From: PhaedrusWolf@aol.com
Date: Thu Dec 09 2004 - 00:34:50 GMT
When we look back at data going back to 1926, included is that data for the
period from the Great Depression that was triggered beginning in 1929. The
actual reasons for the stock market crash of 1929 -1932 are still debated today;
seems there was plenty of blame to go around.
An economist during that period, John Maynard Keynes, came up with a
solution for helping bring the economy out of depression that was looked at during
that period, as stated by Franklin Roosevelt; "Too easy."
Keynes' theory states that there is a natural flow of money that under
normal economic conditions is fed by spending. You may have heard Eastern
philosophers speak of attracting wealth to yourself by spending; as long as you are
spending, then the results of your spending in turn creates a natural flow of
money back to yourself. This is as Keynes saw it as well. Consider you own,
or work in a department store. You take your earnings from the department
store, and you may buy stuff from a hardware store to fix up your house. In turn,
the owners and employees of the hardware store have made money they can spend
in your department store. The economy rocks along.
Now, consider the market takes a huge dive such as it did recently. The
owner of the department store gets concerned about all the inventory on the shelf
that may not get sold unless the economy picks back up. Remembering the
Crash of '29, there is always the possibility we could face something like this
again. The owner of the department store decides to cut back on spending, home
renovations can wait. This in turn affects the hardware store owner and
employees as well. Since there is less sales, and therefore less income in the
department store, there is no room for the niceties of the department store.
The more frivolous items can wait. The circle of hoarding money begins.
We hear the market can predict an upturn in the economy. It may well be that
the market is the beginning of the upturn. As people start spending once
again, the firms that make up the market start building inventory, and of course
those who supply the firms also have to start building up their inventory.
This creates the natural circular flow of money once again, which, of course,
increases earnings.
What creates a depression from a recession is that people will tend to hoard
money when a recession hits, cautious to spend.
What Roosevelt saw as "Too simple," was Keynes' idea that the government
could cure the recession by 'simply' printing more money. Placing more money in
people's hands would increase confidence, and therefore spend. A depression
is simply the result of a recession where people refuse to let go of their
cash. The cure for this would depend on the government doing what the people
would not; "Spend." This is what Keynes called "Priming the pump."
One of the reasons leaned toward for the '29 crash was the tightening of
money by the raising of interest rates; not like, but similar to what happened
in 2000. With the market heating as it did during the 90s from "Irrational
exuberance," and the need for liquidity in the market in 1999 from fears of the
banking system suffering from a computer system that didn't recognize the year
2000 (the "Y2K bug"), the Fed had to tighten money in 2000 by raising
interest rates, after loosening it in 1999 which had further fueled the market. It
is possible that the interest rate hikes, and the downward move in the
economy could have led us into a depression, as many feared, equal to that of the
30s.
The cure, or at least temporary cure, came from loosening money by lowering
interest rates, and possibly the "War on terrorism." The government began to
do what the people were not; spending money. The same held true for the Great
Depression; through World War II, the governments of the world began to
spend, therefore ending the depression.
Prior to World War II, all recessions led to depressions; since, none (at
least so far).
Fear will always rule the day. Even those who were not around in the 30s
still fear bear markets, and for good reason; it is still <i>possible</i>
something like the Great Depression could happen again. It may not be probable, and
would depend on whether governments still adhere to, and the Keynesian
Theory still holds true.
The internet bubble itself could have been a result of the government
overspending in a period when it wasn't needed, instead of doing a little saving
for the future.
The government has a strong influence on the economy. Saving in periods of
good economic periods is necessary, so that the Gov. can spend in periods when
the general public will not. As we reduced the deficit during the Clinton
years, we were able to run a deficit in the recent bursting of the bubble that
allowed us to avoid a depression something similar to what we saw 1929 - 1945.
So far anyway. :o)
Just some thoughts,
Chin
MOQ.ORG - http://www.moq.org
Mail Archives:
Aug '98 - Oct '02 - http://alt.venus.co.uk/hypermail/moq_discuss/
Nov '02 Onward - http://www.venus.co.uk/hypermail/moq_discuss/summary.html
MD Queries - horse@darkstar.uk.net
To unsubscribe from moq_discuss follow the instructions at:
http://www.moq.org/md/subscribe.html
This archive was generated by hypermail 2.1.5 : Thu Dec 09 2004 - 00:56:46 GMT