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Comparison 1929 - 2008 Crash

Page history last edited by PBworks 15 years, 4 months ago

A commentary by GlobalView on the correct approach to reflating this economy vs. mistakes made '29-32.

 

The best analysis I saw today on

marketwatch.com reader thread. Don't know GlobalView. Could be a market or economic analysis firm

 

The problem is a lack of leadership. The old cliche is not necessarily true; we're not in uncharted waters. The reaction to the economic problems in 1929 and the 30's actually caused the Great Depression: the first reaction was tighten credit then they threw up trade barriers to insulate American businesses and then raised taxes. This of course turned out to be disastrous b/c it was the wrong fix for the wrong problem. As credit tightened and export markets shut down in retaliation for US tariffs, people stopped buying, factories stopped producing, people were laid off and from there it went downhill into a spiral that was not reversed until the massive spending and mobilization of American industries to fight WW2.

 

 

The right fix would have been exactly what the Fed and Treas dept is now doing: reflating the economy with money to counteract the effects of deflation of assets and money evaporating from the economy. (Ben Bernanke actually is one of the most foremost experts on the causes of the Great Depression).

 

 

The problem today is essentially the same as then: over-extension of credit in both consumer and capital markets which has manifested in the housing and derivative markets. As then, the over-extension of credit resulted in an inflated market and when those markets then realized the inflated prices, fear griped the markets and they went into a tailspin followed by a reactive tightening of credit and raising tariffs.

 

 

Although the Fed and Treas dept are doing the right thing, we are now going into Act II which is uncharted b/c then Act II was FDR's New Deal which was too little, too late. Act II now is follow through with both monetary and fiscal stimulus to further reflate the economy: reduce taxes so individuals and businesses have more money to spend, rathchet up government spending in rebuilding infrastructure to create jobs enabling people to pay mortgages and bills and inject money into the economy while improving the infrastructure, and continue lending money to industries so they can reflate their businesses, for example, GM, Chrysler and Ford.

 

 

This all takes leadership; individuals who seem to know what the problem is and the right action to get us out of the swamps. Paulson and Bernanke are demonstrating it, but I'm not seeing it with either of the candidates for President and as usual Bush is ineffective in stating what the problem is and articulating solutions.

 

 

What I see as one of the most effective solutions to inject money into the economy is reducing the corporate tax rate from 35% to 10%. American corporations have vast amounts of capital overseas which were earned overseas and which are not repatriated to avoid the high US corporate tax rate. By reducing this rate, many corporations would repatriate their capital and invest in their corporate infrastructure here in the States. that would have an effective better than any US governement effort to inject money into the economy.

 

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Dick Saunders

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