The depression of the 1930s began as a banking panic
after the stock market crash. A stock market speculation that was fueled by the Feds pumping bank reserves. Banks were lending the cheap money to stock speculators who were bidding up prices on margin (sounds like the internet craze, no?)
It turned into a decade long calamity only after
Pres Hoover instituted his grand bail out schemes termed the New Deal: high wage rates, public works, protectionism and propping up unsound positions.
He mistakenly thought that the depression was being caused by low prices and not the other way around.
He subsidized farming and paid them off to curtail production in an attempt to reduce supply and force prices up artificially. Some say the depression would not have occurred if only the Fed pumped even more money into the system. And like today, bankers and consumers confidence were not figured into their mathematical assumptions of money injections.
Will today’s New Deal lll or Troubled Assets Relief Program get the economy out of it’s funk?
If it’s good for the government to stimulate, why not the local counterfeiter? Why stop at $800 billion? Or if raising the minimum wage will help the poor, why not make it $100 per hour and erase poverty once and for all.
Then US Treasury Secretary Mellon headed what Pres Hoover called “the leave-it-alone-liquidationists”.
Though Mellon backed the inflationary policies of the government that led to wild stock speculation and crash, he was against Hoovers bail out schemes. Mellon knew from experience in the depression of 1870s that it’s best to let it run it’s course.
The pitch is eerily similar—
“Lets help the average American in main street”
Our grandchildren owe over a $Trillion in debt as our legacy of inaction and stupidity.
