Thursday, March 19, 2009

Depressing Historical Fun!

More on Morons

This week, the causes of the Great Depression.

Even to this day "scholars" cannot fully agree on what caused the Great Depression, often because an objective analysis would contradict their political biases and being objective costs extra. However the big three reasons that frequently bubble up is the massive debt from World War One, high tariffs and bad policies by the Federal Reserve.

War Debt - The United States incurred tens of billions in debt fighting the first world war. Of this approximately $10,000,000,000 (ten billion, in case you don't feel like counting zeros) went AS LOANS to European countries to help them rebuild.

High Tariffs - The Smoot-Hawley (Smoot... heh) legislation wanted to help keep American dollars here in America and help American employees. BUY AMERICAN was the slogan of the day (sound familiar to any recent massive stimulus bills passed lately?). This made European goods cost more and enabled American producers to raise their prices. For example, hip waders from Europe (the leaders in hip wader technology) used to be $7 and American hip waders were $8. Suddenly the tariffs make the superior European hip waders $10 thus enabling American hip wader makers to increase their price of their inferior hip waders to $9. Whaddareya gonna do? They had you over the proverbial barrel (which also cost more, though proverbs were still free). The consumer is now paying more and receiving less quality goods.

As a response to our high tariffs, the European markets increased tariffs on U.S. goods so American goods were not selling as well overseas. Tariff. It's a good word not used near enough these days. Anyway, the ticked off Europeans also reneged on their promises to pay back the ten billion in loans for rebuilding after WWI. Oh, and since many of the products used in U.S. manufacturing came from Europe (products which now cost more to import due to the tariff) things cost more to produce and sell. A double whammy against the consumer!

Federal Reserve - In a misguided effort to help things out the Fed raised interest rates, making it more difficult for businesses to get the short-term loans required to run a business. They also stopped giving out free toasters. A liquidity (and toast) crunch, eh? Again, another ominous foreshadowing of today.

Less money in peoples pockets due to higher prices, companies failing because they can't get the short-term loans needed for daily business leading to more and more people out of work and...

I'm not saying we're heading into another Great Depression. There are many signs that we're already coming out of it - higher home and car sales, businesses starting to turn profits again, etc. However this does not count on what will happen once Obama's Federal Government starts messing with things in an effort to "help" in the same way that FDR "helped" despite his complete ignorance of practical economics and modern electronics.

Like like Obama, FDR proposed massive increases in spending while promising to cut government by 25% and to balance the budget. At least Obama knows how to use his Crackberry. Some say he's durned near addicted to it. I'm glad we have a President with an addictive personality.

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