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Relax Bears, This Is June 1930

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Everyone was enjoying an unaccustomed optimism, until the Bank of England announced that the crisis isn't over until the Old Lady of Threadneedle Street sings and she is still too depressed to croon.

The decision by the Monetary Policy Committee to carry on with the emergency strategy of printing money to reflate the economy shocked observers, who believed that it must share their good cheer. Evidently, the Bank feared that the rise in the markets was not a sign of a return to growth but a "sucker's rally".

The derisive phrase has an ominous history. One of the greatest of all stock market delusions was the sucker's rally in the American markets after the Great Crash of 1929. Investors forgot images of weeping Wall Street dealers screaming that they would sell at any price and watched excitedly as prices bounced back. In June 1930, a delegation of bishops and bankers begged President Hoover to help find work for the unemployed. "Gentleman, you have come 60 days too late," Hoover replied. "The depression is over." Within a year, soup kitchens had spread across America

http://www.guardian.co.uk/commentisfree/20...nomy-nick-cohen

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The whole piece is brilliant and deserves to be quoted in full for those who cannot be bothered to click on links :

It's over. Officials can tell historians how they grappled with the Great Crash of 2008. Labour can hope against all reason that the electorate will re-elect it for saving Britain. The rest of us can return to normal, which to the British means borrowing huge sums to gamble in the property market.

The bets turned sour last time, but why not take a flutter now? Or buy a new car? Or just stop worrying that the sociopath in human resources will call you in for a "little chat"? Reasons to be cheerful abound. Last week, the Royal Institution of Chartered Surveyors said that its prediction that house prices would fall in 2009 was hopelessly pessimistic. Car sales rose for the first time since April 2008, while the marvellous recovery in the stock market continued to delight all those brave investors who had bought cheap in the spring.

Everyone was enjoying an unaccustomed optimism, until the Bank of England announced that the crisis isn't over until the Old Lady of Threadneedle Street sings and she is still too depressed to croon.

The decision by the Monetary Policy Committee to carry on with the emergency strategy of printing money to reflate the economy shocked observers, who believed that it must share their good cheer. Evidently, the Bank feared that the rise in the markets was not a sign of a return to growth but a "sucker's rally".

The derisive phrase has an ominous history. One of the greatest of all stock market delusions was the sucker's rally in the American markets after the Great Crash of 1929. Investors forgot images of weeping Wall Street dealers screaming that they would sell at any price and watched excitedly as prices bounced back. In June 1930, a delegation of bishops and bankers begged President Hoover to help find work for the unemployed. "Gentleman, you have come 60 days too late," Hoover replied. "The depression is over." Within a year, soup kitchens had spread across America.

Christina Romer, head of President Obama's Council of Economic Advisers, has warned him not to repeat a similar failure to grasp how fragile recoveries can be by Hoover's successor, Franklin Roosevelt. In 1937, when the American economy was at last on the mend, Roosevelt's administration thought that it could restore order to the public finances, only to see its spending cuts and tax rises send a healthy economy back over the edge. Meanwhile, throughout Japan's "lost decade" of the 1990s, every sucker who announced that normality was returning later recanted.

At the beginning of our crisis, David Blanchflower urged his colleagues on the Monetary Policy Committee to ask: "What should we do if we think Britain's position is as bad as America's in the 1930s or Japan in the 1990s?" The MPC's answer has been to keep its foot pressed hard on the accelerator and ignore all those who urge it to drive carefully.

When Mervyn King delivers his inflation report on Wednesday, my guess is that he will say that he remains fearful about the lack of credit in the economy. The media talk about the failure of British banks to lend and too often forget that the foreign banks, which used to supply credit, have not merely cut back on their lending, but wound-up their British operations. The MPC is not only concerned about banks lending too little, but that there are fewer banks to lend anything at all.

I wonder, too, if King will talk about the menace of unemployment. For a bulimic country, which has gorged itself on debt, mass unemployment will bring mass defaults, which will pose a new threat to the worm-eaten edifice of our banking system.

King must be grateful that he does not have to fret about the political consequences of the recession carrying on or a recovery being so weak and short-lived we will barely notice it. But David Cameron and George Osborne ought to be waking up in cold sweats.

With his sniper's eye for an enemy's weaknesses, Peter Mandelson noted the other day that the Tories were talking about cuts in public spending with indecent "relish". And, indeed, many Conservative core voters are delighted by the prospect that Cameron will have to reduce radically the size of the state, rather than lead the moderate, consensual administration he thought he would be running before the crash.

If the Bank of England is right, however, and the crisis is not over, it is far from clear when Osborne can start cutting spending and raising taxes. He must want to get the pain over with early in a parliament while he can still blame Gordon Brown for the nation's woes. As Robert Chote from the Institute for Fiscal Studies says, he must also be aware that if he does not offer a plan to cut quickly, investors may panic and push up the price of British debt.

Maybe Mervyn King will offer him a way out and tell him that quantitative easing can take the strain, and the Treasury should not be distracted from reforming the public finances. But if he doesn't, or if he does and he's wrong, the Cameron government could make the same mistake as the Roosevelt administration and enfeeble a recovering economy.

Beyond these scenarios, which are already frightening enough, lies that shamefully ignored prospect of mass unemployment. If King raises it on Wednesday, it will be a welcome break with the past.

I have scanned the serious press in vain looking for bold ideas to pull university lecturers off academic research, for instance, and order them to teach tens of thousands more students, or to create as many cheap, state-funded jobs as possible.

At least far-sighted Americans lobbied Hoover in 1930. Polite society in Britain today is not even asking what it will do if there are hundreds of thousands of justifiably furious young people on the streets.

The least bad answer is to imitate the Bank of England and keep the foot pressed down on the accelerator. The risk of investors refusing to finance government debt remains less severe than the continuing danger that precipitate tax rises and spending cuts will push Britain under.

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The whole piece is brilliant and deserves to be quoted in full for those who cannot be bothered to click on links :

It certainly puts recent events, green shoots etc, into some kind of perspective.

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It seems if the city is ok <_< then it's back to normal. They don't seem to need any customers!

The phrase 'let them eat cake' springs to mind. Until we address the small fact of MASSIVE DEBT then nothing has changed, in fact I think it's getting worse by the day.

Thanks.

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Interesting article, but if it's really June 1930, it's no time to relax.

Certainly not much relaxing going on around here. I think a fair few of us feel a sense of unease going into September.

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So, some media knob head from the Guardian hacks a piece together on the current "in" word and it gets some comment.

"Quantitative Easing" has been around for a long time.

All you need to do is look at money supply figures from 1930 to now.

Nice and gentle on the graph in 50's and 60's, then exponential till 2007.

http://en.wikipedia.org/wiki/File:Currency...y_1959-2007.gif

Followed by Queasing going to da moon. (that's the bit at the end of the graph going straight up!)

http://www.jbs.org/index.php/inflation-tax...onomy-blog/4442

UK is exactly the same. Except There doesnt seem to be a nice graph showing the BOE joining the Fed space race

to da moon.

(Edit, this wasn't the link I wanted to post. Now I can't find the one I wanted.)

Sorry to spoil anybodies polite chat, but which part of Post War Boom, did you miss.

Edited by DiggerUK

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Certainly not much relaxing going on around here. I think a fair few of us feel a sense of unease going into September.

We are in a phoney war period at the moment.

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We just don't know. Share investors use a sort of double-speak, where they talk long-term but act short-term. They ramp a share as having good prospects but what they're looking for is two or three days of rises to make a quick profit.

We are in a phoney war period at the moment.
On property - low interest rates have removed a lot of forced sellers from the market and that has halted the price slide. Also, if you think about 2008 and its natural 'quota' of first time buyers, many of them were put off buying but also many had been sucked into buying earlier during the 2007 boom. Now both those influences are working their way out of the system. Edited by blankster

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We are in a phoney war period at the moment.

It's quite surreal at the moment.

Question is will this malise get us to the next election, Ponzi Brown may salvage the result and avoid annailhation we might even end up with a hung parliament. I doubt Labour can win.

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It's quite surreal at the moment.

Question is will this malise get us to the next election, Ponzi Brown may salvage the result and avoid annailhation we might even end up with a hung parliament. I doubt Labour can win.

Even the Phoney War ended, And I suspect September will be a critical time, when unemployment benfits in the US expire for large numbers of people.

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Certainly not much relaxing going on around here. I think a fair few of us feel a sense of unease going into September.

What's the cause for the latest unease? I take it it's no longer swine flu or is that on the back burner for now?

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What's the cause for the latest unease? I take it it's no longer swine flu or is that on the back burner for now?

The Black Death seems to be coming to the forefront at the moment.

Spend today, for tomorrow you could have limbs falling off. :rolleyes:

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But that's the problem isn't it? This is not the 20's or the 30's.

There's no collapse of several hundred banks, no tie in to the gold standard, no one heading west to pick fruit, no literature depicting a starving man being breast fed by a grown woman, no tent cities, no dust bowls.

Time you gave it up. Come out of your cellar (it must be hell balancing the laptop on your knees down there), take a look outside and starting eating normal food. Baked beans are great, but there really is no need.

Edited by judas

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But that's the problem isn't it? This is not the 20's or the 30's.

There's no collapse of several hundred banks, no tie in to the gold standard, no one heading west to pick fruit, no literature depicting a starving man being breast fed by a grown woman, no tent cities, no dust bowls.

Time you gave it up. Come out of your cellar (it must be hell balancing the laptop on your knees down there), take a look outside and starting eating normal food. Baked beans are great, but there really is no need.

A bizarre statement. There's been massive QE and to date the best which can be said is that we haven't gone over a cliff. No sensible person can call that evidence that the problem is resolved.

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Great piece, I thought the bit about Osbourne wanting to get the pain over with early in the next parliament while labour can still be blamed was a bit naive though.. Labour have shown its possible to blame competiitve predecessors or your own parliamentary predecessors ad infinitum and most people will let you get away with it.. after all how many times have labour reformed the many isntitiutions of state.. countless times in some cases... if they'd reformed just once and got it right then we wouldn't have needed further reform.

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But that's the problem isn't it? This is not the 20's or the 30's.

There's no collapse of several hundred banks, no tie in to the gold standard, no one heading west to pick fruit, no literature depicting a starving man being breast fed by a grown woman, no tent cities, no dust bowls.

Time you gave it up. Come out of your cellar (it must be hell balancing the laptop on your knees down there), take a look outside and starting eating normal food. Baked beans are great, but there really is no need.

You don't get out much, do you ?

- documentary on French tv last night showed the homeless tent camps setup around the LA area. Something being repeated all over the US. Europe has it's share of homeless as well. Doesn't make good tv viewing , therefore tends to be ignored and we get some tele-reality trash for the masses instead.

- Fruit picking? For the first time in decades, grape/fruit/olive pickers in France and Spain are queuing at local job centres to get a job for 4-6 weeks. Students, unemployed, retirees etc. People that weren't in these queues 5 years ago. They are now in competition with the immigrant workforce for these jobs. Who would have believed it ?

- No dust bowls? Not in the UK , but elsewhere they are part of the normal cycle. Oz has just had one of its worst. Plenty of EU countries have farmers that will go bust soon as they struggle to get rid of their crops. Not due to dust bowls, but globalisation and the importing of fruit/veg from the 3rd world. The end result is the same - farmers selling up and land lying empty.

- Collapse of banks? Plenty collapsed or taken over in the last 2 yrs. Maybe if govts had allowed more banks to collapse we'd get through the depression quicker? Who knows? But the Japanese style zombie banks now being supported by taxpayers will be a millstone around our necks for generations.

We have a social security system in place that will avoid many of the human horror stories that were heard of in the 30s. But that doesn't mean all is fine and dandy. Just look at the length of the soup kitchen queues all over the EU and the US. They ain't getting any smaller............

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What's the cause for the latest unease? I take it it's no longer swine flu or is that on the back burner for now?

Sibley's not been posting. It's all gone just a little too quiet. :unsure:

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What's the cause for the latest unease? I take it it's no longer swine flu or is that on the back burner for now?

The recession in the US is turning into a full blown depression with real unemployment rate over 20% and growing, don't know about you but that makes me uneasy.

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The recession in the US is turning into a full blown depression with real unemployment rate over 20% and growing, don't know about you but that makes me uneasy.

+1

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