The Great Depression in Ten Pictures

Some of these slides are from my previous blog site, when I was considering some of the policy decisions and data from the first Great Depression in the US. This study was from 1999 to 2001. It was fully fleshed out in my mind by Bernanke's (in)famous essay of 2002, The Fed Has a Printing Press. That pretty much cleared the air for me on the future investment path for gold.

Although I do not list it here, you may also be interesting in the posting, Why the Feds Seized the Gold in 1933. The purpose was to devalue the dollar AND to use the proceeds to recapitalize the banks that were remaining after the FDR bank holiday.

Since the US is not on a gold standard now, the Fed has no need for the gold. It can expand its balance sheet with a few keyclicks, as long as that is their policy decision. Any wide scale confiscation of private property at this point would be purely gratuitous and rather unlikely, recent hysteria not-withstanding.

The plunge in the stock market was 90% into its trough.  The initial decline was made much worse by the austerity that Hoover and his Treasury Secretary Mellon pursued.   

This is a busy chart but it shows the interplay of several key metrics.  In particular, it shows the disaster that is austerity in response to a financial credit crisis such as we are seeing today.

This is the kind of result produced by austerity.  There is a lot of misery in this chart until 1933 when Roosevelt took a more modern approach combining monetary and fiscal actions.  The increase in unemployment in 1938 was a direct result of the premature tightening of the Fed as can be seen on their balance sheet slide a few charts below.

Roosevelt's policies got the American economy back on track.  It was a sound marriage of monetary and fiscal policy.   What made it sustainable was the financial reform, the settling of the banking system, and the emphasis on jobs and growth in the median wage.

The Fed kept expanding the balance sheet into the 1938 period when they prematurely drained reserves out of a fear of inflation and triggered another recession.  That was a clear policy error and can be seen as clear as a bell on this chart below.

Perhaps this chart is what gave Bernanke the idea for 'Operation Twist.'  If so, he is fighting the last war.

Look at those real interest rates.  No wonder the country almost ground to a standstill.  The Fed and the Hoover Administration, particularly Treasury Secretary Mellon, ought to have been ashamed of this policy error.   The action of Roosevelt in 1933 in breaking the dollar against gold and recapitalizing the banks after shutting down the weak ones, and substantial investigation and reforms, did the trick.

The Smoot-Hawley Tariff was enacted on 17 June 1930.  Exports had already been plunging before that because when demand goes slack in a deep recession both imports and exports tend to drop with demand.  I think some of the rhetoric surrounding the issue of global trade in this case is nonsense.  In the Great Depression tariffs did not matter because no one was really standing as the buyer of last resort.  And if the tariffs went into effect in the middle of 1930, they certainly did not have an untoward impact on imports relative to the plunge in exports, again due to prevailing economic conditions.  Notice that net exports remain largely flat throughout the period.   To state this more precisely, the negative effects of Smoot-Hawley are vastly overstated by globalist advocates.  

 

Here is what the real exports and imports figures looked like until 1939.  Again, it is economic recovery and aggregate demand that makes all the difference.   Until tariffs are outsized and predatory, one-sided if you will, they will have much less impact than real economic growth.  And do not overlook the currency devaluation of the dollar to gold in 1933.

Personal Consumption along with Government Program spending and the currency devaluation were obviously factors to the real recovery in GDP especially since it did not come from net exports.  As can be seen from other slides in this series the dip in GDP in 1938 was due to the Fed's draining reserves by increasing bank reserve requirements out of a misplaced fear of inflation.

Greg Smith And Goldman Sachs

"Ad hominem (also called personal abuse or personal attacks) usually involves insulting or belittling one's opponents in order to attack their claims or invalidate their arguments, but can also involve pointing out true character flaws or actions that are irrelevant to the opponent's argument. This is logically fallacious because it relates to the opponent's personal character, which has nothing to do with the logical merit of the opponent's argument."

I have not been following the Greg Smith story closely, although I was aware he had resigned from Goldman quite publicly, and had read the op-ed which he wrote as his fare thee well. There is nothing in there that was surprising to those who follow the financial fraud on Wall Street.   It was actually fairly mild compared to the widely ignored information obtained by the Levin committee.

What was new was that a Goldman employee was saying it, and Goldman is the most highly politically connected of Wall Street Banks, in the US and in Europe.

But the absolute trashing and personal attacks on Greg Smith in the past week that were orchestrated by Goldman and supported, heavily, by the US financial networks got my attention. Generally ad hominem attacks are used by those who consider the facts of the case to be dangerous ground, and wish to do anything that they can to avoid discussing them. So instead they seek to discuss the person bringing them to light.

The 'news channels' do have not spent much time discussing what Greg Smith is saying, but instead turn their focus to discrediting Greg Smith personally as a loser, a fool, a person who was naive to be surprised by the ruthless predatory culture on Wall Street.  He was disgruntled because he did not get a raise, and so has an ax to grind.

The media are working from the talking points memos released by Goldman, and a growing cultural disposition against whistleblowers as being inherently disloyal malcontents.

The rationales in favor of Goldman quickly take on the character of the schoolyard.  Everyone does it on Wall Street, and singling out Goldman isn't fair.  And what was Greg Smith expecting?  Everyone knows Wall Street is predatory and will do whatever it takes, even abuse their customers and make millions out of it. And if the customers are dumb enough to fall for it, they deserve it.  Don't be a fool like him, be a sophisticate and move along.

What people do not realize is that the fraud cuts so deep and wide that it hard to escape it, even if one has no dealings personally with any of these firms.   These Wall Street financiers have their hands in everyone's pocket through the manipulation of the financial system, the price discovery mechanisms, and the money supply.  And if you do not understand this by now, you understand nothing.

For me the takeaway, that gets lost in the color coverage, is that the efficient markets theory is nonsense, and that self-regulation does not work when such enormous sums of money are at stake.  The answer is ultra-transparency and effective regulation, particularly to rein in the financial cowboys who can use money to game and control the political, judicial, and analytical processes of society. 

And I do not see any way to accomplish this except to separate commercial and investment banking, and ring fence the activities of the investment banks and speculators, and prohibit them from selling anything except exchange vetted products to any public institution such as a retirement fund.

I was amused by the comparisons of Greg Smith to a 'rat' who breaks the laws of omerta in the Mafia.

This is the theater that passes for 'news' in the corporate media who are live streaming the American Hunger Games.  May the odds be ever in your favor, especially when you are constantly rigging the game.

Here is Greg Smith's first public interview on US television.

Thoughts From a Patron On a Saturday Afternoon

"Even in a time of elephantine vanity and greed, one never has to look far to see the campfires of gentle people. Lacking any other purpose in life, it would be good enough to live for their sake."

Garrison Keillor, The Prairie Home Companion

I linked to this latest video from Chris Hedges last night, but did not feature it because I had several personal things to do. The first part of Hedges description of the reaction of the status quo to Occupy Wall Street in particular describes the credibility trap quite well.

The one percent cannot answer or even genuinely acknowledge what OWS is protesting, because it endangers the shaky underpinnings of a fearful but still very powerful elite who have slithered their way into an unsustainable position of power without the people fully realizing what has happened.

And today I receive an email from a regular patron of Le Cafe, a member of the invisible community of those who care for the things of the mind and of the Spirit, which provides an insightful commentary on Hedges and what he has to say, and why he is so frightening to our naked Emperors of money and power. He prefers to remain anonymous, like the many who live quiet, gentle lives, tending the campfires against the gloom and the darkness.

And now I know how my wife feels such welcome joy when the girls surprise her by cleaning the kitchen while she is out. The work for today is done, and I can enjoy my coffee and a good book in peace.

Have a pleasant weekend.



From a reader:

"The Hedges video is superb. He is referring to this article, as I’m sure you’re aware: Why the Occupy Movement Frightens the Corporate Elite

The article indicates that he has far better answers than anyone else at this point in my opinion. The Elite have significant weaknesses. They are psychologically stunted, adolescent and in effect if not actuality sociopathic, as you have made clear with your posts and links. And corporations are artificial, fictional people, created by the state, which can be as “easily” undone as done, a stroke of the pen.

So long as people see themselves as things, “labor”, metabolic lumps without meaning, we are lost because the Darwinian model, which is the bastard progeny of Materialism, prevails.

Nihilism is an appropriate description of the world, the point being that those who have bought into this worldview have no underlying motive to act unselfishly, and not for immediate gain or sensation. They sometimes, perhaps often, lose themselves in alcohol, drugs, TV, pornography, greed, the lust for power, or suicide to escape. Terminal violence is easily justified if we are simply disposing of things.

I think I know that you understand this through your lens of Christianity. I also have a very strong belief, knowledge in God, but “He” is far less well defined and far more powerful and all-encompassing, truly incomprehensible, in my world than Christian dogma would describe. Nor are we apart from "Him". In my humble view, we will not find our way successfully through this travail without a thorough reexamination, and new understanding of, both politics and faith, and the true nature of the human condition.