The Great Depression of 1920

[Michael]

Perhaps you've never heard of this Great Depression. In it's first year, it was worse than "The" Great Depression - of 1929, the one you generally think of. Why don't we hear of this one? I mean, it started out much worse than the 15 year long "Great Depression". Yet, it only lasted one year. Why?

Why did this one only last a single year? What did the government do then, that it's not doing now nor did it do during "The" Great Depression 1929?

[scheherazade]

I'm guessing that it is because most of us will have lost our grand-parents and relatives who lived through that era and so have no personal memory of the challenges that were endured. That none have yet replied to your question may be because few have got the time to view the 50 minute video.

Here is the Wiki link on that era.

http://en.wikipedia.org/wiki/Depress...920%E2%80%9321

There are many more people on the planet now, resources are coming under strain and extreme weather events are adding to present concerns of the global economy. Solutions that worked previously may not be applicable to the current situation.

These are 'interesting times' that we are heading into, to be certain.

[Billy T]

Perhaps you've never heard of this Great Depression. ... I mean, it started out much worse than the 15 year long "Great Depression". Yet, it only lasted one year. Why? Why did this one only last a single year? What did the government do then, that it's not doing now nor did it do during "The" Great Depression 1929?

You and your link´s speaker conclude the recovery was aided by the lack of Keynesian type government interventions; But I think you also need to ask why was it such a rapid and sever start?

I think the answer to that goes a long way towards explaining (and was totally ignored by the link speaker) why the recovery was also very rapid. I.e. the WWI economy with labor shortage and rapidly rising wages had ended and ~2.5 million now unemployed soldiers competed for the jobs available. - An abrupt switch for labor shortage to labor surplus. This gutted the unions earlier successes at raising wages and wages fell. Purchasing power declined and with it production dropped, making even fewer jobs. A sharp onset deflation followed, but eventually the private enterprise system created jobs for the returning soldiers and the productivity grew in a self accelerating sharp rise out of the 18 month depression.

It probably was a blessing that government did not try to stimulate with jobs, like done later in the WPA. Government created jobs rarely add the same increase in productivity, but in the current era, private capital is NOT going to pull up the US economy. - Private capital is creating (with trickle down tax relief for the very wealthy) jobs in Asian not the USA.* In that era, the USA was the land of opportunity and factories were built here. They are ALWAYS built where the expected returns are greatest (due to lower wages, less regulation, and larger unsaturated markets, growing incomes and purchasing power - I.e. in China now, not the USA)

GWB´s tax relief for the very wealthy, ( the "job creators" in Republican jargon ), destroyed jobs in the US as those job creators made more modern factories in Asia and US factories had to close or outsource parts of their production to stay competitive with the newer Asian factories.


* Thus now it is China that is experiencing the rapid growth that US experienced in the "roaring twenties" when US was the "land of opportunity" - the place to invest, build factories, etc.

[quadraphonics]

No, manufacturing in China is teetering on the edge of contraction these days:

http://www.bloomberg.com/news/2012-0...mate-50-5.html

[iceaura]

Roosevelt was elected in 1932, and his first year in office started in 1933. The very first of his Keynesian programs would not have done any damage until early 1934, by which time the Depression had had a grip on the US (and world) economy for more than four years.

If it was supposed to go away by itself in a year, as in 1920, it was four years overdue and getting worse not better.

But of course a serious crash and liquidity trap caused by rich people looting the markets and banks and breaking the financial system with bubbles, as in 1929, cannot be expected to behave the same way as a structural problem caused by a sudden loss of government stimulus to industry (war ended) and an influx of what are basically refugees from disaster (soldiers back from war). No sensible person would confuse such situations - right?

[kmguru]

No, manufacturing in China is teetering on the edge of contraction these days:

http://www.bloomberg.com/news/2012-0...mate-50-5.html

Story is half correct. That is because of adjustment in decimals...but could get serious for Chinese unless they come to the Europe's rescue.

"The data increase odds China and South Korea will add to interest-rate cuts in the coming months as a record-high jobless rate in the euro area drags on global growth."

But Chinese are also working with Africa as I am involved there. So the future could be a lot different that the death of the Chinese and WalMart...

What has happened is that Germany did not push the rest of the Europe simply because they personally did not like a few countries in Europe...I know, I just talked to one senior German...

[Michael]

I'm guessing that it is because most of us will have lost our grand-parents and relatives who lived through that era and so have no personal memory of the challenges that were endured. That none have yet replied to your question may be because few have got the time to view the 50 minute video.

Yeah, it's 50 minutes - but, for someone who's maybe bored and would like to watch a lecture instead of TV it's worth the time to hear a different POV presented in a well researched fashion. Regardless of one's inclination. And, TTYTT I'm of the mind that most people really don't really care.

There are many more people on the planet now, resources are coming under strain and extreme weather events are adding to present concerns of the global economy. Solutions that worked previously may not be applicable to the current situation.

These are 'interesting times' that we are heading into, to be certain.

Are resources really coming under strain? We have an obesity epidemic in the US. And while the "global" economy might be pretty bad for the USA, for other's things couldn't be better - it just depends on where you live and what you're doing. Some people are making out really well right now.

I do wonder about the weather - it does seem we're heading into more turbulent weather. If it's caused by us, then maybe fractional reserve lending (which depends on economic growth - which goes hand in glove with population growth) has hit the wall?

We'll see..... maybe we can just keep adding people the planet earth and taking on more debt ... forever? OR maybe this is what it looks like when society actually takes on too much debt and hits the wall? Either way, it is interesting.

You and your link´s speaker conclude the recovery was aided by the lack of Keynesian type government interventions; But I think you also need to ask why was it such a rapid and sever start?

I think the answer to that goes a long way towards explaining (and was totally ignored by the link speaker) why the recovery was also very rapid. I.e. the WWI economy with labor shortage and rapidly rising wages had ended and ~2.5 million now unemployed soldiers competed for the jobs available. - An abrupt switch for labor shortage to labor surplus. This gutted the unions earlier successes at raising wages and wages fell. Purchasing power declined and with it production dropped, making even fewer jobs. A sharp onset deflation followed, but eventually the private enterprise system created jobs for the returning soldiers and the productivity grew in a self accelerating sharp rise out of the 18 month depression.

It probably was a blessing that government did not try to stimulate with jobs, like done later in the WPA. Government created jobs rarely add the same increase in productivity, but in the current era, private capital is NOT going to pull up the US economy. - Private capital is creating (with trickle down tax relief for the very wealthy) jobs in Asian not the USA.* In that era, the USA was the land of opportunity and factories were built here. They are ALWAYS built where the expected returns are greatest (due to lower wages, less regulation, and larger unsaturated markets, growing incomes and purchasing power - I.e. in China now, not the USA)

GWB´s tax relief for the very wealthy, ( the "job creators" in Republican jargon ), destroyed jobs in the US as those job creators made more modern factories in Asia and US factories had to close or outsource parts of their production to stay competitive with the newer Asian factories.


* Thus now it is China that is experiencing the rapid growth that US experienced in the "roaring twenties" when US was the "land of opportunity" - the place to invest, build factories, etc.

As they say: The Devil's in the Details

Roosevelt was elected in 1932, and his first year in office started in 1933. The very first of his Keynesian programs would not have done any damage until early 1934, by which time the Depression had had a grip on the US (and world) economy for more than four years.

If it was supposed to go away by itself in a year, as in 1920, it was four years overdue and getting worse not better.

But of course a serious crash and liquidity trap caused by rich people looting the markets and banks and breaking the financial system with bubbles, as in 1929, cannot be expected to behave the same way as a structural problem caused by a sudden loss of government stimulus to industry (war ended) and an influx of what are basically refugees from disaster (soldiers back from war). No sensible person would confuse such situations - right?

Which is why he gave Japan as the counter example - lucky for them their Depression only lasted a decade culminating with the decimation of their banking sector.

The Forgotten Depression of 1920

The economic situation in 1920 was grim. By that year unemployment had jumped from 4 percent to nearly 12 percent, and GNP declined 17 percent. No wonder, then, that Secretary of Commerce Herbert Hoover — falsely characterized as a supporter of laissez-faire economics — urged President Harding to consider an array of interventions to turn the economy around. Hoover was ignored.

Instead of "fiscal stimulus," Harding cut the government's budget nearly in half between 1920 and 1922. The rest of Harding's approach was equally laissez-faire. Tax rates were slashed for all income groups. The national debt was reduced by one-third.

The Federal Reserve's activity, moreover, was hardly noticeable. As one economic historian puts it, "Despite the severity of the contraction, the Fed did not move to use its powers to turn the money supply around and fight the contraction."[2] By the late summer of 1921, signs of recovery were already visible. The following year, unemployment was back down to 6.7 percent and it was only 2.4 percent by 1923.

It is instructive to compare the American response in this period to that of Japan. In 1920, the Japanese government introduced the fundamentals of a planned economy, with the aim of keeping prices artificially high. According to economist Benjamin Anderson,

The great banks, the concentrated industries, and the government got together, destroyed the freedom of the markets, arrested the decline in commodity prices, and held the Japanese price level high above the receding world level for seven years. During these years Japan endured chronic industrial stagnation and at the end, in 1927, she had a banking crisis of such severity that many great branch bank systems went down, as well as many industries. It was a stupid policy. In the effort to avert losses on inventory representing one year's production, Japan lost seven years.[3]

The United States, by contrast, allowed its economy to readjust. "In 1920–21," writes Anderson,

we took our losses, we readjusted our financial structure, we endured our depression, and in August 1921 we started up again.… The rally in business production and employment that started in August 1921 was soundly based on a drastic cleaning up of credit weakness, a drastic reduction in the costs of production, and on the free play of private enterprise. It was not based on governmental policy designed to make business good.

The federal government did not do what Keynesian economists ever since have urged it to do: run unbalanced budgets and prime the pump through increased expenditures. Rather, there prevailed the old-fashioned view that government should keep taxation and spending low and reduce the public debt.[4]

[iceaura]

Which is why he gave Japan as the counter example

You started the OP with a comparison to 1929, as if that government action were responsible for the fact that it did not go away in a couple of years.

Why did this one only last a single year? What did the government do then, that it's not doing now nor did it do during "The" Great Depression 1929?

As pointed out, the government action that was supposed to have prevented quick recovery did not kick in until four years down the road - at which time the '29 crash was still getting worse., not better. Quick improvement, as in 1920, came only after the government stepped in very intrusively.

So we are agreed that government action is not what made the Great Depression so much worse than 1920? Good. Are we also agreed that Harding's administration was incompetent and corrupt - not matched for venality and malfeasance until Reagan, then W?

[Michael]

So we are agreed that government action is not what made the Great Depression so much worse than 1920?

Nobody thinks that - even Ben Bernanke doesn't think that.

The US Government put up Tariffs in 1930 which decimated world trade (international trade was cut in half). Don't you count THAT as government action?!?

The Federal Reserve Bank of New York greatly expanded the money supply in the lead up to the Great Depression of 1929 and it was actually the Federal Reserve's contraction that precipitated the Great Depression. Let me guess - that doesn't count either?

The Governmental programs of the 1930s were unbelievably idiotic - paying farmers to burn their crops and bury their livestock while Americans (and Russians incidentally) starved to death. Passing draconian laws restricting the private use of gold and silver leaving Americans with no options but to beg the Federal Reserve for notes to trade with. You don't count THAT as governmental actions either I suppose?

The classic example of Keynesian economic policy was Japan in 1929 - it led to the assassination of their minister of finance when he realized (to late) that the military monster he had created was taking over - which ultimately led to Imperial Japan's involvement in WWII. In the long view you could even say Keynesian economics in Japan murdered 10s of millions of Japanese, American and Chinese civilians.

We're doing the same thing. Invading Korea, Vietnam, Afghanistan, Iraq etc... it's just they're too weak to nuke us. If Japan hadn't been attacked by us, perhaps they'd still own half of Asia. War is started by political sociopaths, not free traders. War is financied by central banks - so, thank WWI and WWII and all these other wars to the Keynesian minded Central Bank thugs and creeps that run up debt, take the workers of their labor to feed the Industrial War Machine that makes up much of the US economy.


But, don't worry, the government is doing EXACTLY the same mistakes as then, now. Thank them when you can't afford to buy food and have to wait in the government soup kitchen lines at Walmart to eat poor low government quality processed food. Don't blame ANYONE but yourself when more wars are started and more women and children are murdered. Look right in the mirror because it's people like you that happily use force against other citizens "For the Greater Good of 'THE' Nation and the Greater Glory of 'THE' Godhead" to justify your theft to take what you can't earn on your own from others and then complain when karma leaves you with your just deserts.

I hope you like the taste of crow.

[iceaura]

The classic example of Keynesian economic policy was Japan in 1929

? That's a new one to me. I don't follow the gold buggery that closely, though - where did that come from?

[Michael]

? That's a new one to me. I don't follow the gold buggery that closely, though - where did that come from?

Yeah, the Japanese were the first to use what later became called "Keynsian Economics". As a matter of fact, I wouldn't doubt if John Keynes didn't simply copy Takahashi Korekiyo. Here was Korekiyo's formula in 1929-31: (1) Large fiscal stimulus involving deficit spending (2) devaluing the currency. Keynes published the same bullshit in 1936.

For Japan it led to WWII.
For America it led to mass starvation and then WWII.

As for today we've been able to live under the lie that this bullshit works because productivity has greatly outpaced the stupidity and immorality of central government planners as well as there were those pesty golden handcuffs. Well, not any longer. And you will soon find out that YES it actually is immoral to sell the productivity of your children to satiate your present dreams by destroying theirs. Don't complain when the young cart your aging ass off to a soilent green factory for cattle fed. It'll only be karma letting you know stealing is as immoral today as it was yesterday and they calling stealing a "tax" is still stealing

Productivity has increased >400% and yet we've seen a 25% increase in standard of living since the "Great Society" but boy do we have one mother f*cking huge government class and welfare class.


QE3 here we come

[joepistole]

Why don’t you come up with something new once in a while Michael? You are just repeating Glen Beck trash in this post. This subject has already been discussed ad nauseum with you. Your mistakes and errors on the depression/recession of 1920 have already been explained to you ad nauseum.

You are like a stuck record.

[Michael]

Oh, did we have a discussion about Takahashi Korekiyo? No, we didn't.

[joepistole]

Oh, did we have a discussion about Takahashi Korekiyo? No, we didn't.

So? That is not germane to the OP.

[Billy T]

... QE3 here we come

Certainly that is a common view now, and has sent gold up about $100 per ounce from recent lows, but I´m not so sure. Interest rates on US bonds are already rising, and printing more fiat dollars will accelerate that trend - increase the cost of carrying the ~16 trillion of current debt. FED knows this and also has noted that hints of QE3 are at least as effective as an actual QE3. I´ll bet what comes out of Jackson Hole meeting is more hints of easing soon to come, if the economy slows, but no QE3.

[joepistole]

Certainly that is a common view now, and has sent gold up about $100 per ounce from recent lows, but I´m not so sure. Interest rates on US bonds are already rising, and printing more fiat dollars will accelerate that trend - increase the cost of carrying the ~16 trillion of current debt. FED knows this and also has noted that hints of QE3 are at least as effective as an actual QE3. I´ll bet what comes out of Jackson Hole meeting is more hints of easing soon to come, if the economy slows, but no QE3.

I think the recent move in gold prices is related more to speculation of QE in Europe and China than in the US.

[Billy T]

I think the recent move in gold prices is related more to speculation of QE in Europe and China than in the US.

Perhaps, but it really does not matter where the surge of buy orders comes from. One factor is also the reported increase of Chinese buying.

[iceaura]

Yeah, the Japanese were the first to use what later became called "Keynsian Economics". As a matter of fact, I wouldn't doubt if John Keynes didn't simply copy Takahashi Korekiyo. Here was Korekiyo's formula in 1929-31: (1) Large fiscal stimulus involving deficit spending (2) devaluing the currency. Keynes published the same bullshit in 1936.

According to the several sources that turn up when I search on the the name, this use of Keynesian economics by Japan is credited with forestalling a Great Depression in Japan, repairing Japan's trade balance, and creating much industrial development and economic improvement - even the beginnings of modern prosperity in what had been a moribund and poverty ridden country - in a mere few years starting in the early 1930s.

For Japan it led to WWII.

Once again you seem to have timeline problems: The military assassination of the ministers employing this Keynesian program, in 1936, is what most analysts seem to think led to WWII - the attempted cutback in military expenditures, as recommended by the assassinated Korekiyo, apparently was unpopular with the generals.

So we have Keynesian prosperity and development, followed by military coup and non-Keynesian diversion of resources to warfare.

[Billy T]

Contrary to the common view, expressed in post 11 and elsewhere, Ben did exactly as I predicted he would:

[post 15 in part}I´ll bet what comes out of Jackson Hole meeting is more hints of easing soon to come, if the economy slows, but no QE3.

[Michael]

According to the several sources that turn up when I search on the the name, this use of Keynesian economics by Japan is credited with forestalling a Great Depression in Japan, repairing Japan's trade balance, and creating much industrial development and economic improvement - even the beginnings of modern prosperity in what had been a moribund and poverty ridden country - in a mere few years starting in the early 1930s.


Once again you seem to have timeline problems: The military assassination of the ministers employing this Keynesian program, in 1936, is what most analysts seem to think led to WWII - the attempted cutback in military expenditures, as recommended by the assassinated Korekiyo, apparently was unpopular with the generals.

So we have Keynesian prosperity and development, followed by military coup and non-Keynesian diversion of resources to warfare.

The Keynesian 'prosperity' WAS the military buildup.

The Great Depression did not strongly affect Japan. The Japanese economy shrank by 8% during 1929–31. Japan's Finance Minister Takahashi Korekiyo was the first to implement what have come to be identified as Keynesian economic policies: first, by large fiscal stimulus involving deficit spending; and second, by devaluing the currency. Takahashi used the Bank of Japan to sterilize the deficit spending and minimize resulting inflationary pressures. Econometric studies have identified the fiscal stimulus as especially effective.[67]
The devaluation of the currency had an immediate effect. Japanese textiles began to displace British textiles in export markets. The deficit spending proved to be most profound. The deficit spending went into the purchase of munitions for the armed forces. By 1933, Japan was already out of the depression. By 1934, Takahashi realized that the economy was in danger of overheating, and to avoid inflation, moved to reduce the deficit spending that went towards armaments and munitions.

This resulted in a strong and swift negative reaction from nationalists, especially those in the army, culminating in his assassination in the course of the February 26 Incident. This had a chilling effect on all civilian bureaucrats in the Japanese government. From 1934, the military's dominance of the government continued to grow. Instead of reducing deficit spending, the government introduced price controls and rationing schemes that reduced, but did not eliminate inflation, which would remain a problem until the end of World War II.


Family during the Great Depression, California, 1936.
The deficit spending had a transformative effect on Japan. Japan's industrial production doubled during the 1930s. Further, in 1929 the list of the largest firms in Japan was dominated by light industries, especially textile companies (many of Japan's automakers, like Toyota, have their roots in the textile industry). By 1940 light industry had been displaced by heavy industry as the largest firms inside the Japanese economy

It led to Japan's total and utter annihilation and domination by the USA.


Building warships and bombs does NOT creates prosperity unless used to STEAL from someone else. Building bombs is no different than paying people to dig holes and fill them in. Hell, at least that way the holes are being filled in.


But, don't worry, some lessons from History just need to be relearned from time to time. Bernenke is going for 'Open Ended QE' and then we'll see how all that Keynesian Economics works out for us. All the junkie needs is just one more hit of QE... oh, and then another.... and maybe anther.

No more affordable University, no more school funding, no more hospital funding, we'll chase more work overseas, maybe we'll have price controls, more loss of civil liberties, all those social programs - gone, retirement plans - decimated, American Dream - more like Nightmare... but to the junkie it's all about just one more hit.... in this case, of QE. And, when ALL these Keynsian policies don't work, they demagogue the rich, demagogue the poor, demagogue the Muslims, Mexicans, Over educated, Under educated, and when all else fails start shipping American Cattle off to die in more pointless wars.