Myths & Illusions about Hoover & FDR and the Great Depression

Hoover’s interventionist policies set the stage for FDR’s “New Deal” that helped turn a recession into a “Great Depression”.

>Libertarians argued years later that Hoover’s economics were statist, & that he belonged in the continuum of government & business collaboration that began around the turn of the century. I must agree with them.< >Roosevelt the Presidential candidate blasted the Republican incumbent for spending and taxing too much, increasing national debt, raising tariffs & blocking trade, as well as placing millions on the government dole. Roosevelt attacked Hoover for “reckless and extravagant” spending, of thinking “that we ought to center control of everything in Washington as rapidly as possible.” Roosevelt’s running mate, John Nance Garner, accused the Republicans of “leading the country down the path of socialism”. Hoover believed the government should spend more money on dams & public works during business downturns, a kind of early Keynesism.< >Years later, one of Roosevelt’s closest advisers, Rexford Tugwell, admitted that “practically the whole New Deal was extrapolated from programs that Hoover started.”< The New Deal Illusion

If Something Can’t Go On Forever, It Won’t!

“If Something cannot Go On Forever, It will stop.”
~Herbert Stein~

Eventually, people will begin to understand that when a central bank exchanges one piece of paper (fiat money) for another piece of paper (a bond or security) that it changes NOTHING THAT IS REAL.

Sooner or later, it will be apparent that much of the observed economic activity is unsupported by fundamentals.

The air in the US stock market bubble will go out as will the global bubble in government bonds.

Ill-advised monetary policy is at the heart of these economic imbalances, e.g., zero-interest rate policies (ZIRP), inflation targeting & quantitative easing (QE).

Central bankers are setting up the global economy for a massive collapse due to their ignorance about how excess liquidity sets up a boom-bust cycle.

For those that think holding US$ is a good bet

What is it that gives anyone confidence in the future value of the US dollar…?

“In the United States neither paper currency nor deposits have value as commodities. Intrinsically, a dollar bill is just a piece of paper, deposits merely book entries. Coins do have some intrinsic value as metal, but generally far less than their face value. What, then, makes these instruments – checks, paper money, & coins – acceptable at face value in payment of all debts & for other monetary uses? Mainly, it is the confidence people have that they will be able to exchange such money for other financial assets & for real goods and services whenever they choose to do so.”

Federal Reserve Bank of Chicago, 1961

Gold price stability versus Instability of value of US dollar

“In 1970 an ounce of gold ($35) would buy 15 barrels of OPEC oil ($2.30/bbl). In May 1981 an ounce of gold ($480) still bought 15 barrels of Saudi oil ($32/bbl).”
The Economy In Mind by Warren Brookes

At present, an ounce of gold buys about 20 barrels of oil.

The perfectly-elastic supply of money under a global paper (fiat) money system allows central bankers devalue the very currencies that they are charged with protecting.

If all paper currencies were destroyed, it would not change economic wealth. However, printing too many pieces of paper money will destroy wealth.

ECB Actions & Insanity: Do same thing over & over; expect different outcome

Attempts by ECB to bailout some euro-zone govts (buying their bonds to hold down interest rates) is wrong-headed. As it is, high bond yields are a reaction to NOT a cause of underlying problems that are only partly financial.

Govt finances of many of these countries are weak due to slow (or no) economic growth, making it unlikely that they can repay existing debts.

Keeping bond yields low allows public-sector debt-to-GDP ratios to continue rising.

Higher interest rates is like penicillin to the bacterial virus of excessive borrowing, whether by govts or individuals or businesses.