hello wx dave!
you are correct, however many additional root causes seem to be implicated.
overall the lack of faith in the system breeding panic resulted.
dr paul along with many others is concerned that a "fiat" money supply in concert with a lack of monetary discretion has put us out on the limb once again. i do not believe we could ever tie the dollar back into a precious metal such as gold, but the fed's approach to monetizing our economy with this print and go like the day will never come when it all comes due has folks very scared.
the US fed, g8 central banks, and the imf all are pumping liquidity on a global basis. (counterfeiting is OK for the big banks and govts
). congressman is right the total lack of any responsible approach to debt is problematic to say the least.
most of us all know and accept the fact we have pumped our way thru many economic crises...it is the speed and furry of it all over the last few years that boggles the mind. yes our tangibles (stox, real estate, commodities) go up in price but not in value.
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Political Perspectives on Causes and Cures of the great depression......
Economists do not agree on what caused the depression or what prolonged it.
The Stock Market Crash to blame
Most people at the time and since blame the stock market crash. The timing was right; the magnitude of the shock to expectations of future prosperity was high. The market was in a bubble with prices far too high compared to the real economy. Economists agree that somehow it shared some blame--but how much no one has estimated. Milton Friedman concluded, "I don't doubt for a moment that the collapse of the stock market in 1929 played a role in the initial recession"
Macroeconomists: debt to blame
Ben Bernanke has revived the debt-deflation view of the Great Depression originated by Arthur Cecil Pigou and Irving Fisher. People who are seriously in debt when a price deflation occurs are in serious trouble and risk default, perhaps bringing down their banks with them.
Trade Decline; Smoot-Hawley Tariff Act to blame
Many economists at the time argued that the sharp decline in international trade after 1930 helped to worsen the depression. .
Most historians and economists assign the Smoot-Hawley Tariff Act of 1930 part of the blame for worsening the depression by reducing international trade and causing retaliation.
In dollar terms American exports declined from $5.2 billion in 1929 to $1.7 billion in 1933; but prices also fell so the physical volume of exports did not decline as much. Hardest hit were farm commodities such as wheat, cotton, tobacco, and lumber.
Monetarism: Federal reserve to blame
Milton Friedman and Ben Bernanke stress the negative role of the Federal Reserve System. It cut the money supply by one-third from 1929 to 1932. There was much less money to go around, businessmen could not get new loans--and could not even get their old loans renewed. They had to stop investing. Not because they did not want to (as the Keynesian model said), but because banks could not lend them the money they needed. This interpretation blames the government and calls for a much more careful Federal Reserve policy. Bernanke became the Chairman of the Federal Reserve System in 2006. Friedman argues that: [A Program for Monetary Stability (1960) pp 18-19]
"The serious fault of the Federal Reserve dates from the end of 1930, when a series of bank failures... changed the monetary character of the contraction. Prior to that date, there was no sign of a liquidity crisis--the ratio of currency to deposits was relatively stable or falling. From then on, the economy was plagued by recurrent liquidity crises. A wave of bank failures would taper down for a while, and then start up again as a few dramatic failures or other events produced a new loss of confidence in the banking system and a new series of runs on banks
The Far Left: capitalism to blame
The revolutionary left, including some socialists, together with communists and anarchists, saw the Great Depression as the beginning of capitalism's final collapse. Their remedy was to build up their movements to take over the labor unions, and perhaps eventually the government.
New Dealers: Business to Blame
Roosevelt and most of the New Dealers primarily blamed the excesses of big business for causing an unstable bubble-like economy.
Keynesianism: public behaviour to blame
The British economist John Maynard Keynes coined the term "the paradox of thrift" to describe the deepening of the Great Depression after 1929. The paradox of thrift indicates that when people decide to save more this may end up causing people to save less. The increased savings (reduced spending) due to the panic following the stock market crash of 1929 left markets saturated, contributing to price deflation, perpetuating the Great Depression. When people decided to save more (spend less) businesses responded by cutting back on production and laying off workers. Businesses, cutting back on investment spending because they were pessimistic about the future as well, were also doing their share of causing a reduction in aggregate expenditures, reducing their investments, setting in motion a dangerous cycle: less investment, fewer jobs, less consumption and even less reason for business to invest.
The New Deal and Keynesian economics
In the early 1930s, before John Maynard Keynes wrote The General Theory, he was advocating public works programs and deficits as a way to get the British economy out of the Depression.
As the Depression wore on, Franklin D. Roosevelt tried public works, farm subsidies and other devices to restart the economy, but he never completely gave up trying to balance the budget. As a result, unemployment remained high throughout the New Deal years; consumption, investment, and net exports-- the pillars of economic growth-- remained low. With fiscal policy, however, government could provide the needed increased spending by decreasing taxes, increasing government spending, increasing individuals' incomes. As individuals incomes would increase, they would spend more. As they spent more, the multiplier effect would take over and expand the effect on the initial spending. Expansionary fiscal policy thus involves decreasing taxes or increasing government spending to counteract cyclical unemployment and slow growth during a recession.
It was World War II, not the New Deal, that finally ended the crisis. Nor did the New Deal substantially alter the distribution of power within American capitalism; and it had only a small impact on the distribution of wealth among the American people.
Keynes's visit to the White House in 1934 to urge President Roosevelt to do more deficit spending was a debacle. A dazed, overwhelmed Roosevelt complained to Labor Secretary Frances Perkins, "He left a whole rigmarole of figures-- he must be a mathematician rather than a political economist." Keynes, equally frustrated with the encounter, later told Secretary Perkins that he had "supposed the President was more literate, economically speaking."
The recession of 1937 and recovery
The Roosevelt administration was under assault during FDR's second term, which presided over a new dip in the Great Depression in the fall of 1937 that continued through most of 1938. Production declined sharply, as did profits and employment. Unemployment jumped from 14.3% in 1937 to 19.0% in 1938. It was, in the largest measure, a result of a premature effort by the administration to balance the budget by reducing federal spending.
The administration reacted by launching a rhetorical campaign against monopoly power, which was cast as the cause of the new dip. The president appointed an aggressive new direction of the antitrust division of the Justice Department, but this effort lost its effectiveness once World War II, a far more pressing concern, began.
But the administration's other response to the 1937 deepening of the Great Depression had more tangible results. Ignoring the vitriolic pleas of the Treasury Department and responding to the urgings of the converts to Keynesian economics and others in his administration, Roosevelt embarked on an antidote to the depression, reluctantly abandoning his efforts to balance the budget and launching a $5 billion spending program in the spring of 1938, an effort to increase mass purchasing power. The New Deal had in fact engaged in deficit spending since 1933, but it was apologetic about it, because a rise in the national debt was opposite of what the Democratic party had always preached. Now they had a theory to justify what they were doing. Roosevelt explained his program in a fireside chat in which he finally acknowledged that it was therefore up to the government to "create an economic upturn" by making "additions to the purchasing power of the nation."
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