A short description of Andrew W. Mellon, Secretary of the Treasury from March 4, 1921 until February 12, 1932. Does this sound familiar? Sounds like a Bloomberg interview with Jim Rogers on "how to solve today's crisis": http://en.wikipedia.org/wiki/Andrew_W._Mellon: "Mellon became unpopular with the onset of the Great Depression. Many economists today (such as Milton Friedman and Fed Chairman Ben Bernanke, to give two prominent examples[citation needed]) partially attribute the collapse of the American banking industry to the popularity among Federal Reserve leadership of Mellon's infamous "liquidationist" thesis: weeding out "weak" banks was seen as a harsh but necessary prerequisite to the recovery of the banking system. This "weeding out" was accomplished through refusing to lend cash to banks (taking loans and other investments as collateral), and by refusing to put more cash in circulation. He advocated spending cuts to keep the Federal budget balanced, and opposed measures for relief of public suffering." You be the judge how well his Austrian policy of "clearing out the system" worked.
So much for "just sit back and let the system clear out itself, markets are self-healing and never fail".
So out of that graph on could conclude war is what turns economies around? I'm sure quite some economists would disagree on that. Also, maybe the revival in growth occured because of the cleansing of the system propagated by the no-interventionists? They just werent allowed to stick around until the fruits of their ideology played itself out?
Answer this question: It is so far out of this world to assume that Mellon's laissez-faire inaction contributed to the sharp negative GDP growth and steep deflation of 1929-1933?
I believe those leaning towards the Austrian school of economics would argue that the steepness of the decline in times of low economic activity is not to be attributed to the lack of government intervention after the bust but ratter at the lack of government or other intervention in the (mostly) too loose monetairy policy during the boom. When the bubble finally breaks trying to reachieve viable economic growth that benefits a wide range of the population can only succeed if you do not allow the same distortions leading up to the bust before take hold of the economic system once again. This will lead to hard but inevitable pain at first but in the medium to long run it should benefit a more sustainable path of economic growth. Something like that I believe. Sounds quite reasonable and appealing to the amateur market watcher such as myself but I would be more then happy to be corrected in this by those more knowledgeble on the subject. Excuse me for my bad grammar btw I am not English speaking. Cheers.
,there are a multitude of reasons for this recession,economists are coming up with new ones daily,the biggest one is leverage or overborrowing and that is what they said caused the crash in '29,and that is what they will say 20 years from now about this one.
Govermment was the one who create this big mess. http://www.treas.gov/press/releases/reports/crareport.pdf the Carterâs Community Reinvestment Act of 1977 was regulated and its anti-redlining procedures were strengthened. The Administration effectively pushed for more investments, on the part of financial institutions, into high-risk loans. An article published in the New York Times in September 1999 reports: âFannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income peopleâ (NYT, 30 September 1999) The results are illustrated by a 2000 United States Department of the Treasury study of lending trends in 305 U.S. cities between 1993 and 1998. This reveals that $467 billion in mortgage credit flowed from CRA-covered lenders to low and medium income borrowers and areas. The total number of loans to poorer Americans by CRA-eligible institutions for the period rose by 39% while loans to wealthier individuals by CRA-covered institutions rose by 17%. The share of total US lending to low and medium income borrowers rose from 25% in 1993 to 28% in 1998 as a consequence Then, In 1999, the Clinton Administration repealed part of the Glass-Steagall Act of 1933. This Act introduced the separation of financial institutes in commercial and investment banks, according to their business, in order to prevent conflicts of interest and frauds. The Act was born as a consequence of the Wall Street Crash which had uncovered many unlawful activities on the part of financial firms. The Repeal of 1999 effectively gave a free rein to banks, reintroducing them once again into the security business and eliminating the difference between categories. The result of this operation is described by the Washington Post: âFannie Mae and Freddie Mac enjoyed the nearest thing to a license to print money. The companies borrowed money at below-market interest rates based on the perception that the government guaranteed repayment, and then they used the money to buy mortgages that paid market interest rates.â (WP, 14 September 2008)