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Governments Move To Cut Spending, In 1930S Echo

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http://www.nytimes.com/2010/06/30/business/economy/30leonhardt.html?ref=business

The world’s rich countries are now conducting a dangerous experiment. They are repeating an economic policy out of the 1930s — starting to cut spending and raise taxes before a recovery is assured — and hoping today’s situation is different enough to assure a different outcome.

In effect, policy makers are betting that the private sector can make up for the withdrawal of stimulus over the next couple of years. If they’re right, they will have made a head start on closing their enormous budget deficits. If they’re wrong, they may set off a vicious new cycle, in which public spending cuts weaken the world economy and beget new private spending cuts.

On Tuesday, pessimism seemed the better bet. Stocks fell around the world, over worries about economic growth.

Longer term, though, it’s still impossible to know which prediction will turn out to be right. You can find good evidence to support either one.

The private sector in many rich countries has continued to grow at a fairly good clip in recent months. In the United States, wages, total hours worked, industrial production and corporate profits have all risen significantly. And unlike in the 1930s, developing countries are now big enough that their growth can lift other countries’ economies.

On the other hand, the most recent economic numbers have offered some reason for worry, and the coming fiscal tightening in this country won’t be much smaller than the 1930s version. From 1936 to 1938, when the Roosevelt administration believed that the Great Depression was largely over, tax increases and spending declines combined to equal 5 percent of gross domestic product.

Back then, however, European governments were raising their spending in the run-up to World War II. This time, almost the entire world will be withdrawing its stimulus at once. From 2009 to 2011, the tightening in the United States will equal 4.6 percent of G.D.P., according to the International Monetary Fund. In Britain, even before taking into account the recently announced budget cuts, it was set to equal 2.5 percent. Worldwide, it will equal a little more than 2 percent of total output.

Today, no wealthy country is an obvious candidate to be the world’s growth engine, and the simultaneous moves have the potential to unnerve consumers, businesses and investors, says Adam Posen, an American expert on financial crises now working for the Bank of England. “The world may be making a mistake, and it may turn out to make things worse rather than better,” Mr. Posen said.

But he added — after mentioning China, India and the relative health of the financial system, today versus the 1930s — that, “The chances we’re going to come out of this O.K. are still larger than the chances that we aren’t.”

The policy mistakes of the 1930s stemmed mostly from ignorance. John Maynard Keynes was still a practicing economist in those days, and his central insight about depressions — that governments need to spend when the private sector isn’t — was not widely understood. In the 1932 presidential campaign, Franklin D. Roosevelt vowed to outdo Herbert Hoover by balancing the budget. Much of Europe was also tightening at the time.

If anything, the initial stages of our own recent crisis were more severe than the Great Depression. Global trade, industrial production and stocks all dropped more in 2008-9 than in 1929-30, as a study by Barry Eichengreen and Kevin H. O’Rourke found.

In 2008, though, policy makers in most countries knew to act aggressively. The Federal Reserve and other central banks flooded the world with cheap money. The United States, China, Japan and, to a lesser extent, Europe, increased spending and cut taxes.

It worked. By early last year, within six months of the collapse of Lehman Brothers, economies were starting to recover.

The recovery has continued this year, and it has the potential to create a virtuous cycle. Higher profits and incomes can lead to more spending — and yet higher profits and incomes. Government stimulus, in that case, would no longer be necessary.

An internal memo from White House economists to other senior aides last week noted that policy makers “necessarily tend to focus on the impediments to recovery.” But, the memo argued, the economy’s strengths, like exports and manufacturing, “more than make up for continued areas of weakness, like housing and commercial real estate.”

More of this gibberish at the link.

However once more we have an idiot quoting Keynes without understanding the basics. In the boom you save, in the bust you spend. You don't spend in the boom, borrow even more in the boom to spend and then borrow even more to spend in the bust.

We are in this mess because the first lesson of the 29 crash still hasn't been learnt, ie leverage shouldn't be allowed to build up in the system especially when it's against asset prices that can go up as well as down very quickly.

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http://www.nytimes.com/2010/06/30/business/economy/30leonhardt.html?ref=business

More of this gibberish at the link.

However once more we have an idiot quoting Keynes without understanding the basics. In the boom you save, in the bust you spend. You don't spend in the boom, borrow even more in the boom to spend and then borrow even more to spend in the bust.

We are in this mess because the first lesson of the 29 crash still hasn't been learnt, ie leverage shouldn't be allowed to build up in the system especially when it's against asset prices that can go up as well as down very quickly.

Hoover followed keynes ideas

and so did FDR

they could have listened to some that actually predicted the depression instead rather than the central planners that didnt

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Hoover followed keynes ideas

and so did FDR

they could have listened to some that actually predicted the depression instead rather than the central planners that didnt

The central planners created the depression during the 20's. They are the founctain and arhictects of everything that actually cripples good investment and real growth.

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The main thing is that this time around, we don't have the gold standard, and we don't have deflationary monetary policy.

Both of these things made the depression particularly bad.

We are also much richer this time, and we have the developing economies to help us out in a way we didn't in the 30s. This recession/depression is unlikely to be anything like as brutal, in real everyday terms, as the one of the 30s.

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The main thing is that this time around, we don't have the gold standard, and we don't have deflationary monetary policy.

Both of these things made the depression particularly bad.

We are also much richer this time, and we have the developing economies to help us out in a way we didn't in the 30s. This recession/depression is unlikely to be anything like as brutal, in real everyday terms, as the one of the 30s.

im going to have to bookmark that one for posterity ! ;)

Edited by Tamara De Lempicka

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Feel free!

Honestly though, we are unlikely to see the scale of sheer grinding poverty and starvation that we had last time.

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However once more we have an idiot quoting Keynes without understanding the basics. In the boom you save, in the bust you spend. You don't spend in the boom, borrow even more in the boom to spend and then borrow even more to spend in the bust.

We are in this mess because the first lesson of the 29 crash still hasn't been learnt, ie leverage shouldn't be allowed to build up in the system especially when it's against asset prices that can go up as well as down very quickly.

Somebody give this man a blowjob!

Finally someone that points out Keynesian policies are very different to Blair/Brown/Bush/Bernake/Bastards beginning with B polices.

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Feel free!

Honestly though, we are unlikely to see the scale of sheer grinding poverty and starvation that we had last time.

i unfortunately think we are unlikely not to see more, the adjustment downwards is going to be a much bigger degree than the 30s (because i think the 30s is part of the current cycle but a smaller part/degree within it). Hope im wrong. Because that sort of decline we just arent socially geared for it, the sense of entitlement across all social spectrums is the largest degree in History, that is ultimately dangerous

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The main thing is that this time around, we don't have the gold standard, and we don't have deflationary monetary policy.

Both of these things made the depression particularly bad.

We are also much richer this time, and we have the developing economies to help us out in a way we didn't in the 30s. This recession/depression is unlikely to be anything like as brutal, in real everyday terms, as the one of the 30s.

Are 'we' really 'richer'?

I would have thought that the average person in the 30s would be pretty much debt free for example.

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Are 'we' really 'richer'?

I would have thought that the average person in the 30s would be pretty much debt free for example.

Thats the monetary system, by definition if we are richer we are also more indebted on the other side, debt that needs to be paid in order to realise the wealth, debt which cant be paid which is why we are where we are. The wealth is concentrated in few hands & pension funds etc and because they cant and wont spend it, it cant be serviced, to counter this we get more ande more credit until Kaboom (this point is generally signalled by banks (conduits of credit) going under left right and centre due to defaulting loans), its been building for generations

Edited by Tamara De Lempicka

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The main thing is that this time around, we don't have the gold standard, and we don't have deflationary monetary policy.

Both of these things made the depression particularly bad.

given that FDR devalued the dollar by ~40% against gold, I would not say that 1930s USA had a 'deflationary monetary policy'

given that FDR made it illegal for US citizens to own gold, I would not say that the USA was on a gold standard after EO6102

and as for things that made the depression particularly bad, I would put at the top of my list FDR paying farmers to plough their crops under as millions of americans went hungry.

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Finally someone that points out Keynesian policies are very different to Blair/Brown/Bush/Bernake/Bastards beginning with B polices.

ultimately though keynsian policies when repeated over and over simply transfer wealth from taxpayers to private profit centres, where it never really leaves. Instead it builds up as an ever greater surplus at the profit center and an ever greater deficit for taxpayers.

until now, in 2010, the deficit accounts for almost the entire actual profit stream going to private hands.

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given that FDR devalued the dollar by ~40% against gold, I would not say that 1930s USA had a 'deflationary monetary policy'

given that FDR made it illegal for US citizens to own gold, I would not say that the USA was on a gold standard after EO6102

and as for things that made the depression particularly bad, I would put at the top of my list FDR paying farmers to plough their crops under as millions of americans went hungry.

Wonder if we will see a wrecking ball plough through many vacant US homes, while many people go homeless?

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However once more we have an idiot quoting Keynes without understanding the basics. In the boom you save, in the bust you spend. You don't spend in the boom, borrow even more in the boom to spend and then borrow even more to spend in the bust.

We are in this mess because the first lesson of the 29 crash still hasn't been learnt, ie leverage shouldn't be allowed to build up in the system especially when it's against asset prices that can go up as well as down very quickly.

+1.

Strange how the 'Neo-Keynesians' fixate on the 'spend your way out of recession' bit whilst forgetting the 'tighten policy in good times to save for the bad' part.

We had a decade of laissez-faire monetary control when the last thing on anyones mind was to reign things in a bit and leave something in reserve for the invariable bust.

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+1.

Strange how the 'Neo-Keynesians' fixate on the 'spend your way out of recession' bit whilst forgetting the 'tighten policy in good times to save for the bad' part.

We had a decade of laissez-faire monetary control when the last thing on anyones mind was to reign things in a bit and leave something in reserve for the invariable bust.

Keynes, great on paper, sh!t once humans apply it because

a) a boom is never a boom , its the norm due to whatever govts in power fantastic leadership

b ) what sort of boneheaded politician is going to run a surplus which is more damging than not spending to reelection chances in 5 years and more importantly how boneheaded would they have to be to run a surplus that the opposition may benefit from in the next parliament

as long as youre fortunate enough to get in early enough in the credit cycle you can spend as damagingly as you want to your hearts content and leave office an economic genius, just ask Reagan

Edited by Tamara De Lempicka

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Wonder if we will see a wrecking ball plough through many vacant US homes, while many people go homeless?

Poland did it a few years ago because so many Poles came over here.

Ireland is about to start knocking down brand new estates of 5 bedroom homes because they can't sell them. (Yes 5 bedroom, they are Catholics, they don't do birth control)

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Thats the monetary system, by definition if we are richer we are also more indebted on the other side, debt that needs to be paid in order to realise the wealth, debt which cant be paid which is why we are where we are. The wealth is concentrated in few hands & pension funds etc and because they cant and wont spend it, it cant be serviced, to counter this we get more ande more credit until Kaboom (this point is generally signalled by banks (conduits of credit) going under left right and centre due to defaulting loans), its been building for generations

Well, that doesn't sound especially good does it....

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Hoover followed keynes ideas

and so did FDR

they could have listened to some that actually predicted the depression instead rather than the central planners that didnt

Keynes was such an idiot that he made a fortune from his stock markets investments in the 1930s

http://www.fleetstreetinvest.co.uk/economy/uk-economics-business/john-keynes-investing-depression-54453.html

If he only he could have lived long enough to listen to the wiseacres on this forum he could have been just as potless as they are

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Wonder if we will see a wrecking ball plough through many vacant US homes, while many people go homeless?

The wrong answer will emerge, as always.. :blink:

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Poland did it a few years ago because so many Poles came over here.

Ireland is about to start knocking down brand new estates of 5 bedroom homes because they can't sell them. (Yes 5 bedroom, they are Catholics, they don't do birth control)

DiCkhead.

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This is what happens when you carry on printing.

Real global panic will start with the US.

http://www.themarketfinancial.com/real-global-panic-will-start-with-the-us/5430

No one seems to want to write about it, but in Weimar Germany, deflation preceded the hyper-inflation. After WWI, Germany was on the brink of economic armageddon. There was actually a world wide depression in 1920, and prices in Germany plunged. The conservative German government, in reaction to the huge debt burden of reparations, instituted severe austerity programs. This brought dire economic consequences to a country where prices and wages were already cascading. Consequently, Germany’s tax revenues had dropped dramatically at a time when it was forced to make massive payments to foreign countries in gold. This imbalance moved Germany from a state of deflation, to inflation (not yet hyperinflation).

It wasn’t long before Germany could no longer make its reparation payments. With Germany insolvent, the mark started falling off a cliff in value. When the Allies refused to take marks for debt repayment, Germany pledged it would repay the allies with its natural resources, like coal. France, which was having its own problems repaying its debt to the US, accused Germany of purposely trashing the mark and withholding payments in order to get the Allies to take less.

In January of 1923, France and Belgium sent troops to invade and occupy the Ruhr reguion of Germany. This region accounted for most of Germany’s coal mining and steel production. The German government paid the German miners and steel workers not to work for the French and Belgian occupying force. It paid them with money created out of thin air. The rest is history. The mark became worthless and inflation became hyperinflation.

US asset prices are deflating.

The US is creating money out of thin air.

The US can not pay its foreign debts.

The US is the largest debtor in the history of the world. Foreign investors and banks are taking over US companies, banks and buying up US infrastructure. In a quiet way, they are becoming an occupying force. They are in the process of exchanging their US dollars for resources. When the day comes, when the USD (backed by a $130 trillion debt) is no longer the world’s reserve currency, more foreign creditors will demand payment in something other than dollars. Guess what will happen next.

- black swan

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  • 150 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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