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Problem is, that was exactly what drove policy in the United States between 1929 and 1933. In the mean time, lending disappeared which caused grave liquidity p
by jordanb 13y ago
Problem is, that was exactly what drove policy in the United States between 1929 and 1933.
In the mean time, lending disappeared which caused grave liquidity problems for otherwise solvent firms both in the financial sector and in the "real economy." Those firms failed to meet their obligations producing a chain reaction which continued until severe government intervention put a stop to it years later.
Bernanke and many others were playing off the 1933 script in 2008. Bernanke himself had actually written a book about the Great Depression. I'm not at all happy with what has happened on wall street since 2008 but Bernanke and many others were operating in good faith trying to prevent a catastrophe.
There is really no parallel between the USA (in 2008 or 1929) and Iceland in 2008.
In the case of Iceland, you have a series of hedge funds, basically, domiciled in Iceland but speculating on foreign securities using foreign capital. They had little to do with cod fishing or hot springs or aluminum smelting but when they exploded, the foreign bondholders wagged their fingers at Iceland and said "this is your problem now, you fix it."
Icelanders wisely said "no," they opted not to impoverish themselves to make good the debts of local private hedge funds to the foreign speculators.
- burntsushi 13y ago> Problem is, that was exactly what drove policy in the United States between 1929 and 1933. I don't understand how people think that the policy during 1929-1933 was "do nothing" when the following things occurred during that time period: Smoot-Hawley Tariff Act, Glass-Steagall Act, the Federal Home Loan Bank Act, the Emergency Relief and Construction Act, the Reconstruction Finance Corporation, the Hoover Dam(!), and more. Despite Hoover stating that he wanted less government intervention, that isn't actually what happened. Basically, the notion that "we did nothing" during 1929-1933 (as you've suggested) is a giant misconception that really needs to die. You can read more about it here: http://en.wikipedia.org/wiki/Herbert_Hoover#Great_Depression http://en.wikipedia.org/wiki/Herbert_Hoover#Great_Depression N.B. I don't claim that these policies were effective. Just that "nothing" is far from the truth.
- jordanb 13y agoThe Glass-Steagall Act, at least, what people mean when they say "Glass-Steagall" was passed in 1933 and signed by FDR.[0] You are correct, of course that Hoover didn't "fiddle while Rome burned" but fiscal policy was largely non-interventionist and monetary policy tight until the Emergency Banking Act of 1933[1] which was the "severe government intervention" I mentioned in the OP. [0] http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Legislation http://en.wikipedia.org/wiki/Glass%E2%80%93Steagall_Legislat... [1] http://en.wikipedia.org/wiki/Emergency_Banking_Act http://en.wikipedia.org/wiki/Emergency_Banking_Act
- protomyth 13y agoThe government heavily interfered in 1929 under President Herbert Hoover instead of taking the tact taken by President Harding in 1921 to cut the budget, fix taxes, and right the ship. You would think Hoover would have learned from Harding being his Secretary of Commerce, but he turned out to be an idiot and sent us into a tailspin that didn't get fixed until 1946. Bernanke should have looked earlier and not to the policies of Hoover. I fear we will have the same continuing problem until we look to 1946 to get us out. Capitalism has nothing to do with 1929.
- malka 13y agoWell, of course destroying half of Europe to rebuild it SHOULD create jobs. Not sure it is the right solution though.
- protomyth 13y agoI am more thinking the drop in government spending from $84 billion in 1945 (big debt) to under $30 billion in 1946 (surplus) and the tax cuts from 1948. Rebuilding someone else is generally not seen as a plus to the overall economy.
- pessimizer 13y ago>Rebuilding someone else is generally not seen as a plus to the overall economy. Maybe at full employment it's not. In a country winding down production from WWII, rebuilding someone else is the best thing that could possibly happen to the economy.
- protomyth 13y ago"winding down production from WWII" Government production would down (thus the budget), but domestic production for domestic items kicked in pretty hard. You might want to check the labor statistics of the day.
- 13y ago