week at quantitative easing by the Fed, the Bank of England, and the European Central Bank, repeating the silly mantra that this will set off an inflationary storm.
How can it do so when the velocity of circulation has collapsed, and unemployment is rising everywhere? The Fed's "monetary multiplier" ended last week at 0.867, half its average of 1.7 over the last decade. The credit mechanism is still broken. This is what happened in Japan in its Lost Decade.
The ECB says the eurozone economy will contract until mid-2010, at best. Germany's trade association (Wirtschaftsverbände) warned Mrs Merkel last week that the credit drought threatens to become "life-threatening by the summer at the latest".
The list of countries in deflation is growing every month: Ireland (-3.5), Thailand (-3.3), China (-1.5), Switzerland (-1), Spain (-0.8), the US (-0.7), Singapore (-0.7), Taiwan (-0.5), Belgium (-0.4), Japan (-0.1), Sweden (-0.1), Germany (0).
Yet markets seem to think otherwise, and this has its own awful consequences. Inflation fears have driven 10-year US Treasury yields to 3.86pc, a full point above levels in March when the Fed intervened to force rates down. US mortgage rates have jumped to 5.29pc. Gilts have reached 3.92pc, and French 10-year bonds are at 4.05pc.
This bond revolt is enough to bring any global recovery to a shuddering halt. The irony is that those fretting loudest about inflation may themselves tip us into outright deflation, with all the perils of a debt compound trap. It is Angela Merkel who plays with fire.
http://www.telegraph.co.uk/
Friday, February 27, 2009
Great Buying Opportunity in Stocks
This table shows you how stocks go through generational cycles, lasting roughly 17 years... One generation learns to love stocks. The next generation learns to be disgusted by them.
100 YEARS OF INVESTMENT GENERATIONS
1914-1930 market UP 159% in 16 years
1930-1947 market DOWN -30% in 17mo
1947-1965 market UP 503% in 18mo
1965-1981 market UP 35% in 16years
1981-1999 market UP 1054% in 18years
1999-2016 market DOWN?-? in 17years
My grandparents lived through the Great Depression. The experience scarred them so dramatically, they never bought stocks, ever.
My parents' generation lived through the Great Stock Boom, spanning most of the 1980s and the 1990s. Ten years of negative returns haven't killed off their faith in stocks yet... It'll be tough to convince them they'll never make money in stocks. (Another five to seven years of terrible times like now... that should do it!)
Is today the stock market bottom? Has the fear reached its peak right this second? Or will the fear get worse, and will the stock market bottom five years from now?
Unfortunately, I don't have the answer to those questions. But we do know stocks will find a bottom. We are closer to a bottom than a top. And we are closer to a historic buying opportunity than a historic high.
I will be a buyer again when the uptrend returns. I define the return of the uptrend as when the S&P 500 closes a week above its 45-week moving average. (History shows this is an incredible indicator, good for double-digit annual gains in stocks.)
This could take five years, or it could happen tomorrow.
My generation may end up like my grandparents... swearing off stocks forever. But that will be the wrong way to go. Chances are excellent that my kids' generation will have the luxury of a seventeen-year bull market, an epic tailwind.
market – where you could buy and go to sleep and still make money – should begin sometime in the next five years.
In the best case, we're almost there already. I'm seeing more cheap and hated opportunities than I ever have in my career.
I'm just waiting on the uptrend.
100 YEARS OF INVESTMENT GENERATIONS
1914-1930 market UP 159% in 16 years
1930-1947 market DOWN -30% in 17mo
1947-1965 market UP 503% in 18mo
1965-1981 market UP 35% in 16years
1981-1999 market UP 1054% in 18years
1999-2016 market DOWN?-? in 17years
My grandparents lived through the Great Depression. The experience scarred them so dramatically, they never bought stocks, ever.
My parents' generation lived through the Great Stock Boom, spanning most of the 1980s and the 1990s. Ten years of negative returns haven't killed off their faith in stocks yet... It'll be tough to convince them they'll never make money in stocks. (Another five to seven years of terrible times like now... that should do it!)
Is today the stock market bottom? Has the fear reached its peak right this second? Or will the fear get worse, and will the stock market bottom five years from now?
Unfortunately, I don't have the answer to those questions. But we do know stocks will find a bottom. We are closer to a bottom than a top. And we are closer to a historic buying opportunity than a historic high.
I will be a buyer again when the uptrend returns. I define the return of the uptrend as when the S&P 500 closes a week above its 45-week moving average. (History shows this is an incredible indicator, good for double-digit annual gains in stocks.)
This could take five years, or it could happen tomorrow.
My generation may end up like my grandparents... swearing off stocks forever. But that will be the wrong way to go. Chances are excellent that my kids' generation will have the luxury of a seventeen-year bull market, an epic tailwind.
market – where you could buy and go to sleep and still make money – should begin sometime in the next five years.
In the best case, we're almost there already. I'm seeing more cheap and hated opportunities than I ever have in my career.
I'm just waiting on the uptrend.
Wednesday, February 25, 2009
Be a realist
We are in a bear market.. it might even be called a Depression
So far, the 2007-2009 bear market seems to be a dead ringer for the ’29-’32 decline.
The truth is hard to deny, and I’m not much good at sugarcoating things anyway. As Mississippi blues man R.L. Burnside once sang: “It’s bad, you know.”
No Need for a Window Ledge Just Yet
This is the reality we now face. No one knows how much longer the pain will last – or when a new bull market will finally kick in. The shiny happy stuff is wearing thin... I’m not telling you anything you don’t already know here.
But even then... even if our current woes wind up matching the ’29-’32 period blow for blow in terms of pure grizzly destructiveness... the news still isn’t all bad.
Stocks could be on a highway to hell and the following would still be true:
In the roaring grizzly of ’29-’32, it’s true that stocks declined a staggering 89% before hitting bottom. But even in that three-year period of epic decline, there were half a dozen tradable rallies of 20% or more.
Bloomberg columnist and money manager John Dorfman recently conducted an interesting study on “waterfall declines” – defined as “sudden drops of 20 percent or more in a few days or weeks.” Among other things, Dorfman concluded that, based on ten 20th-century instances of waterfall declines, positive post-decline returns averaged 24% in 12 months.
Not all businesses suffered in the great bear of ’29-’32. Some went right on making money for shareholders. Some actually saw their profits grow, not shrink. And not all stocks or industry groups went down either... some just kept going up. Homestake Mining, a gold mining stock, hit a new all-time high in 1932.
Gold miners did just fine in the depths of the Great Depression.
Nor were they the only bright spot.
Catching my drift here?
Unless you’re scanning the sky for signs of the apocalypse, there’s no reason to think the world is going to end. Even in the worst bear market the modern world has ever known – the grinding days of the Great Depression – there were plenty of fat, juicy, tradable rallies to exploit... and plenty of investment opportunities in stocks that went up, not down, over the period.
Life Goes On
When people think about the “Great Depression” – or whisper about it in hushed tones – a lot of times they get caught up in the drama of the phrase.
The less you actually know about something, the more menacing it can sound – like the monsters in the closet (or under the bed) when you were a kid. Remember wondering what might be in that closet and not knowing, freaking out a little as your imagination ran wild? (I sure do.)
When it comes to hard times and apocalyptic economic scenarios, adults can be like kids in that regard. The imagination runs wild and it becomes natural to freak out a little.
But when amorphous anxiety is replaced with knowledge and insight, oftentimes the fear recedes.
The reality of the market, as far as recessions and even depressions go, is that life goes on. Profit goes on.
Opportunity still exists.
Neither Optimist nor Pessimist
When people ask me if I’m an optimist or a pessimist, I usually say “Neither... I’m a realist.” I reject the notion of being a “permanent” anything.
Flexibility is a virtue.
Right now it feels like there are two “permanent” camps out there in market commentary land: optimist and pessimist.
The optimist camp says, “Don’t worry, be happy... things will turn around soon... just hold on to your index funds and your ABC and your XYZ because things will be great again before you know it!”
Meanwhile the pessimist camp says, “Are you kidding? It’s all going to hell in a handbasket... the market is a fool’s dream... put your head between your legs and kiss your butt goodbye, because clipping coupons is about all anyone can do.”
I say, reject both those foolish schools. Neither is in touch with reality.
So far, the 2007-2009 bear market seems to be a dead ringer for the ’29-’32 decline.
The truth is hard to deny, and I’m not much good at sugarcoating things anyway. As Mississippi blues man R.L. Burnside once sang: “It’s bad, you know.”
No Need for a Window Ledge Just Yet
This is the reality we now face. No one knows how much longer the pain will last – or when a new bull market will finally kick in. The shiny happy stuff is wearing thin... I’m not telling you anything you don’t already know here.
But even then... even if our current woes wind up matching the ’29-’32 period blow for blow in terms of pure grizzly destructiveness... the news still isn’t all bad.
Stocks could be on a highway to hell and the following would still be true:
In the roaring grizzly of ’29-’32, it’s true that stocks declined a staggering 89% before hitting bottom. But even in that three-year period of epic decline, there were half a dozen tradable rallies of 20% or more.
Bloomberg columnist and money manager John Dorfman recently conducted an interesting study on “waterfall declines” – defined as “sudden drops of 20 percent or more in a few days or weeks.” Among other things, Dorfman concluded that, based on ten 20th-century instances of waterfall declines, positive post-decline returns averaged 24% in 12 months.
Not all businesses suffered in the great bear of ’29-’32. Some went right on making money for shareholders. Some actually saw their profits grow, not shrink. And not all stocks or industry groups went down either... some just kept going up. Homestake Mining, a gold mining stock, hit a new all-time high in 1932.
Gold miners did just fine in the depths of the Great Depression.
Nor were they the only bright spot.
- According to The Wall Street Journal, the logging industry served up a cumulative 120.1% return between 1930 and 1933.
- Miscellaneous manufacturing returned 74.2%.
- Cigars and tobacco, 33.4%. In the depths of the Great Depression.
Catching my drift here?
Unless you’re scanning the sky for signs of the apocalypse, there’s no reason to think the world is going to end. Even in the worst bear market the modern world has ever known – the grinding days of the Great Depression – there were plenty of fat, juicy, tradable rallies to exploit... and plenty of investment opportunities in stocks that went up, not down, over the period.
Life Goes On
When people think about the “Great Depression” – or whisper about it in hushed tones – a lot of times they get caught up in the drama of the phrase.
The less you actually know about something, the more menacing it can sound – like the monsters in the closet (or under the bed) when you were a kid. Remember wondering what might be in that closet and not knowing, freaking out a little as your imagination ran wild? (I sure do.)
When it comes to hard times and apocalyptic economic scenarios, adults can be like kids in that regard. The imagination runs wild and it becomes natural to freak out a little.
But when amorphous anxiety is replaced with knowledge and insight, oftentimes the fear recedes.
The reality of the market, as far as recessions and even depressions go, is that life goes on. Profit goes on.
Opportunity still exists.
Neither Optimist nor Pessimist
When people ask me if I’m an optimist or a pessimist, I usually say “Neither... I’m a realist.” I reject the notion of being a “permanent” anything.
Flexibility is a virtue.
Right now it feels like there are two “permanent” camps out there in market commentary land: optimist and pessimist.
The optimist camp says, “Don’t worry, be happy... things will turn around soon... just hold on to your index funds and your ABC and your XYZ because things will be great again before you know it!”
Meanwhile the pessimist camp says, “Are you kidding? It’s all going to hell in a handbasket... the market is a fool’s dream... put your head between your legs and kiss your butt goodbye, because clipping coupons is about all anyone can do.”
I say, reject both those foolish schools. Neither is in touch with reality.
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