What Prevents Another Financial Collapse and Depression?

Great Depression breadline (detail) -- Public Domain

By Eddie Howell

The “ruling globalist elite” are frequently mentioned in political articles these days, and usually, it’s 

pointed out that these people are very secretive about their plans, their history, and often their identity. Who are the behind-the-scenes rulers pulling the strings?

The elites are often identified with the Trilateral Commission, the Bilderberg Group, the Club of Rome, and the Council on Foreign Relations, etc. “Conspiracy theorists,” who are usually simply trying to find out and present the truth, are painted as paranoid nut cases. Maybe some are, but most can see the threat posed to ordinary people by these ruling masters, the true robber barons, and would like to counteract them. The elites themselves seem to encourage confusion and enjoy being mysterious, lest people get wise to the elites’ nefarious plans, and actually do things to restrain or neutralize them.

There is quite a lot of literature and video purporting to inform about the elites’ history and objectives, and some have plausibility. Some get into bizarre theories, but many do not.

There are various names for movements and organizations which are or might be in league with the elites, and therefore attempting to take down the middle class, which is the elites’ main goal:

(In addition to those mentioned above)

Socialist organizations (They hate private profit and property.)

Communist organizations (They hate the bourgeoisie.)

Leftist labor union bosses (They object to the profits of the company owners and executives.)

The U.S. Democratic Party (Their championing of the middle class is basically a lie.)

The Federal Reserve (They have virtually unrestricted contol of the money supply,)

The Securities and Exchange Commission (They seldom go after violators and rarely report to

  any kind of oversight because the law allows this.)

Wall Street banks

Islamic jihad movement

Environmental groups

Gun control groups

and others

There is plenty of overlap among these, and many are unwitting helpers to the elites, such as the high schoolers’ anti-gun effort, and people who ignorantly support socialism.

Job seekers during the Great Depression  -- Public Domain

Mercantilism as an economic system dates back to the Middle Ages, and involved wealthy organizations seeking to secure monopoly power, using government authority, for the purpose of acquiring precious metals and achieving a favorable trade balance, and in the process, weaken their nations’ enemies and wipe out competition. Mercantilism was practiced most effectively by countries that had colonial interests, and the mercantilists worked to assure that they controlled all aspects of manufacturing, trade, and finance. 

They were mainly focused on their own financial gain and manipulated governments and others for that purpose, pushing aside independent merchants who might try to compete with them, or political opponents who might get in their way. It was a sort of “legalized” mafia, and was practiced in most major countries, competing with each other.

Displaced family during the Great Depression -- Public Domain

Wayne Jett, author of The Fruits of Graft* describes the elites as mercantilists, which seems an apt term. Mercantilism, as practiced by the ruling elites today, seeks the financial gain of mega-rich elites, as Jett shows, and is focused on inflicting harm and destruction on the productive middle class, resulting in a two-class system (elites and serfs), as described in 1901 by H.G. Wells in his book Anticipations...**  Jett calls this book the elitist manifesto. It advocates the removal of the middle class through taxation, wars, and killing, in order to restore the “natural order” of things.

Wells greatly impressed both Theodore Roosevelt and Franklin D. Roosevelt during their respective presidencies and conferred with leading mercantilists of the day. Jett powerfully argues that the mercantilists executed the Great Crash of 1929, and largely by actions of Franklin     D. Roosevelt, made the ensuing Great Depression much deeper and longer lasting than it might  have been otherwise.

 Franklin D. Roosevelt, Eleanor Roosevelt, and Joseph Robinson in Washington, D.C., First Inauguration, March 4, 1933 (National Archives).

Through deliberately counterproductive policies and acts, FDR destroyed much of the wealth of the middle class, and the poor also suffered greatly. While presenting himself as concerned for the “forgotten man,” he actively pursued actions which destroyed people he supposedly was trying to help. Millions of Americans needlessly starved to death thanks to these manipulations. Correction: The actual number of people who starved to death is difficult to determine. Some figures given are from 3 to 7 million; others say that starvation occurred, but was not that widespread. It is well established, however, that many people went hungry and many suffered from malnutrition and related diseases, such as rickets. Diseases such as tuberculosis and pneumonia increased, and many died of exposure. Often, children were without milk, and many people generally could not afford medical treatment or sufficient nourishing food. All this took place while FDR had economic means of recovery at his fingertips, but the continuing high taxes and gold hoarding by the Administration, monetizing neither the vast gold purchases nor the gold confiscated from the public, kept most people with little to no money, and suffering accordingly. 

Jett details these things and meticulously documents them. He also documents the mercantilists’ destructive actions in the dot-com bubble burst of 2000-2001 and the Crash of 2008 during the Great Recession. His descriptions of what happened in each of these episodes are alarming. They also are supported by historical facts and classical economic analysis.

The elites are working to put the middle class out of business and out of existence. This is what happened as a result of the elitist-supported Russian Revolution of 1917, and preliminary conflicts in the years leading up to it. A civilization of over 1,000 years was destroyed. The middle class “bourgeoisie” faced murder or imprisonment. With much of the skilled and productive middle class gone, the communists were left with few skills for governing, and leaders whose murderous bloodthirst gave their nation a lawless dictatorship. Millions of murders of citizens took place. Leftists in the U.S. today would like to imitate that process here.

Some ways that are pointed out as being used to destroy the middle class include higher taxes (thus the Democrats’ opposition to the Trump tax cuts), and lack of government attention to destructive practices in the financial markets. The stock market meltdowns of 1929 and 2008 were brought about deliberately through unrestrained, often fraudulent, short-selling for the benefit of elite buyers of the distressed shares and assets at very low prices. Investors were, in many cases wiped out. On many fronts, changes are needed to reduce the elitists’ power and protect American citizens.

So what has been done in light of the 2008 collapse that will prevent a similar occurrence in the future? Scandalously little! The Fed still can run wild with the value of the dollar, the IRS can abuse its authority, the SEC can run interference for those they are supposed to be regulating, and dark markets for commodities can still operate. Hedge funds can still largely operate in secret. All it would take to cause a 2008-type crash might be a decision by the elite powers that be to spread false rumors about target companies’ financial strength, launch stock market bear attacks, then wait for the dust to settle and step in to buy what’s left, on the cheap. Meanwhile, watch out for your IRA and 401(K). Of course, the elite geniuses will probably come up with something sneakier next time. Trump Administration vigilance might be able to foil such an attack by the Deep State Swamp. But until big changes are made, it seems the danger remains.

 Following is a YouTube video in which Mr. Jett explains some things about his book.

*Wayne Jett, The Fruits of Graft (Los Angeles: Launfal Press, 2011). I highly recommend this book.

** H. G. Wells, Anticipations of the Effects of the Reaction of Mechanical and Scientific Progress upon Human Life and Thought (New York and London: Harper & Brothers, 1901).

Can Trump Make America Great Again? Doubtful.

Donald Trump

Peter Schiff

By Eddie Howell

Donald Trump has a catchy phrase: “Make America Great Again.” But in every major area that presidential politics must address, serious doubts arise as to foreign policy, domestic policy, and economic policy. If he is to succeed in economic policy (if he becomes president), he will need to rethink what he's been saying about trade policy. As it is, he'd be an improvement over Barack Obama, and be much, much better than Hillary Clinton.

Trump likes the idea of threatening or imposing tariffs on trade partners he regards as unfair to America. Certainly, many improvements can be made in regard to American trade policy, but Trump's plan does not look like the answer.

Fee.org (Foundation for Economic Education) analyzes the effects of the Smoot-Hawley Tariffs (1930) in regard to its contribution to the Great Depression, and finds that its negative effects were more profound than many economic historians believe today, and finds fault with their economic models. For instance,

[I]f losses of GNP were not evenly distributed across the economy but were concentrated (say, in export-oriented states), the tariff most likely distorted monetary conditions significantly. Two percent of GNP does not sound like a big change, but if it’s concentrated in one-fifth to one-third of the states, it’s very large indeed. The tariff dramatically lowered U.S. exports, from $7 billion in 1929 to $2.4 billion in 1932, and a large portion of U.S. exports were agricultural; therefore it cannot be assumed that the microeconomic inefficiencies were evenly distributed. Many individual states suffered severe drops in farm incomes due to collapsing export markets arising from foreign retaliation, and it’s no coincidence that rural farm banks in the Midwest and southern states began failing by the thousands.

Donald Trump should understand that the tariffs he has in mind would be counterproductive. Peter Schiff has the following straight-forward analysis of why Trump's tariffs wouldn't work.

I should note that Schiff is predicting a major economic collapse soon, which would render the tariff issue moot. Schiff makes sense on tariffs and lots of other things, but, while there are danger signs, the kind of collapse Schiff predicts seems unlikely in the near future, especially if Obama's regime is replaced by a pro-growth administration. At least we can hope so.

Some Comments on President Obama’s Economic Speech of December 6, 2011

President Theodore Roosevelt. Photo via Wikipedia

The president spoke in Osawatomie, Kansas on Tuesday, December 6, 2011, on his version of Theodore Roosevelt’s “New Nationalism,” essentially trying to make a case for a more socialistic approach to the economy, with the idea of government striving to make everything “fair” and supposedly advancing the middle class.

The comments cover a good deal less than the entire speech (video found here and here), but I believe they address the main ideas he expressed. The text is found at the Washington Post website. The president’s words are in bold, mine are not.


For many years, credit cards and home equity loans papered over the harsh realities of this new economy. But in 2008, the house of cards collapsed. We all know the story by now: Mortgages sold to people who couldn’t afford them, or sometimes even understand them. Banks and investors allowed to keep packaging the risk and selling it off. Huge bets – and huge bonuses – made with other people’s money on the line. Regulators who were supposed to warn us about the dangers of all this, but looked the other way or didn’t have the authority to look at all.

It was wrong. It combined the breathtaking greed of a few with irresponsibility across the system. And it plunged our economy and the world into a crisis from which we are still fighting to recover. It claimed the jobs, homes, and the basic security of millions – innocent, hard-working Americans who had met their responsibilities, but were still left holding the bag.

The president conveniently leaves out the fact that banks were under heavy pressure from the government to make these loans, and Fannie and Freddie purchased them. The Democrats in Congress, led by Barney Frank, would not permit the needed regulation of Fannie and Freddie, claiming that they were on sound footing. Financial companies issued extremely risky derivatives, which should have been stopped by government regulators but weren’t, and now, banks have it set up where derivatives take priority in bankruptcy, over the interests of investors. See Gary North’s informative article here.

Community agitators like ACORN (which previously employed Barack Obama)  increased pressure on banks to make the bad loans. The “breathtaking greed” was driven and incentivized by the government through purchase guarantees and “affordable housing” pressure. Banks shared blame as well, but it was primarily a government- and Federal Reserve-caused situation. The bailouts (under Bush’s administration) set the tone for further legislation handled in an “emergency” fashion, (Obamacare, cap and trade, etc.), with little to no debate and in the dark of night, with 1,000-plus-page bills which were not read and perhaps not yet entirely written when voted upon. This is the fault of government.

But this isn’t just another political debate. This is the defining issue of our time. This is a make or break moment for the middle class, and all those who are fighting to get into the middle class. At stake is whether this will be a country where working people can earn enough to raise a family, build a modest savings, own a home, and secure their retirement.

Obama is correct that the middle class is at stake. It is Obama’s policies that are destroying the middle class through ensuring massive unemployment and an economic environment that discourages business growth and hiring. His answer is higher taxes and more spending. More “stimulus,” when the stimulus to date is proven ineffective.

Now, in the midst of this debate, there are some who seem to be suffering from a kind of collective amnesia. After all that’s happened, after the worst economic crisis since the Great Depression, they want to return to the same practices that got us into this mess. In fact, they want to go back to the same policies that have stacked the deck against middle-class Americans for too many years. Their philosophy is simple: we are better off when everyone is left to fend for themselves and play by their own rules….

According to Obama, the government needs to make sure a good outcome is experienced by all who “work hard.” The task of government in the economy is punish fraud and abuse, and to provide an appropriate, rather than oppressive, tax and regulation environment. The Federal Reserve has harmed the economy through massive money printing and artificially low interest rates that discourage investment and saving. The government should not interfere with the free market, which they constantly do through corporate welfare and “crony capitalism” which is actually not capitalism but more like fascist corporatism.

They should stop all subsidies, bailouts, and special tax treatment, and trust the free market, in which companies and individuals pursue their own self interest without government interference.

Now, just as there was in Teddy Roosevelt’s time, there’s been a certain crowd in Washington for the last few decades who respond to this economic challenge with the same old tune. “The market will take care of everything,” they tell us. If only we cut more regulations and cut more taxes – especially for the wealthy – our economy will grow stronger. Sure, there will be winners and losers. But if the winners do really well, jobs and prosperity will eventually trickle down to everyone else. And even if prosperity doesn’t trickle down, they argue, that’s the price of liberty.

It’s a simple theory – one that speaks to our rugged individualism and healthy skepticism of too much government. It fits well on a bumper sticker. Here’s the problem: It doesn’t work. It’s never worked. It didn’t work when it was tried in the decade before the Great Depression. It’s not what led to the incredible post-war boom of the 50s and 60s. And it didn’t work when we tried it during the last decade.

It’s called free market capitalism and it does work and will work whenever it’s allowed to operate. The reason the Great Depression got so bad and lasted so long is that government tried to fix it. There was a depression in 1920 that started out as bad as the one in the 1930’s, but lasted less than two years, because neither the government nor the Fed did anything to interfere. They didn’t enshrine the mistakes as they did in the 1930’s and in the 2008 collapse. The government should have simply let the recession run its course, and by now, bad debt would be liquidated and we’d be back to normal growth. But no, politics trumps all. See Tom Woods's eye-opening video on the 1920 depression here.

When Obama says “It’s not political,” he would be more accurate in saying, “It’s not just political, it’s very, very political.” He is the servant of the unions, the radical environmentalists, and the socialist left.

This speech, delivered in the form of populist rhetoric, is an attempt to make the case for socialism. Theodore Roosevelt was something of a “Progressive,” as some liberals like to be called today, but people don’t generally understand that Progressivism is the belief that economic, social and cultural decisions that people traditionally make for themselves, should instead be made by a group of elite “experts,” acting for all. Thus we got big government, big bureaucracy, less freedom, and even eugenics. Now we have abortion, and may soon have more government-rationed health care and government-rationed or mandated who-knows-what.

Remember that in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history, and what did they get us? The slowest job growth in half a century. Massive deficits that have made it much harder to pay for the investments that built this country and provided the basic security that helped millions of Americans reach and stay in the middle class – things like education and infrastructure; science and technology; Medicare and Social Security.

Actually, we had strong job growth, compared to today. The deficits came mainly from wars that started after 9/11/2001 and continue today. And Bush’s worst deficits pale in comparison to those racked up under the Obama Administration.

Obama wants more “investment,” i.e. government spending, in education and infrastructure. But if the economy could just be allowed to recover, these issues would be taken care of without massive borrowing and endless debt.

We simply cannot return to this brand of your-on-your-own (sic.) economics if we’re serious about rebuilding the middle class in this country. We know that it doesn’t result in a strong economy. It results in an economy that invests too little in its people and its future. It doesn’t result in a prosperity that trickles down. It results in a prosperity that’s enjoyed by fewer and fewer of our citizens....

According to Obama, we need government in control to make sure the incomes and outcomes are what they should be. But experience has shown that government is hardly qualified to run anything outside its actual constitutional responsibilities. They are poorly qualified to give guidance on running business or the economy, when their own business and their own finances are out of control. It’s the private sector that needs to be able to invest, not the government. But politicians put many roadblocks in the way: bans on energy development and oppressive EPA regulations, just to name two.

America can’t afford four more years of Obama. That should be the focus of the GOP message. A few more years down the current path and we’ll be worse off than Greece.

Wealth and income inequality is not the problem. It’s simply a convenient propaganda component to stir up class envy, which, I repeat, is the very life blood of liberalism, and class warfare is its process.

Thoughts on the Federal Reserve and the Banking Cartel (OK, a Rant)

Image via Wikipedia

Mayer Amschel Rothschild

“Give me control of a nation's money and I care not who makes her laws.”   – Mayer Amschel Rothschild (1744-1812), “founder of the Rothschild family international banking dynasty….”

The well-known formula for making money, “buy cheap and sell high,” is practiced to the extreme by the Federal Reserve, which has monopoly control of the nation’s currency. They literally “make,” i.e., create, money out of nothing, and then loan it out at interest. As Ron Paul has reminded us, the U.S. owes $1.6 trillion to the Fed (a “debt” which he has introduced a bill to cancel). A nice business to be in, and the private banks that own the Federal Reserve system likely wouldn’t trade it for anything. The big banks are able to rely on the Federal Reserve for bailouts, if needed, allowing them to keep their earnings privatized, but socializing their losses, i.e., charging them to the taxpayers, if they get into trouble from, say, high-risk transactions.

And the Fed and the Treasury Department are all too ready to come to the rescue if needed, as they did in 2008. They even forced some banks to take money whether they wanted to or not. That way, they could keep secret the identities of banks that were actually in big trouble. The bailouts also included some foreign banks. One can’t help wondering why Lehman Brothers was allowed to fail, but others were not.

Well, that’s water under the bridge now, I suppose, except it really isn’t. Nothing prevents further bailouts, and there are still entities “too big to fail.” It must be nice being part of a cartel where profits are assured, and if for some reason they don’t happen, government, or the Federal Reserve, or both, step in to save the day. Within months, the situation is well in hand, and executives who drove the organizations to near-bankruptcy are (with some exceptions) back to receiving their large bonuses, and waiting for the next bubble to burst.

With the government’s gracious assistance, the Fed has to its credit numerous booms and busts, the Great Depression, the abolishment of the gold standard (and therefore, the end of sound money), the confiscation of citizens’ gold, the dollar’s continuing shrinkage in value, the meltdown of 2008, big bailouts, the dollar’s currently threatened status as the world’s reserve currency, and the current sour economy that shows very little sign of improving much any time soon. Yet the computers of the Fed continue to create whatever quantity of money might be desired, often with the stated hope of creating inflation. The ideal level of inflation is zero. Anything above that steals purchasing power from everyone who holds dollars. The ideal interest rate is that set by the free market. The artificially low rates rob savers of any appropriate return on savings, yet retains high-interest costs of commercial bank credit, e.g., credit cards, etc.

It seems the government wants everyone in a state of fear or anxiety over what government fiscal and domestic policy is going to turn out to be, leading to the likely conclusion that the government authorities are perfectly OK with the economic and social turmoil they create, as long as it helps increase and bolster government control of the economy, and expands citizen dependence upon government. I have about given up on thinking that either the Fed or the Obama Administration is really interested in improving the economy, and am inclined to think that they are accomplishing what they set out to do, that is, impoverish and control people more and more. If this is not the case, they must be hopelessly inept. But they are very willing to cooperate and plan things together, things which now threaten to topple our currency and our economy.

I am optimistic that, with strong and sustained effort, this trend can be reversed; but there will be no cooperation from the Fed or the current administration, and success is far from assured. It’s either staying optimistic or studying those conspiracy theories more.

Related articles

• GAO Audit Finds Fed Loaned Trillions Secretly to Banks (lonerangersilver.wordpress.com)
• Rep. Paul introduces bill to cancel $1.6T in debt held by Federal Reserve (gunnyg.wordpress.com)
• Money Still Owed In Federal Bailout: $1.5 Trillion Still Owed to Treasury, Federal Reserve (politicore.wordpress.com)

The Debt Dilemma Is Only a Symptom of the Real Problem

Image via Wikipedia

Rep. Ron Paul (R-Texas)

Why do politicians believe they can finance anything they may choose to, welfare, war, or whatever may come to mind, regardless of the cost? The availability of easy money created out of thin air is just too tempting, and the power associated with the ability to create money this way is also too tempting, for those in power to resist for long. Thus we have the Federal Reserve masterminding all sorts of crony-benefiting bailouts, highly secret deals with foreign central banks, and deluding the public (and themselves?) that they are providing a valuable service to the public, when in fact they are mainly protecting powerful banks, corporations, and politicians.

Therefore, we experience constant inflation, prolonged booms and busts, and illusions of prosperity, resulting in bad investments, minimal savings, and the transfer of wealth from the poor and middle classes to the wealthy. Ron Paul’s excellent book End the Fed [1] describes and documents these phenomena plainly and convincingly. As Paul points out, there is a growing movement to transition away from the Federal Reserve and their power to create money and control interest rates.

A degree of secrecy far more than found in any government agency prevails at the Fed, and no one breaks their barrier or forces any transparency. Congress has the authority to control the Fed, but up to now, little will to do so. There are several aspects which Ron Paul and others have noted about the disadvantages and dangers of the Fed, showing that their (the Fed's) work creates tremendous danger to the country. The Fed was the main factor in causing the Great Depression, which the Federal Government wasted no time in prolonging and deepening through bad, and often ridiculous, economic policies. The Fed is also the main culprit behind today’s economic crisis, which is being made far worse by the economic policies of the Obama Administration.

Austrian School economists predicted the housing bust and described the dangers of the Fed’s actions:

As adherents to Austrian economics know, the Federal Reserve-induced economic boom must turn to bust. People who have lived high, yet have truly earned nothing, will not fare well in the coming bust. Such cash-strapped and indebted families will head toward financial collapse and thus will turn to the state for welfare and credit relief. As to welfare, parent and child become virtual wards of the state….

The loan markets are profoundly distorted due to the nature of fiat money machinations. Because of this intervention, lending is now dramatically different. It is no longer necessary to know your borrowers. The bank – sustained by its cat-and-mouse scheme of fractional-reserve banking — has a huge incentive to fund the loan, and then sell the loan off to intermediaries who package the loans into mortgage-backed securities. In turn, this toxic junk is sold to mutual funds, insurance companies and other institutions starved for yield. The debt-o-rama grabs hold, and as for the borrowers, there is no longer a fear of debt….

Is it possible that the two-thousandaire is merely a precursor to the "new man" (a pliant, unthinking being) Mao and Lenin attempted to socially engineer via central planning? It would seem that the communists had it backwards thinking that banning money was integral to transforming mankind. For it certainly appears that easy money and credit do the trick in eroding the human spirit, morality, and basic decency, along with intellectual and financial independence. [2]

Constant Inflation

The monetarists argue that a top-down central bank guarantees monetary stability. Well, sure if your definition of stability is a grinding erosion of value through incessant inflation: today's dollar is worth $0.19 in 1971 dollars (the year the United States officially dropped any pretense of abiding by a gold standard) and worth only a nickel in 1913 dollars (the year the Federal Reserve was voted into existence). [3]

Moral Hazard
As has frequently been pointed out, numerous large bailouts have brought attention to moral hazard, that is, knowing that if a bank or company is considered “too big to fail,” it will be bailed out if it gets into trouble; therefore their management will likely be less cautious and willing to take more risks than would otherwise be the case. The other moral hazard, or more properly, moral failure, is that a monopoly on money, along with the unlimited power to create it at will, must lead to abuse and serious economic trouble and finally, collapse.

Political Connections
While the Fed is often thought of as non-political, it has usually tried to help the incumbent president politically. Ben Bernanke risked criticism by supporting (concocting?) President Barack Obama’s (and Treasury Secretary Timothy Geithner’s) politically unpopular auto bailouts and the Bush TARP bailouts which Obama also supported.

Tom Dilorenzo gives another example in this paragraph from a 2000 article:

As long as [President Bill] Clinton was fearful of impeachment, [Fed Chairman Alan] Greenspan kept the monetary spigots wide open, even while voicing "concern" about an "irrationally exuberant" economy. With Clinton out of the woods and the presidential race in full swing, Greenspan is attempting to reverse the irreversible economic forces that he set in motion over the past two and a half years. [4]

There is no easy answer to the current crisis. Even after something passes and everyone breathes a sigh of relief, we will still have this enormous debt and the longer-term problem unsolved. The conservative consensus, which I have supported, is that the Republicans must avoid caving to the Democrats in this situation, which, I think, could be politically damaging to the GOP. But if politics would allow it, Ron Paul offers, perhaps, the best approach, and that involves not paying the debt of the U.S. to the Fed (via Tulsa Change):



Over the years, the Fed has forestalled quick recoveries by preventing the corrections from taking place at times when the least amount of damage could have been sustained. Eliminating the Fed would put a lot of currency and economic troubles behind us, and ultimately lead to increased personal liberty and national prosperity.


[1] Ron Paul, End the Fed, New York: Grand Central Publishing, 2009. This is important reading for anyone interested in the U.S. economy and the Federal Reserve. I highly recommend it.

[2] Karen De Coster and Eric Englund, “Will the Federal Reserve Create the New Socialist Man?” 06/26/2006, Mises.org.


[3] Stephen Mauzy, “Don’t Blame the Federal Reserve,” 12/15/2009, Mises.org.


[4] Tom Dilorenzo, “The Federal Reserve and Political Corruption,” May 2000, Mises.org.

Related articles

• The Morality of Gold (lewrockwell.com)
• Debt Ceiling Debate Bolsters Ron Paul and the Gold Standard (usnews.com)
• Ron Paul: Default Now, Or Suffer A More Expensive Crisis Later. Start by canceling out the debt held by the Federal Reserve. (politicalmetals.com)

FDR and the Great Depression, Barack Obama and the Great Recession

Ted Roelofs of The Grand Rapids [MI] Press reported as follows on a debate between authors Joseph Alter of Newsweek and Bloomberg columnist Amity Shlaes on the effectiveness of FDR’s Depression-era policies.

“Alter conceded Roosevelt made missteps.
But he argued there is no alternative to ‘massive’ government stimulus
when an economy is plunging.

“‘It would be nice if there was an alternative,’ he said.

“Shlaes maintained virtually nothing Roosevelt did helped pull the
United States out of the Depression, short of entry into World War II in
1941.

“Unemployment stood at 19 percent in 1938, despite the flurry of social
engineering Roosevelt spearheaded in the preceding years. By 1942 with
the massive war effort under way, it stood at about 5 percent.

“In her book [The Forgotten Man: A New History of the Great Depression], she argued Roosevelt's biggest failing was a ‘lack of faith in the marketplace….’” [1]

Examples for Obama?
President Franklin Delano Roosevelt wasted no time getting to work on the Great Depression problem after taking office in 1933. He immediately declared a bank holiday, an idea he had rejected three days earlier when Herbert Hoover had suggested it. [2]

FDR’s policies worsened and prolonged the Depression. In spite of a strong and sustained effort, the remedies were mostly misguided, ineffective, and counterproductive. They were also short-sighted, not giving adequate consideration to other factors outside the immediate environment of a particular issue, or longer-term effects.

Of course, FDR inherited the Great Depression and Barack Obama inherited a recession and a financial meltdown. Obama’s was and is a difficult situation but there are some lessons that could be taken from history. He need not repeat all the previous mistakes.

Barack Obama’s economic policies have been referred to as “The New New Deal,” and Obama is apparently an admirer of FDR’s policies. In the numbered items below, I mention some of FDR’s policies (italicized) and make applications to current policies (non-italicized).

President Roosevelt was supposedly attempting to help the unemployed and the poor. His policies did economic injury to many workers and others in the following ways:

1. Minimum wage laws froze many workers, especially African-American, out of hiring possibilities.

Minimum wage laws still hamper employment today. Teen unemployment is the highest since the government started keeping records of this in 1948, over 25 percent. [3] Factors other than minimum wage laws have more effect, but minimum wage requirements exacerbate the problem.

2. Many lawsuits, anti-trust and the like were filed against large employers which undermined their ability to hire and pay workers. [4]

Left-leaning governments always want to go after large companies that might be commercially successful, wanting to assert power over them and tax them if they are profitable. Witness the government’s vendetta against Microsoft in recent years. The failing companies, such as Wall Street banks and the auto manufacturers, they want to “bail out,” i.e. take control at great taxpayer expense, saying they are “pulling the economy back from the brink,” and “restoring stability” to the financial system. Really? More likely, they have set the financial system and the American economy up for disastrous failure through unpayable debt.

We are a long way from seeing the “stability” they talk about. Also, The Obama Administration is greatly endangering national sovereignty through international arrangements on finance, “climate change,” etc. I do not like conspiracy theories, but the one about the international banking cartel, starting with the Rothchilds and the Rockefellers plotting to take over the world’s money and reduce the population to serfdom begins to have some plausibility. I don’t endorse it, but what would be different if it isn’t true? It is true that we are in danger of a massive economic collapse simply because of our national debt and endless deficits. Not all Obama’s fault, but he was on board with the bank bailouts and was the principal operator in the auto company takeovers.

According to The New York Times, “Beyond the $700 billion bailout known as TARP, which has been used to prop up banks and car companies, the government has created an array of other programs to provide support to the struggling financial system. Through April 30, the government has made commitments of about $12.2 trillion and spent $2.5 trillion — but also has collected more than $10 billion in dividends and fees.” [5] (emphasis theirs).

3. Under FDR, increasing tax rates put potential employers in a difficult position for hiring. Also, they could see that if they were successful, their profits would be largely taxed away. [6]

Every dollar a company pays in taxes is a dollar that is unavailable for hiring or investment in plant and equipment. Today’s employers face some of the highest corporate tax rates in the industrialized world, and see more coming as the Bush tax cuts expire. Also, they could hardly be blamed for waiting to see what happens with the Obamacare and cap and trade proposals before deciding on major hiring or investments. The business environment is very difficult and hardly improving in terms of employment.


4. Excise taxes were placed on many consumer goods. This especially hurt the poor.

We still have a lot of “hidden” taxes, on products and services. But the Democratic Congress also wants to tax sugar-sweetened drinks and other popular consumer items in connection with Obamacare. This would take more money out of the pockets of people they claim they’re trying to help. And these taxes are just the beginning. Even if they don’t pass their health care bill, they’ll still try to control everyone’s diet and shopping habits through costly taxes. And then there’s VAT that seems to be up for discussion.

5. FDR destroyed much food while millions were hungry. In an ill-advised attempt to create artificial shortages and thus raise prices, the government paid farmers to plow under 10 million acres of crops and to slaughter and discard six million farm animals. Then they paid farmers for not producing. [7]

Well, the Obama Administration hasn’t yet sunk to the level of destroying farm products. They do, as their predecessors did, still cling to unwarranted farm subsidies and government controls on farming. And they continue the previously existing harmful practices of mandates and subsidies for ethanol.

Bad Economics
According to Robert Higgs, “In their understanding of the Depression, Roosevelt and his economic advisers had cause and effect reversed. They did not recognize that prices had fallen because of the Depression. They believed that the Depression prevailed because prices had fallen. The obvious remedy, then, was to raise prices, which they decided to do by creating artificial shortages. Hence arose a collection of crackpot policies designed to cure the Depression by cutting back on production. The scheme was so patently self-defeating that it’s hard to believe anyone seriously believed it would work.” [8] (emphasis his).

FDR went a long way toward nationalizing industry, in effect, through the National Industrial Recovery Act, which was later struck down by the U.S. Supreme Court:
“Chief Justice Charles Evans Hughes wrote that, ‘extraordinary conditions do not create or enlarge constitutional power.’ Congress ‘cannot delegate legislative power to the President to exercise an unfettered discretion to make whatever laws he thinks may be needed.’” [9]

FDR unconstitutionally confiscated gold by an Executive Order, which also made it illegal to own most kinds of monetary gold. It did nothing to help, and amounted to legalized thievery. [10] This harmed individual savers and investors, and, more indirectly, workers. And it threatened and reduced everyone’s freedom. If gold can be confiscated, what’s to stop government confiscation of other things (over and above taxes), in the interest of “fairness,” of course.

Liberal governments see a problem and they think the federal government must act to correct it. Their corrections may benefit, temporarily, some group experiencing hardship, but what is usually ignored is the effect on others, and what their actions mean down the road. This recalls the “Forgotten Man” of William Graham Sumner:

“As soon as A observes something which seems to him to be wrong, from which X is suffering, A talks it over with B, and A and B then propose to get a law passed to remedy the evil and help X. Their law always proposes to determine what C shall do for X or, in the better case, what A, B and C shall do for X. As for A and B, who get a law to make themselves do for X what they are willing to do for him, we have nothing to say except that they might better have done it without any law, but what I want to do is to look up C. I want to show you what manner of man he is. I call him the Forgotten Man. Perhaps the appellation is not strictly correct. He is the man who never is thought of. He is the victim of the reformer, social speculator and philanthropist, and I hope to show you before I get through that he deserves your notice both for his character and for the many burdens which are laid upon him.” [11]

Henry Hazlitt quotes this and observes that in the 1930’s, the “forgotten man” label was applied to X. C was still forgotten [12] (Amity Shlaes uses this phrase in the title of her book.)

The Congress is currently considering legislation to mandate a week of annual sick pay for all employees, as a result of the swine flu scare. Many companies cannot afford to pay employees when they aren’t working, so if this passes, unemployment or underemployment will likely increase. But the squeaky wheel gets the grease. More government micro-management. Another reason to believe the government is less concerned about the economy than with finding excuses for expanding government power.

Unemployment was 3.1% before the stock market crash of 1929 and 24.8% when Franklin D. Roosevelt took office. The rate was in double digits until 1941. [13] The published rates do not count people who have given up looking for work or have taken part-time jobs.

Well, the Great Depression is over. World War II lifted America out of it. But the current recession is not over, except perhaps in some narrow technical sense according to some “experts.” And over or not, its ill effects linger, and from all indications will linger for some time. There are too many instances of Obama following FDR’s ill-advised prescriptions, when we should have learned better. FDR didn’t have a previous great depression in memory to serve as his example. Previous depressions were left to the market and recovery was fairly quick. But Obama has the example of the Great Depression. Circumstances and technologies change, but the laws of economics still apply. The sooner the government ends its love affair with deficit spending and embraces something more oriented toward free markets and individual liberty, the sooner things will begin to improve. But don’t hold your breath.


[1] Ted Roelofs, The Grand Rapids Press, “Authors debate: Did FDR’s social programs make the Great Depression worse?” 10/12/2009, at http://www.mlive.com/business/west-michigan/index.ssf/2009/10/authors_debate_did_fdrs_social.html.

[2] Robert Higgs, “How FDR Made the Depression Worse,” Feb. 1995, Ludwig von Mises Institute, at http://mises.org/freemarket_detail.aspx?control=258.

[3] Catherine Rampell, The New York Times, “Teen unemployment at record level,” 09/08/2009, SF Gate, at http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2009/09/07/BU6H19IVRT.DTL&type=business.

[4] Jim Powell, “Tough Questions for Defenders of the new Deal,” 11/06/2003, Cato Institute, at http://www.cato.org/research/articles/powell-031106.html.

[5] The New York Times, “Adding Up the Government’s Total Bailout Tab,” 02/04/2009, at http://www.nytimes.com/interactive/2009/02/04/business/20090205-bailout-totals-graphic.html.

[6] Powell, see [4].

[7] Ibid.

[8] Higgs, see [2].

[9] Ibid.

[10] David J. Heinrich, “FDR’s Heinous Crimes,” 10/21/2004, Mises Economics Blog,
at http://blog.mises.org/archives/002627.asp. Text of the Executive Order is here.

[11] William Graham Sumner, “The Forgotten Man,” 1883, The Forgotten Man and Other Essays, at The Online Library of Liberty, at
http://oll.libertyfund.org/index.php?option=com_staticxt&staticfile=show.php&title=1654&search=%22Forgotten+Man%22&chapter=108194&layout=html#a_2270750.

[12] Henry Hazlitt, Economics in One Lesson, Ludwig von Mises Institute, 2008. Originally published by Harper & Brothers, 1946, page 179

Photo: Dreamstime.com. FDR statue

Obama Won’t Take Responsibility for Latest Economic News

The White House has released some depressing economic forecasts. According to an Associated Press article by Jim Kuhnhenn [1], the current fiscal year (ending September 30) will post a deficit of almost $1.6 trillion. The 10-year deficit is estimated at $9 trillion. This is more than the sum of all previous deficits. Unemployment is expected to reach 10 percent. The AP story quotes Mitch McConnell, Senate Minority Leader (KY) as follows:
“The alarm bells on our nation’s fiscal condition have become a siren.”

This appears to be bad news for Obama since, according to the story, he will have trouble
(1) cutting the deficit in half by 2013 and (2) getting his $1 trillion-plus health care enacted.

This government is doing nothing to help the situation. As noted in my previous post, the measures they are promoting will greatly harm our economy. This is not hard to understand. Higher taxes produce greater unemployment and ultimately less revenue to the government. The combination of health care “reform” and cap and trade will produce another depression. That’s the direction we’re currently heading.

Yet Obama is so pleased with the progress the economy is making that he has appointed Ben Bernanke to another term as Federal Reserve chairman. I’ll deal with that in a future post.

Here are a few things to remember, that should help us understand Barack’s strategy:

1. As noted above, they are doing nothing that can help the economy. They are OK with massive debt and deficits.

2. The economic situation is bringing increased misery to Americans. These are real problems and real suffering for real people. Obama doesn’t care. He wants more turmoil and chaos in our country, because it should cause people to cry out to the government for help, which he will answer with more socialist programs, which also won’t help.

3. To all the economic problems, add other fear-mongering and new “crises,” like the swine-flu panic they are trying to stir up, etc. We’ll need government help with that, right? Even though the swine flu has yet to become the epidemic they seem to want.

4. One of the most reprehensible things (and there are many) about the Obama Administration is their cowardly attempt to blame the previous administration for the current problems, which they and fellow Democrats mainly caused, and which they have made much worse just since the start of the Obama presidency.

“This recession was simply worse than the information that we and other forecasters had back in last fall and early this winter,” according to Obama economic advisor Christina Romer, quoted in the above-mentioned AP article.
This cannot be believed. All the relevant data was there and available. The day is coming when blaming the Bush Administration won’t work. I think it has already come. If not for the Obama Administration’s attempts to deal with the recession, it probably would have been over by now. Recessions normally don’t last too long if left to the market. Government interference with the free market doesn’t help.

The Great Depression was directly caused by the Federal Reserve. Milton Friedman explains:



The Depression was made worse by the New Deal. For a discussion of this see Robert Higgs’ article at http://mises.org/freemarket_detail.aspx?control=258. That’s all past history, I suppose, but the present government hasn’t learned from it, or else think they can do what FDR did better than FDR did it. Not likely.

To Obama, it is more important to get his fascist program in place than to actually improve the economy or anything else. That’s what we’re up against.

It becomes more important each day that citizens continue to contact their representatives and speak out against Obama’s socialist plans, and prepare for the 2010 elections.

[1] "Long-term deficit put at $9 trillion," AP article by Jim Kuhnhenn, appearing in Fort Worth Star-Telegram 08/26/09