UnionMaine

Trust me, I work for the Government

S. S. D. D.

I am going to write a series of posts dealing with the great Depression. So many of the same factors are in place. Where we are today may look like the good old days by next year. Democrats are blaming the rich, Republicans are blaming regulation. How about we hear from someone who lived through the Great Depression of 1929 to 1940? This quotes below are from Marriner S Eccles, who served as Chairman of the Federal Reserve between 1938 to 1948 and is almost a mirror image of the last eight years. When ol Marriner uses the word savings, he means “keeping it for themselves” not placing it in a bank. He says greed caused the depression I don’t see anything about Unions being at fault.


Editor: Bolding added.

As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth — not of existing wealth, but of wealth as it is currently produced — to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery.

Instead of achieving that kind of distribution, a giant suction pump had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped.

That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low. Private debt outside of the banking system increased about fifty per cent. This debt, which was at high interest rates, largely took the form of mortgage debt on housing, office, and hotel structures, consumer installment debt, brokers’ loans, and foreign debt. The stimulation to spending by debt-creation of this sort was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product — in other words, had there been less savings by business and the higher-income groups and more income in the lower groups — we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.

The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world instead of the money world. This, in turn, brought about a fall in prices and employment.

Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices. Earnings began to disappear, requiring economies of all kinds in the wages, salaries, and time of those employed. And thus again the vicious circle of deflation was closed until one third of the entire working population was unemployed, with our national income reduced by fifty per cent, and with the aggregate debt burden greater than ever before, not in dollars, but measured by current values and income that represented the ability to pay. Fixed charges, such as taxes, railroad and other utility rates, insurance and interest charges, clung close to the 1929 level and required such a portion of the national income to meet them that the amount left for consumption of goods was not sufficient to support the population.

This then, was my reading of what brought on the depression.

Editor: We just lived through nearly eight years of a giant suction pump that has taken money from the employees and concentrated it in the hands of the top 1%. How badly do you think someone who had forty billion and today only has thirty billion is really suffering?

On the lighter side of a Depression, last March

Former Labor Secretary Reich: ‘I Think There’s a 20 Percent Chance of a Depression’

Clinton Labor Secretary Robert Reich warned of a “depression.”

“I think there’s a 20 percent chance of a depression,” Reich said to the Business & Media Institute on March 14.


Reich wrote on his blog the similarities of our current economic climate and “what led to the Great Depression are so stark.”

Reich referred to Marriner S. Eccles’ memoirs, “Beckoning Frontiers.” In his memoirs, Eccles gave thought the the dry up of credit, expansion of debt and a downward spiraling deflationary cycle of unemployment causing decreased consumption, downward pressure on prices and a lowering earning caused the Great Depression.

Editor: There are technical definitions of a depression which I will skip. Let’s settle for no money, no job, no food, and no place to live.

At the time Reich didn’t think chances for a depression were higher than 20 percent. Visit his blog now, but be sure to take Prozac first.

More funny stuff.

President George W. Bush was much happier last March about the economy in a speech he gave on March 14 at The Economic Club of New York. Bush admitted tough times in the housing and financial markets, but pointed out the positives.

“I’m confident that our economy will continue to grow because the foundation is solid,” Bush said. “Unemployment is low at 4.8 percent. Wages have risen. Productivity has been strong. Exports are at an all-time high. The federal deficit, as a percentage of our total economy, is well below the historic average.”

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October 10th, 2008 Posted by narsbars | Uncategorized | no comments

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