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Post by nailbender on Aug 30, 2009 22:49:19 GMT -6
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Post by unlawflcombatnt on Aug 31, 2009 12:47:47 GMT -6
Bernanke's essay was interesting. I read most of pages 45-51. Below are paraphrases of some parts I found especially interesting:
p. 45 Prior to the Fed Reserve's creation in 1913, banks prevented bank runs by suspending the convertibility of bank deposits into currency. The existence of the new Fed Reserve relieved them (banks) of the responsibility of preventing bank runs, or at least that's what the banks thought. (Moral Hazard thus created by the Fed Reserve.) But the Fed Reserve was unwilling or unable to prevent bank runs.
p. 46 Pervasiveness of debtor insolvency.
Ratio of debt service to national income increased from 9% in 1929 to 19.8% in 1932-33. All sectors were affected.
½ of all residential properties had outstanding mortgages at the beginning of the Great Depression.
The % of owner-occupied houses in some degree of default varied from 21% to as high as 60% in some areas.
45% of US farms were delinquent on payments as of 1933. The largest Corporations maintained profitability during this period, while smaller ones did not. This caused far more small firms than large firms to fail. (And this gave the bigger, surviving firms more market share and pricing power.)
p.47 Corp bond debt increased from $26.1 billion in 1920 to $47.1 billion in 1928.
Non-Federal public securities (debt) increased from $11.8 billion to $33.6 billion over same period (1920-28)
Urban real estate mortgages increased from $11 billion in 1920 to $27 billion in 1929.
The debt crisis of the 30's wasn't qualitatively different than before. It was QUANTITATIVELY different.
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Every time I look at the Great Depression, I think of Denninger's comments about "pulling demand forward."
Through ever-increasing expansion of credit, the US "pulled demand forward" during the 20's, and then this demand collapsed when it became unsustainable. The GDP was simply too large in the 20's, based on actual income and real wealth production during that time. But the demand could have been sustained, however, if more of the real wealth produced had been shared with the non-rich, so that wage-financed consumer demand would have been greater.
Had more wealth production & real income been directed downward, there would have been less wealth available to hyper-inflate the stock market and its non-productive paper assets.
It certainly appears that credit expansion fueled the "roaring 20's," and its collapse brought on the Great Depression. But I wouldn't say that working & middle Americans had necessarily been living beyond their means. They were producing real wealth. But too much of it was not being shared with them. So I would say the "means" of the average Americans should have been higher—and that it would have been higher, were it not for the excessive amount of wealth sucked off by those at the top. This absconded wealth, that came at the expense of workers' wages & consumer spending, was then re-invested in non-productive paper assets and credit expansion. The latter of which enabled wage-deficient Americans to continue the spending necessary to sustain production demand.
But again, this was "pulled forward" demand, and unsupportable by the average and aggregate workers wages.
And the same thing is happening today, except on a much bigger scale, having taken place over the last 30 years. And this process was supercharged by new "innovative financial instruments"—creating far more debt than ever before possible, and 'pulling-forward-demand' far more than ever thought possible.
And, almost needless to say, the outsourcing of our productive capacity will make a recovery much more difficult.
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Post by nailbender on Aug 31, 2009 16:41:22 GMT -6
unlawflcombatnt- Every time I look at the Great Depression, I think of Denninger's comments about "pulling demand forward." ------------------------ I agree, KD's see's the problem with "pulling demand forward". At best it may be used as a "temporary" stimulus, but it is certainly not a replacement for a productive manufacturing economic base. I see the similarities of the debt/credit bubble of the GD and our GD2.0 striking. I find it interesting how Keen's says neo-classical economists do not consider debt levels or quality of debt to have any impact on their economic functions. It is as though they are completely blind to debt assuming it is wealth. I also agree on your comment of the striking similarity of skewed "top tiered "wealth distribution" between then and now. the concept of "trickle down" economics should have been ruled a "myth" by the events surrounding the GD. It appears MUCH higher taxes for those making $200,000 or more must be implemented, but I am not sure this is the correct solution to a more equitable means of "wealth distribution". I do not support the incredible amount of spending being done by the gov. An alternative could be labor owned enterprises, where wages are limited/regulated throughout the business with the profit being divided equally in the form of a dividend. The question remains how to support the slice of the population that does not/ can not/ or will not work. I would think supplying this group with low skilled/ low wage community based work would be better than issuing welfare checks for ever. Just to clarify, I do not own the Bernanke's book and have not read it all. I do not believe he actually authored much of the text in the book, it was mostly "copy/paste" of past author's essay's repackaged as "his" book. Take a look at the review. www.h-net.org/reviews/showpdf.php?id=4306
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Post by unlawflcombatnt on Sept 1, 2009 2:43:10 GMT -6
unlawflcombatnt- Every time I look at the Great Depression, I think of Denninger's comments about "pulling demand forward." ------------------------ I agree, KD's see's the problem with "pulling demand forward". At best it may be used as a "temporary" stimulus, but it is certainly not a replacement for a productive manufacturing economic base. I see the similarities of the debt/credit bubble of the GD and our GD2.0 striking. I find it interesting how Keen's says neo-classical economists do not consider debt levels or quality of debt to have any impact on their economic functions. It is as though they are completely blind to debt assuming it is wealth. I also agree on your comment of the striking similarity of skewed "top tiered "wealth distribution" between then and now. the concept of "trickle down" economics should have been ruled a "myth" by the events surrounding the GD. It appears MUCH higher taxes for those making $200,000 or more must be implemented, but I am not sure this is the correct solution to a more equitable means of wealth distribution I would certainly agree with raising taxes on those making over $200K, and I would tax capital gains at the same or higher rate than wage income. Another shorter-term solution to wealth maldistribution suggested by some, including economist Ravi Batra, is to greatly increase the minimum wage. I think the ultimate longer-term solution is to greatly reduce imports, thus increasing the demand for American labor to produce goods for the American market, thus increasing American labor's value and workers' wages. A close corollary is to reduce immigration of working age people, thus reducing the labor supply. We've already got almost 100 million working age people in this country who are not employed. We certainly don't need to increase that number any.
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Post by graybeard on Sept 5, 2009 13:30:02 GMT -6
I heard on NPR this morning that lead in all sorts of imports is still big, and there is little testing, let alone enforcement.
100% inspection of all imports, paid by the importers, would cure a lot of ills.
GB
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