Is this 1937 or 1929?

IMG_1463Its actually a great question but either one means bad news for the United States of America. Most people know about 1929 the stock market crash and the beginning of the Great Depression. What many people dont know is that in the period from 1929 to 1937 the stock market rebounded, the economy looked good and everyone thinking we were out of any economic danger decided to put in place major budget cuts. Thats what happened in 1937, budgets were slashed, no more stimulus, people, some people thought the economy had recovered. But, it hadn’t. The budget cuts that were initiated in 1937 kept the Great Depression going until after World Ward 2. So where are we today, cutting budgets to continue the Depression we are in or just at the beginning? Its hard to tell. I am not an economist so keep that in mind while reading this. But, from what I have read from leading economists today we are in a situation of unprecedented long term unemployment as well as an economy thats shaky. Last quarter it basically broke even; this latest quarter the growth was below economists forecasts.

And, today we see our elected politicians looking for severe budget cuts. No cancer treatment for the poor? Is the U.S.A. a country where only the rich get medical care? The so called sequester is a disaster in the making. It cuts everything, from defending and protecting our country to cutting aid for education and medical care. Thats exactly what happened in 1937 which plunged the United States back into the Depression, which we had never gotten out of. What got us out of the Great Depression was WWII; during WWII we spent as a country 3 times the GDP; which today would mean $45Trillion per year. People attack Barack Obama for his stimulus not working as well as it should have. Well, in a $15 Trillion economy one push of $800 Billion wont do that much. Many economists predicted that at the time. And they were correct.

Today our economy is in a Depression. Hiring has been so slow that it cant keep up with populations growth. Last month 500,000 people stopped looking for work. These people didn’t stop because they wanted to stay home and watch TV, or they wanted to live off the government (their benefits had long run out). They stopped looking because their are no jobs out there and people got sick of applying and rejected. You hear lots of stories about the unemployed having a lack of marketable skills; this used to be called on the job training.

Speaking from experience I know that companies are not eager to hire people; they are not eager to take a well skilled worker and utilize their skills, no matter what the salary, they are more likely to over interview people and then not hire anyone at all. Its really an extreme disaster for both sides. For the unemployed it can be worse than a spouse dying; they are more likely to suffer ailments that employed people arent. For companies, they are trying to make do with less; have fewer employes, fewer expenses and more profit. But thats not the way it works in the big picture. Those that are fortunate enough to have jobs live in fear of losing them. You dont get the best work from people when they are walking scared and afraid of being unemployed. What you do get is higher profits and CEOs with extremely high pay, because this quarter did well. No one is looking at the big picture, as to what companies and people will look like a decade from now. High riding companies will likely lose their CEOs as they move on to a better paying job. Every day employees are left with the mess senior management makes and are often blamed for it.

So, 1937 or 1929? Austerity will kill all growth in this country and push us back into a deeper recession than we are already in. And its really a depression not a recession. If its more like 1929 we are in for a horrible ride. We are just at the beginning of a horrible economic mess.  Yes the wealthy will be fine and are protected. Where ever you fall on the economic scale do you want to see your fellow Americans suffering and possibly dying because they dont have income/cash?

Its time to learn from history. What we did in 1937 caused tremendous pain. President Obama should be out there pushing for stimulus and jobs bills; like he tried to do with gun control.  The GOP has been despicable in their obstructionism but that means Mr. Obama needs to work harder. We need more jobs for the 89 million people who are unemployed or who don’t earn enough to survive.

Today is the day, we need to all come together to put every American who wants a job back to work. The cost will be minimal compared to tje alternative.

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6 thoughts on “Is this 1937 or 1929?

  1. Excellent blog once again Andrew. You are very insightful and always look forward to reading your blog. You always manage to portray both “sides” of a story. I think someone should hire you to write for a paper/magazine. It would be money well spent. KUDOS

  2. Andrew, economics comes down to human behavior. As such, logic counts. You suggest that people,and businesses as well as the government cut their budgets severely because they perceived an improving economic situation. When people are confident in the future, Don’t they loosen the purse strings instead?

    1. Perhaps I should have been more clear; the decision to slash budgets wasnt so much because people, politicians, felt the economy was doing well. In 1937, like now, politicians think the debt is more important than stimulating the economy so budgets have been and were cut severely. As we saw in the EU their austerity solution has led to a triple dip recession. You are correct the economy does come down to human behavior; Consumer Sentiment is currently extremely low which is why they arent spending. So the public is actually tightening their purse strings which makes matters worse. The point of my piece is that we currently need tremendous government spending now, to put people back to work and get the economy growing; the sequester is going to have disastrous effects.

  3. Brilliant article but I am just trying to understand something:
    Are you advocating for QE and money printing to continue indefinitely in order to stimulate the US economy? If so, what about the insane amount of debt the US government carried?

    Would love to hear your views.

    1. What I am advocating for is a massive stimulus for job creation, especially for the longterm unemployed. Even $1Trillion worth, tax incentives for companies to hire longterm unemployed. Estimates are up to 89 million people need jobs. Once you get them working again the revenue they pay in taxes will more than pay for the initial outlay of money. Also, once you have more people working consumer confidence and spending will rise and the economy will eventually not need the QE. A solid plan does need to be created to lower the long term debt, but the economy has to be on stronger footing before it kicks in. Thanks for reading and commenting!

      1. Money creation out of thin air does not create employment and does not stimulate the REAL economy. All it does is create assets bubbles, inflates the value of paper assets (like stocks) beyond their fair value and encourages rampant speculation by people desperate to get at least SOME return on their money.

        Not even to mention the extremely high risk of hyperinflation. The Weimar republic is a perfect example and if you want something more recent, think Zimbabwe.

        The government can and should provide stimulus by creating ‘nation building’ projects like infrastructure and encourage private sector investment in the REAL economy, not in wall street assets like bonds and stocks.

        History has proven with 100% accuracy that ANY nation that has EVER attempted to get itself out of the hole by simply printing money died. There is ZERO precedent for something else ever happening.

        Finally, in the current ‘fiat’ monetary system we have today, currency units are directly linked to DEBT. Each dollar created means another dollar added to the PRINCIPAL of the US national debt. This principal needs to be repaid WITH INTEREST. Creating more currency units means simply increasing debt. It does nothing to create growth in the economy. If anything, it actually makes it worse.

        If you haven’t seen I highly recommend you watch ZEITGEIST : ADDENDUM. It’s a true masterpiece and will help you understand so many things. This was the first movie that truly opened my eyes.

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