During these hard times, it is refreshing to see uplifting perspectives, like the article above.
Here's another great article I found on Investor's Business Daily: http://www.ibdeditorials.com/IBDArticles.aspx?id=316049209319113&kw=hamilton.
If the link doesn't work, you might have to copy/paste into your browser.
Here's an excerpt, "It might be illuminating to note that by 1933, during the height of the Depression, the unemployment rate was 24.9%. During that same period, GDP was falling dramatically, which created a devastating impact on the country."
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Is This a Replay of 1929?
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From 1929 to 1933, two fifths of the nation's banks failed; depositor runs were endemic; the money supply (basically, cash plus bank deposits) declined by more than a third. People lost bank accounts; credit for companies and consumers shriveled. The process of economic retrenchment fed on itself and overwhelmed the normal channels of recovery. These mechanisms included surplus inventories being sold so companies could reorder; strong companies expanding as weak competitors disappeared; high debts being repaid so borrowers could resume normal spending.
What we see now is a frantic effort to prevent a repetition of this destructive chain reaction by which a disintegrating financial system compounds the economic downturn. It's said that the $700 billion bailout passed by Congress will rescue banks and other financial institutions by having the Treasury buy their suspect mortgage-backed securities. In reality, the Treasury is bailing out the Fed, which has already—through various channels—lent financial institutions roughly $1 trillion against myriad securities. The law's increase in federal deposit insurance from $100,000 to $250,000 aims to discourage panicky bank withdrawals (nearly three quarters of deposits will now be insured, up from almost two thirds before). In Europe, governments have taken similar actions; last week, Ireland guaranteed its banks' deposits.
The cause of the Fed's timidity in the 1930s remains a matter of scholarly dispute. Economist Barry Eichengreen of the University of California, Berkeley, suggests a futile defense of the gold standard; Allan Meltzer of Carnegie Mellon University blames the flawed "real bills" doctrine that, in practice, limited the Fed's lending to besieged banks. Either way, Fed chairman Ben Bernanke—a student of the Depression—understands the error. The Fed's massive lending and the congressional bailout both aim to prop up the financial system and avoid a ruinous credit contraction.
This doesn't mean the economy won't get worse. It will. The housing glut endures. With unemployment rising, cautious consumers have curbed spending. Economies abroad are slowing, hurting U.S. exports. Banks and other financial institutions will suffer more losses. But these are all normal symptoms of recession. Our real vulnerability is a highly complex and interconnected global financial system that might resist rescue and revival. The Great Depression resulted from the perverse mix of a weak economy and government policies that magnified the weakness and that were only partially neutralized by the New Deal. If we can avoid a comparable blunder, the great drama of these recent weeks may prove blessedly misleading.
© 2008
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