Worst Since World War II

Remember how just a few weeks days ago, BushCo was trying to argue we weren’t yet in a recession? Well, all of a sudden, this the worst recession since World War II. There’s Marty Feldstein:

The United States has already slipped into a deep recession that could be the most serious since World War II, said Martin Feldstein, president of the Cambridge group that is considered the official word on economic cycles.

"The situation is bad, it’s getting worse, and the risks are that the situation could be very bad," Feldstein said in a speech yesterday at a financial industry conference in Boca Raton, Fla.

And then there’s Mr. Andrea Mitchell:

 The current financial crisis in the US is likely to be judged in retrospect as the most wrenching since the end of the second world war. It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

This "worst since World War II" seems to be a favored euphemism, among economists, for Depression.

110 replies
  1. MadDog says:

    And when it surpasses WW II, they’ll shoot for WW I or even the Civil War.

    Shorter Mr. Andrea Mitchell: “Don’t worry, we’ve got plenty of wars to choose from.”

  2. GeorgeSimian says:

    Let’s just hope they don’t start saying the worst since World War I.

    From the quotes I’ve been reading, it may be.

  3. phred says:

    EW, I’m not up on the post-war economy of the U.S. On what basis are they using the expression “since World War II”? Is it a legitimate comparison with particular economic indicators, or is it simply to avoid having to say since the Depression? It seems to me the mental image most people have of the state of the economy in the 1930s is much worse than anything they might have of “post-WW II”. I wonder if this is all an exercise in looking on the bright side…

    • emptywheel says:

      I think that’s what they’re saying. They obviously don’t say whether they mean beginning of WWII or end, but I’m assuming they’re meaning beginning.

      That is, they are talking about the 30s.

      Much as we can complain about the bailouts, the Fed is at this point trying to retain markets, period, including markets for things like wheat.

      • phred says:

        Thanks EW, I was afraid of that. It will be interesting to see whether the Fed can manage this crisis successfully and limit how much we repeat history. I wonder whether Wall Street is in so much trouble, that it exceeds the ability of the Fed to bail them out.

        • emptywheel says:

          Depends on what you mean by “bail out.”

          At this point, the question is how do you balance bailing out with trying to prevent a complete crash of the dollar. I think we can say goodbye to the reserve currency (ironically, one of the reasons Bush is said to have gone to war in Iraq). But let’s hope that move is made gradually, over weeks and months and not hours.

          • phred says:

            Sorry EW, I’m not an economist in any way shape or form : ) My use of the term “bail out” was entirely generic (think small bucket, large boat ; )

            I have not heard the connection between the reserve currency and Iraq. Mind enlightening me on how they are related?

          • martha says:

            One of the unintended consequences of the extremely weak dollar is that investors are buying commodities like crazy–oil, wheat, etc. The problem with this is–duh–an economic nightmare for the businesses that need these commodities to make their stuff and ship it. In the US, natural gas prices have been tracking oil up to the stratosphere, which has huge impacts on the energy prices for industrial manufacturers and homeowners. Summer comes, which will help homeowners. Industrial manufacturers still need the natural gas to make their widgets.

          • freepatriot says:

            I think we can say goodbye to the reserve currency

            so you’re saying “Bye Bye Bretton Woods” ???

            has it really come to that ???

            we lost the true victory of World War II ???

            heck of a job, georgie

  4. JimWhite says:

    Biodun put up more of the quoted article about Greenspan over at FDL:

    He added, however, that he hoped one of the casualties from the worst U.S. financial crisis since World War Two would not be the spirit of broad self-regulation within financial markets.

    I find that the most telling. A crisis caused by a complete lack of regulation and Greenspan’s response is that he hopes this doesn’t lead to more regulation. “Self-regulation” got us here. Only government regulation can get us out of it.

    • phred says:

      Amen to that. We can’t take much more mythical self-regulation, whether in our financial institutions, mines, toys, food… Enough is enough.

    • rapt says:

      What Greeenspan isn’t saying: We’re going along swimmingly in our program to destroy the U.S. and world economy, so I am sure you won’t interfere with govt regulation.

      Yes, Greenspan was instrumental in pushing us into the abyss and he knew it very well at the time. He is not stupid. He was able to proceed with this plan because….nobody would/could believe it possible that the Fed chair could be so nefarious. Do you believe it now? Most don’t/won’t.

      • dipper says:

        Greenspan got out just in time to sell his book and receive lots of praise for a great job. Poor Ben.

  5. BooRadley says:

    I think the best leverage the US retains at this point is the fact that we’re such a huge debtor to everyone. Banks all over the world have lots of incentive to help us survive, so we can repay them.

    Transparency in the US financial markets, however has to happen. Since Paulsen (Sec. of the Treasury) and Chris Cox (SEC) let some corporations cook their books inflate the value of their assets aka white collar theft, everyone had to do it to compete. AFAIK our credit rating agencies are worthless.

    The threads on this have been terrific, thanks to you especially emptywheel, and all the wonderful commenters you attract for educating us.

    Of the many terrific phrases on the prior thread, “privatizing profits, socializing losses,” really crystallized this for me.

    • readerOfTeaLeaves says:

      Yes, but in view of the fact that 90% of DC seems to believe its job involves p.r., rather than governance, I suppose it’s about what we ought to expect.

      Oh, that, plus being asked to bail out these clowns.
      And not regulating them in the future, because as Mr Andrea Mitchell points out, they’re ’self regulating’.


      EOH, thx for excellent explanations on prior thread!

  6. JimWhite says:

    Morals? We don’t need no stinkin’ morals. Treasury Secretary Paulson, yesterday, speaking about the economic crisis, how we got there and what the government plans to do about it:

    “We’re very aware of moral hazard,” Paulson said. “But our primary concern right now — my primary concern — is the stability of our financial system, the orderliness of the markets. And that’s where our focus is,” he said.

    This article also has some nice Democratic responses:

    “We’re in the most serious economic problem we’ve been in in a very long time, much worse than 2001. The president’s hands-off attitude is reminiscent of Herbert Hoover in 1929, in 1930,” said Sen. Charles Schumer, D-N.Y. “There are lots of things that can be done, particularly on housing. Housing has been the bull’s eye of this crisis.”

    House Speaker Nancy Pelosi, D-Calif., said, “Much of what the administration has done has been too late.”

    • martha says:

      Is that due to the shorts trying to unwind their positions? Or, the interesting group I’ve learned about in the past week–the Plunge Protection Team? Ack.

  7. AZ Matt says:

    From then Guardian:

    America was conned – who will pay?

    Larry Elliott, economics editor The Guardian, Monday March 17 2008

    Bear Stearns marks the moment when the global financial crisis went critical. Up until last Friday, it had been possible – just about – to believe that the worst was over and that things were about to get better. That pretence was stripped away when JP Morgan, at the behest of the Federal Reserve, stepped in when the hedge funds pulled the plug on the fifth-biggest US investment bank.

    It is now clear that no end is in sight to the turmoil, and the reason for that is that the Fed and the US treasury are no closer to solving the underlying problem than they were eight months ago. The crisis will only end when house prices stop falling and banks stop racking up huge losses on their loans. Doing that, however, will require the US government to intervene directly in the real estate market to end the wave of foreclosures. Ideologically, it is ill-equipped to take that step and, as a result, property prices will fall and the financial meltdown will go on and on.

    Ultimately, though, action will be taken because there will be political pressure for it. Indeed, it is somewhat surprising that there is not already rioting in the streets, given the gigantic fraud perpetrated by the financial elite at the expense of ordinary Americans.

    The US has just had its weakest period of expansion since the 1950s. Consumption growth has been poor. Investment growth has been modest. Exports have been sluggish. But if you are at the top of the tree, the years since the last recession in 2001 has been a veritable golden age. Salaries for executives have rocketed and profits have soared, because the productivity gains from a growing economy have been disproportionately skewed towards capital.

    • Hugh says:

      Feldstein has changed his tune. Last month he was still dancing around the issue of whether we are in a recession.


      Bear Stearns marks the moment when the global financial crisis went critical. Up until last Friday, it had been possible – just about – to believe that the worst was over and that things were about to get better.

      This is an issue I have been furious about since the end of 2006 when the first mortgage companies went belly up. There has been a consistent drumbeat at each subsequent crisis point that there was no real problem, that there was a mild problem, that the market had already adjusted to the problem, that the worst of the problem was over, and that we were near the bottom. So 18 months into this debacle, 4 years after it could have been nipped in the bud with a few sensible regulations, we are told that it is the worst since World War II and I agree with Marcy this does mean the Depression.

      I said I was furious and what infuriates me is that all of this was not only foreseeable but was foreseen by some of us and despite this every effort of the Administration, those in the markets, and those in the media who cheerlead them has been to exacerbate the situation to the maximum possible.

      • selise says:

        and it was the same story with afghanistan and iraq.
        and i fear it’s going to be the same story with the global climate.

        pretend everything is going great, that there are no problems that more of the same won’t address for as long as possible – regardless of the warnings. and by the time all hell breaks loose, and no one can deny the problem any longer, what could have been a manageable problem (by that i mean one that doesn’t cause massive hardship/death/destruction) is allowed, even helped, to cause the most possible damage.

        it almost makes me want to consider if that is the plan. it’s such a consistent feature.

        • PJEvans says:

          I keep saying that crisis management does not mean ‘wait until it’s a crisis, then try to manage it’. It seems to have become a feature, rather than a bug: I see it even at the local level.

          • Gnome de Plume says:

            That is the American Way. I have heard it said that less than 20% of the population can “see” into the future. By that I mean put current knowledge together enough to understand what that means down the road.

            • Rayne says:

              To be expected, surely, that the average Joe SixPack can’t look past the end of the pay period, much less past the next quarter or even a presidential term.

              When we spend so much time and effort getting kids to learn to the NCLB-mandated tests and removing all opportunities to think for themselves, let alone learn how to think deeply and critically, of course the public will be too stupid to look ahead and plan for the future.

              Yet another feature: breed people who won’t question the so-called liberators when they arrive with promises of freedom and democracy.

              • BayStateLibrul says:

                At the presser today with Dana, they’ve got to ask her about the President’s dormant Social Security Plan and investing in the market…

          • Rayne says:

            It’s a feature. Key to the implementation of the Shock Doctrine.

            When a state of utter collapse has been induced/occurs, shock doctrinists can move in to take advantage of the state of complete disorientation, and encourage “free market democracy” (some may call this “fascism”) to emerge from the ashes.

            Or emerge from the rose petals thrown at feet of the so-called liberators, take your pick.

        • Quebecois says:

          pretend everything is going great, that there are no problems that more of the same won’t address for as long as possible – regardless of the warnings. and by the time all hell breaks loose, and no one can deny the problem any longer, what could have been a manageable problem (by that i mean one that doesn’t cause massive hardship/death/destruction) is allowed, even helped, to cause the most possible damage.

          it almost makes me want to consider if that is the plan. it’s such a consistent feature.

          Why do you wonder if that’s not the plan? They always lie, did not these last seven years prove it to you all without the a possible doubt??? And even if they’re brought to justice( and what a DOJ it is!!!), when confronted with all their crimes, they’ll still deny it. They have all the money, all the power, they’ve destroyed the system, and you still wonder???

          Let me humbly spell it to us, we’re screwed to the floor, and the rocks are piling on without a break in the agenda…

            • Quebecois says:

              It’s obvious that they’ve been thinking and plotting this for a long time. And since Reagan, all the same crooks have had been running the country. They’re now at the very top of the food chain, and the feeding frenzy is at it’s apex.

              By the way, Selise, I did not mean to single you out. I see all these clean and thought out argumentations here and at FDL, end even with all the crap that’s being pulled, commenters look like they don’t KNOW what the hell is happening to their country and planet.

              I’m having a bad day, maybe I should just shut the fuck up.

              • selise says:

                no – don’t shut up! sometimes i have trouble seeing what is in front of my nose…. i really don’t mind having that pointed out to me (in fact i appreciate it).

              • rapt says:

                No really Quebecois, there are some like me who agree with you. Please don’t be intimidated by what might pass as a majority here at EW into SingTFU. I’ve tried your argument, at times more forcefully and in detail, and have gotten a similar cold shoulder. Perhaps sometimes even smoldering sparks slipped into my pants to make me go away.

                Today we see a few – very few so far – comments om this blog hinting at a dawning of the light: “Hey maybe it was all set up from the beginning.” Too late, yes, but if one compares the tone of posts & comments to a year ago or during that interminable build-up to the Libby trial, when FDL was in a paroxysm of certainly that the world would be saved by Fitz, one will see that a lot of enlightenment has occurred since then.

                My take for some time now has been that the perps have a schedule to meet, and that the time is past when it was necessary to fool everyone. At a point a few years ago it became OK and even required to forge ahead with the program and damn the torpedos. That decision of course worked fine for the perps, as they had press, courts, other possible barricades sufficiently under control by then. Now there is no opposition of any strength and no reason to be subtle any more, and so we see open law scoffing from the very top and beyond. Who ya gonna call? Nobody.

                The big question left open, one I have heard no reasonable answer to, is why? What is this goal they seek and why does the economy have to be destroyed in order to achieve it? Why are mass murders committed as a matter of national policy? On the latter I have some private theories which I won’t share here. I am like others here in that I depend on the economy to live, although I can imagine there are better ways to live, for example, without money. Don’t ask me how.

                • readerOfTeaLeaves says:

                  I’m simply of the view that conspiracies, while they can and do exist, generally explain too much, too well to capture the complexity of life.

                  Not arguing with you.
                  Simply saying you may have more info, or more background that predisposes you to think of it as a conspiracy.

                  Part of it may be, but generally it’s been my observation that there are also additional, more interesting factors to keep an eye out for… FWIW.

                  • bmaz says:

                    I fail to see how the explanation of just a bunch of rapacious, stupid, plundering, self serving assholes doesn’t fit the facts as well as some grand conspiracy theory.

                    • readerOfTeaLeaves says:

                      Well, I concede your point ;-))))

                      It’s hard not to wonder what the cocaine and liquor sales were like the past few years in Manhattan, and the balmier spas of the planet.

                      Am I the only one kind of marveling at the irony that Spitzer is resigning just the very day that the kinds of venal asshats he went after are taking us all down the financial sewer? The irony!

                    • bmaz says:

                      I think young Cuomo may be out to make a name for himself by following in some of Spitzer’s better footsteps as AG (in spite of their personal distaste for one another). We shall see; but Spitzer would have had a field day with the shit that has hit the fan the last few days were he still a prosecutor.

                    • Quebecois says:

                      I fail to see how the explanation of just a bunch of rapacious, stupid, plundering, self serving assholes…

                      That’s just it, a bunch of privilidged kids, who have always bowed to the authority of their parents, been thought that they are better than the poor folks, end up at Yale, Harvard, Oxford trained to be perfect sociopaths, where winning at all costs is the only way to conserve their way of life and death… Takes a few to decide that there’s never enough money, and act on that. There’s your conspiracy.

                      And it’s obvious that the same names always crop up. Bush grandad, dad and junior, CIA, bilderberg group, cheney, Rumsfeld, Rove, Wolfowitz, corporate world… Need I go on?

                      Corporate law has to be scrapped. The media has to be crushed to a pulp.

                    • readerOfTeaLeaves says:

                      Agree corporate law needs to be scraped, but look at what just showed up at Scott Horton’s blog over at Harper’s: http://www.harpers.org/archive…..c-90002661

                      Is it pure coincidence that Eliot Spitzer falls just as he is masterminding an effort to address lending abuses, as the Bush Administration is feverishly maneuvering to block him in order to protect the misbehaving lenders? Probably. But this will make excellent material for a thriller.

                      Apologies — I don’t generally quote from other blogs here at EW’s, but given the wild events of today….

                      Am I the only one here in the dark about the fact that this is what Spitzer was focusing on? B/c if that’s the case — entirely apart from his being IMHO entirely imprudent with respect to his Mayflower visit(s) — this really takes on a tinge of corporate black ops.

                      This is getting entirely too interconnected timing-wise. The FBI knew about Spitzer almost a month ago (at the very least), didn’t charge him until the week that Bear Stearns was flying out of control…

                      Quebecois, that timing certainly is bizarre, eh?
                      Going tin hat shopping now…

              • readerOfTeaLeaves says:

                I think this must surely tie in to Iran Contra in more ways than I understand. It’s related to the importance of transparency NOW.
                If more of us had followed IC, or understood it, much of this would not be happening.

                But reading Kevin Phillip’s “American Theocracy”, or Craig Unger’s “Fall of the House of Bush,” or Joe Conason’s “It CAN Happen Here”, it becomes obvious even to the dullest of us that we’re reading the same names over, and over, and over…. and they never serve time in jail; or their sentences are pardoned.

                If this is what’s happened politically, it’s a no brainer that it’s analogous on Wall Street. And with Bush41 and his pals up to their eyeballs in the CIA, and in Carlyle and heaven only knows what else, it’s just impossible not to believe that it isn’t all connected. And the f*ckups just grow by magnitudes.

                From a biological perspective, I can only say that there is a certain max size to things; then they implode. I assume that’s what we’re finally hitting at this point.

                The 80s bailouts have evolved to something far more dangerous; this time, they may take down the economy.

                I’m kind of philosophical; if the system is this utterly corrupt and stupid, it’s clearly time to rethink things. This is simply not sustainable, no matter how many balancing acts, magical incantations, bullshit, and delusions the people charged with overseeing this mess try to dish out.

                It’s like watching a whale that ran out of krill.
                It’s kind of natural phenomenon whenever predators run the show.

    • jdmckay says:

      Fed and the US treasury are no closer to solving the underlying problem than they were eight months ago. The crisis will only end when house prices stop falling and banks stop racking up huge losses on their loans.

      That seems damn surperficial AFAIC… author mistakes symptoms for “underlying problem”.

      “Underlying problem” based in legalized fraud AFAIC, and has been evident since (at least Enron): worthless shell companies to hide debt off books, self insuring w/worthless assets and, in some cases (ARM Bonds), same asset(s) serving as collateral/insurance for multiple “financial vehicles”.

      This was the Enron model. And the underlying structure of Enron fraud was never dealt with AFAIC. In fact, seems to me Repubs rather admire what those guys did. I’m also quite cognizant that Feds allowed Enron to bleed every last drop… every single $$, after which Ken Lay drove and flew off in company limos and planes.

      I’m sure Ken Lay’s enjoying his anonymous vacation & getting some good laughs recounting memorial services in his honor.

      As much as anything, I’m struck by utter lack of transparency in Bear Stearns… from $32 (or whatever) on Friday to $2. And this, w/very little explanation, rather Fed explanations suggesting their “shoring things up”. I don’t think translucency even describes this state of accounting.

      Paulson’s dodging questions asking if other WS investment houses are in same boat kind’a gives me the hee-bee-jeebs. I see him (or was it Bernacke?) saying “we’re in uncharted waters”. I guess that’s supposed to suggest they’re putting their best minds behind solving this hither-to unknown conundrum.

      How come nobody’s asking ‘em if perhaps the fact these guys stopped reading any reality based charts some time ago… essentially winging it and making up stuff (like balance sheets) might have something to do w/them seeing this as “unchartered waters”?

      BooRadley @ 9
      Of the many terrific phrases on the prior thread, “privatizing profits, socializing losses,” really crystallized this for me.

      Indeed, and thanks for bringing that one to my attention.

  8. ProfessorFoland says:

    martha–hell if I know. I decided long ago that trying to guess how the elephants would dance is a good way for a mouse to get stepped on. Minute-to-minute speculation is a task I’m simply not up to. I can only handle the kinds of timeframes over which all the dancing averages out and the fundamental issues emerge. (Though, as has been pointed out, “The market can stay irrational longer than you can stay solvent.”)

  9. SaltinWound says:

    I don’t trust these deals. I feel like too much of our government is conducted in secret, and that includes financial markets. The guys making these back room deals with each other are the same ones who bankrupt companies and walk away with hundreds of millions (at least it’s just dollars).

  10. Neil says:


    “[Florida] State party Chairwoman Karen Thurman is likely to jettison the proposal [Florida primary re-do by US Mail] on Monday, leaving state Democrats casting for alternatives even as Michigan appears to be moving ahead with plans for a June 3 traditional-style primary.”
    Miami Herald

  11. masaccio says:

    The ideological bias of the republicans is a big part of the problem. Last fall, a bunch of people pointed out that the bankruptcy code could be used to solve a part of the housing crisis, the part actually involving families that need houses, using Chapter 13 to permit people to cram down their mortgages to the value of their homes, and move their interest rates to fair market rates.

    This solves a part of the big problem by establishing the loss of the holder of a mortgage backed security, removing the uncertainty of the valuation, at least in part.

    The ideologues of the r party and the blue dogs wouldn’t hear of it. Stupid is as stupid does.

  12. GeorgeSimian says:

    They can keep throwing money at Wall Street and it will stay high, but what happened to that 30 billion they threw in last week? It disappeared. Dow Jones went up, then it went down.

    The real problem with these “solutions” is that they are devaluing the dollar in a big way.

    • DefendOurConstitution says:

      I agree. All articles that meantin bailouts neglect to mention that any further action (wheteher lowering rates or injecting capital) weaken the US$ further.

      • GeorgeSimian says:

        Actually, there’s some sanity in the WSJ editorial today about just that. I’m not an expert in economics, but it seems so obvious to me.

  13. JimWhite says:

    There’s a quick-vote on the CNN home page asking if the Bush Admin has done enough to address the economic problems. The vote is running 85% no, 15% yes.

  14. hackworth says:

    Bear Stearns BSC opened at $3.17 and approached $5 per share. 80 million shares traded. With a 32 percent dividend yield, buyers are willing to fool around with it – even with a declared purchase price of $2 a share. Currently it is $4.14.

  15. Rayne says:

    Schumer on credit crisis on CNBC now.

    Holy crap. I think one of the Four Horsemen of the Apocalypse just arrived.

    Old geezer talking head Mark Adams on CNBC is arguing for more checks on “hot shot bankers”.

    Damned near gave me a heart attack from shock to hear that. Offsets the laughs I got earlier watching him put his head in his hands in response to Bush’s “Everything’s just fine, Paulson worked all weekend, nice job Paulson, nothing to see here, move along…”

  16. Ishmael says:

    As usual, I think Krugman has it right – he is suggesting a replay of the Resolution Trust Corp that dealt with the S&L meltdown in the 1980s – if the govt is going to end up as the guarantor of all these debts, it should also gain control of the assets, which, while diminished by as much as 20-40% given the deflation of the bubbly, still have residual value. THe problem this time is that the exposure is exponentially worse.

  17. hackworth says:

    Correction: Day’s high is $5.50 thus far – not $5. Current SP is $4.05. 84 million shares traded.

  18. klynn says:

    I have written many times, and I’ll post it again, the organization that “has this” crisis spot on is The Concord Coalition. You need to visit their site and recommend their plans to your congressperson. The Lake or EW should have their director as a guest post or “salon”.


    Go visit their site and take advantage of their many PDF’s and downloads. You’ll be better equiped in responding to your reps…I promise…


    The candidate that takes The Concord Coalition on as an economic advisor is “our” FDR presidential candidate…

    BTW The Concord Coalition was founded by P Tsongas and W. Rudman after they worked together to balance the federal budget…

    • klynn says:

      Let me correct myself… FDL or EW should invite their “co-directors/co-chairmen” on for a “salon” or guest posting. The co-chairmen are Warren Rudman and Bob Kerrey. Executive Director is Robert Bixby.

      I highly recommend reading their NYT’s ad which is a PDF under “Highlights” on this link – it is the last item listed under Highlights…


  19. klynn says:


    One of the attractions of your site is the synergy of experts who “weigh in” with detailed insight, a wealth of knowledge and many times “pieces” to the puzzle at hand.

    You have an opportunity here to “draw” out experts to come together on our country’s fiscal threats (I know you have said this is not your expertise) and have some real “solutions” dialogue that citizens can be empowered with to bring change and push their congress critters on. Otherwise, I fear we’ll end up with lots of b-)^%$% sessions and no action.

    We have as much ability to move on our fiscal issues as we do FISA or any other issue. This fiscal is is as big as FISA.

    We need to use the forum of the blogs to move the netroots/grassroots to action on our economy.

    I am serious about The Concord Coalition — they would be the foundation to beginning a dialogue for true action.

  20. Neil says:

    How close are we to a liquidity trap?

    Here’s one way to think about the liquidity trap — a situation in which conventional monetary policy loses all traction. When short-term interest rates are close to zero, open-market operations in which the central bank prints money and buys government debt don’t do anything, because you’re just swapping one more or less zero-interest rate asset for another. […]

    As of 10:38 this morning, the one-month Treasury rate was 0.57; the three-month rate was 0.825.

    Are we there yet? Pretty close.

    • BayStateLibrul says:

      Good point.
      At what point will the Fed Fund rate fall to zero…
      When it does, the Fed can’t lower it anymore, so what can they do?
      Maybe, impose a derivative Fund Rate?

      • prostratedragon says:

        At what point will the Fed Fund rate fall to zero…

        I guess we find out a little more about that tomorrow.

        When it does, the Fed can’t lower it anymore, so what can they do?
        Maybe, impose a derivative Fund Rate?

        Maybe you’ll be glad to know that the folks at the Fed have not only thought about that, but that your conjecture is in some way not far off of what they’ve come up with. These TAFs and TSFCs or whatever they are, are basically ways to open channels into the financial markets that will produce what amount to other, non-zero interest rates that the Fed can manipulate. Since FF is still above 0 (so far), we haven’t seen all that could be done with the new ideas. Who knows, maybe they turn out not to be so good, but remember, they’re meant to deal with extraordinary times.

  21. Gnome de Plume says:

    Question for the experts: We are looking at the mess caused by the housing market and financial shenanigans wrt mortgages. What happens when the credit card industry dominoes because of the little people who are the losers in this debacle?

  22. Mauimom says:

    Two things I’d love to see the progressive blogosphere focus on [i.e., repeat again & again] are:

    a) this “bail out” is using taxpayer money. [The Admin is so willing to bail out rich guys, but homeowners losing their houses to foreclosure, victims of Katrina — not so much]; and

    b) why not “recapture” the excessive salaries given to the executives of Bear Sterns et al. Have they all spent the $$$ already?? This is just another reason why there should be a “Resolution Trust” or other entity overseeing this, instead of the complicit bastards at Treasure, the Fed, etc.

    • whitewidow says:

      yes, and the obscene bonuses that were being paid out even after it was clear that subprime was a huge problem.

      Investment bankers and underwriters should pay back their bonuses to the treasury.

  23. Mauimom says:

    about the President’s dormant Social Security Plan

    Haha. I read this as “President’s doormat Social Security Plan.”

  24. cbl2 says:


    Novakula toys with da hippies

    via Raw Story – sunday column outs Republic operative Roger Stone’s possible involvement in the Spitzer takedown

    In an interview last week, Stone cheered the governor’s demise, and hinted further that he’d known about the governor’s fall.

    “I didn’t make him go to a prostitution ring,” Stone told a Newsday columnist Mar. 12. “He did that all on his own.”

    Asked whether he had a hand in Spitzer’s woes, Stone said, “No comment.”

    everyone please remember this is one of their favorite tricks – falsely taking credit for these ops ex poste facto – Abramoff did it everytime a Dem tripped on a shoelace

  25. klynn says:

    The Concord Coalition, the bipartisan fiscal watchdog group, used to keep a scorecard that rated members of Congress on votes that addressed America’s federal budget problems. The Concord Coalition’s executive director, Robert Bixby, told The Chronicle’s editorial board last week that his outfit eventually had to give it up. “We couldn’t find enough votes,” Bixby explained.

    Comptroller General David Walker estimates that Washington has promised $53 trillion in Social Security and Medicare benefits without funding them. In real dollars that means every American – this means you – owns a $175,000 share of the federal debt. It’s as if you have a second mortgage – for a home you don’t own.

    These days, there has been much finger-pointing at a system that allowed lenders to issue mortgages that violated the basic tenets of fiscal responsibility. How is it, people now ask, that banks could issue so many loans to buyers for homes they could not afford?

    How indeed?

    Washington continues to authorize retirement and medical benefits without putting aside the money to pay for them. Editorials and think-tanks sound the alert. Yet you hear little public complaint about the situation. Even in a presidential election year, voters are not demanding that White House hopefuls promise to balance the books.

    If the sky falls, will Americans then ask why they were not warned?

    Rest of the article here:


    It’s too bad this organization was not invited to Take Back America to present their “Fiscal Wake Up Tour.”

    EW, you should have them come to your site and present it online…

  26. BayStateLibrul says:

    I’m wondering if Gordon Sellon from the KC Reserve Bank, needs to relook
    his conclusions on “zero interest bound”
    Especially, “healthy banking system and capital markets” and what are “nontraditional policy options”
    This article was written in 2004.

    “This article has examined how the zero interest rate bound is likely to affect the implementation of monetary policy. One principal conclusion to be drawn from the analysis is that the zero bound should not be viewed as an insurmountable problem for central banks. Even when short-term interest rates are near zero, a central bank can continue to ease policy by expanding bank reserves and typically has a number of methods available to lower longer-term rates. And, in the event that all interest rates are near zero or the banking system is dysfunctional, a variety of nontraditional policy options may be available. At the same time, all of these alternatives come with associated costs and difficulties and, to be effective, require a central bank to communicate effectively with financial markets and the public.

    If the zero bound is not a particularly serious problem, there must be an alternative explanation for the limited effectiveness of monetary policy in the United States in the 1930s and in Japan more recently. The analysis presented in this article suggests a key factor common to both episodes was a weakened banking system that reduced the effectiveness of the monetary policy transmission mechanism. In this situation, there may be limits to what monetary policy can be expected to accomplish even in the absence of difficulties posed by the zero bound, and a central bank may need to rely more heavily on nontraditional policy approaches.

    Finally, the analysis presented in this article suggests that the zero bound is unlikely to pose serious difficulties for Federal Reserve policy in the current U.S. economic environment. With the federal funds rate target at 1 percent, the Federal Reserve still has some scope for further policy ease before the zero bound is reached. Moreover, should short-term rates hit zero, there is still considerable scope for lowering longer-term interest rates. And, with a healthy banking system and capital markets, the monetary transmission mechanism should function effectively. In this environment, whether monetary policy is effective in stimulating economic activity will likely depend more on whether households and firms respond to the lower cost and greater availability of credit than on the particular way the Federal Reserve implements policy. Indeed, given the important role of policy expectations in the monetary policy transmission process, the biggest challenge facing the Federal Reserve at the zero bound is likely to be the effective communication of its zero bound strategy to financial markets and the public.”

    • whitewidow says:

      Didn’t Bernanke help write that? Or endorse the theory? IANAEPW. Seems to me I saw something about it that Krugman wrote.

  27. JohnLopresti says:

    This should be an interesting time for the Bush legacy to gel. There was a previous time when a presidential campaign coincided with a housing crisis which saw the White House go from occupancy by Republicans to a transition to the Democratic party candidate. The issues in that campaign were distant cousins of the current polarized policy standoffs, but the debilitated condition in which the Republicans had put the housing market was a sensitive household economic factor for a sufficient quantity of voters to give the victory in the election to the Democratic party. Beyond the classic profiteering which becomes especially apparent toward the turning point of a transition of government from one party to the other, in our times now a constellation of maturing issues and a confluence of new technology inputs are ready to add to the accentuation of the importance of pocketbookWallet concerns in this election year. I am still relaxed about the Bearstearns imbroglio though it is illustrative to some of the central problems in current US economic straits; but, in my view, Bearsterans always was a rudimentary outfit, in comparison terms when matched with strategists at their competitors. I doubt the 2003 nationbuilding warbookplan, for which JudyMiller was one of the acolyte polemicists, could have had a lengthy section addressing economic impacts in the US; or that the US populace has seen or heard much of that from the key planners yet. I need to review the prior thread for some of the percolating humor there; last I glanced, there was a depiction of Wall Street reminiscent of some foreign aid guidelines for underdeveloped countries seeking loans. My sense is the mistakes the Republicans have made in these eight years only add to the impetus to vote them out of office; US veep RC can enjoy what may be a penultimate tour of resource extraction lands this week, in the shadow of the profiteering his former private industry consituents anticipate; certainly they have new wealth to review and with which to plan. But as always economic issues tend to be the outward face of other turbulences; and the Democratic party candidates are busy at work examining the web of eccentricities which the Republicans have pursued which have concatenated into this financial crisis for the current administration. In sum, they will have their burgeoning riches, but at a price for their own rarefied constituency, one of theose costs being the US Republican party’s loss of control of the government. Further, as the Democratic party seems to be at a generational leadership transition point, as well, the built-in entropy by which the US and global economies will seek a correction course possibly will exclude the Republicans from majority party status in the US for several cycles more than one. Right now the key figures in the Republican party have 50yardline seats for their own defeat by their own devices.

  28. Mary says:

    It will end eventually when home prices stabilise and with them the value of equity in homes supporting troubled mortgage securities.

    Even when he recognizes things are bad, Mr. Andrea puts lipstick on the pig with that statement.

    It’s not just mortgage securities, but all kinds of non-regulated securities that have now become subject to valuation standardization since November; and it’s not just securities, it’s the falling value of the dollar including the moves way from the dollar in oil pricing, the debtor status of the nation vis a vis other countries, the failure to modernize aspects of the nations resources (like high speed access ) to keep it on competitive footing with other nations, the failure to maintain infrastructure and education resources all yielding future outlooks for more debt concerns, and the costs of the war and GWOT, etc.

    He’s oversimplified to the point of qualifying as a PDB – or a Highlight’s magazine color-by-numbers.

    [I dumped some responses on the Hatfill thread but that taps me out for a long time – too much work]

  29. whitewidow says:

    OT – if anyone’s around

    Nacchio convictions overturned and new trial ordered, with a new judge!

      • bmaz says:

        It was inevitable that it was set aside and remanded; but I have an idea that the retrial, if indeed there is one at all, will not be the wondrous tool of hope and joy that everyone thinks and expects it to be. I have said all along, and I will repeat it again now, my understanding is that the whole Nacchio and Qwest deal vis a vis the Administration’s surveillance is not necessarily exactly what people think it is. I still believe that; but on the bright side, I am often full of shit and wrong….

          • bmaz says:

            Oh, I agree with that, just don’t think you are going to see as much as you want out of Nacchio’s criminal case. Discovery on any of that will be under wraps and moderated. If the Bushies think that much of anything will hit the light of day, they will punt the case. In spite of what I said above, this case was still about laying the wood to Nacchio and sending a message to others; that has been accomplished, I don’t know how much impetus there is for them to go forward at this point. If I were them, there would be none; on the other hand, as goofy and batty as I am, I am much more sane than they are…

  30. FrankProbst says:

    Hmmm. It’s always seemed to me that Bush’s whole plan for his “legacy” was to run out the clock and then blame everything on the next President. I don’t think he’s going to make it to the buzzer.

  31. Jkat says:

    well ..i’m certainly no economist ..and sometimes i’m atrocious on spelling .. my punctuation is always like this as well so it’s hard for me criticize .. but [there’s always a butt ya know] .. ahem .. but …

    it appears to me the whole way the powers that be have approached this mess is pure bass-ackwards the impetus should have started on the other end of the process ..

    the repubbies ..and the damn bush-enabling cheney butt-kissin’ blue dogs .. rejected a package that would have helped people stay in those homes .. with a fixed rate .. rightside up on the loan .. and making some form of steady payment … thereby holding up the asset value of the paper-holder .. and keeping it as an income generating unit .. even if the income were neutral .. it’d still be cash flow for the paper holder .. the house wouldn’t be standing vacant and for sale ..adding to the glut of non-selling properties ..further depressing prices … adding expenses.. and devaluing the companies portfolio to the point it collapses .. causing the government to enter and bail out the paperholders …

    they’ve gone in bass-ackwards … and wasn’t it good to hear that “heckuva job brownie err.. paulie …” routine again … hey .. i got goosebumps when i heard it .. did y’all ??

    i liked the reference earlier to a “national trainwreck” imo ..that’s what happens when the sum of concatenated republico-conservative pipe dreams collide wtih reality …

      • Jkat says:

        the loss bmaz ..imo .. it that we’ve given the money to the wrong set .. thereby rewarding financial misbehavior ..while increasing the population of the homeless.. so to speak .. no ?

        • bmaz says:

          Oh, yes, I agree with everything you said about the way this is being addressed with respect to the different ends of the spectrum; just pointing out that the bill that failed was crappy and was not enough to do much. Such a bill is desperately needed I think; should have been started a year ago actually, but at any rate, It does need to be a much stronger and more comprehensive bill. The one that didn’t make it was so narrowly gerrymandered as to who it would actually help that it was essentially worthless; that was my only point.

          • Jkat says:

            thanks for that most civil response bmaz .. i was deliberately being obstinate .. i agree the past legislation was too narrow .. and now it appears to be too late to influence this downhill-racing-turdball ..

            i saw something like this … after working out who could qualify .. such as no second mortages on the property .. etc etc .. fixing it to the point the homeowner only owed what the house was worth .. stabilizing the interest rate on the loan .. making the payments affordable based from a structure of means testing of the loanee ..

            and in return for this the homeowner has to agree that if the home is later paid off and sold for a profit .. the paperholder gets fifty percent of the profit at the time of sale ..as a deferred payback for restructuring the loan so that foreclosure was forestalled ..

            with refinements .. but the whole idea being to let the speculators get bitten .. not fatally .. but there rreally should be some negative consequence for perpetuating in predatory loan practices .. especially if they are deliberately so structured …

            by underwriting this with taxpayer funds .. as we now have .. we are imo .. rewarding speculators or at least bulwarking their suffering for their own mistakes and i see no reason they shouldn’t wallow in a bit of self inflicted misery ..

            and yes there’s all those “stabilizing the market .. a stitch in time saves nine .. and the overarching considerations as to damage to the overall system .. nay even it’s complete collapse .. if something had indeed not been done ..

            cascading failures ??

  32. austintex says:

    maybe this is part of what DeadEye Dick is doing overseas….

    The United Arab Emirates, conceding to U.S. pressure and a desire to act in concert with Gulf allies, will keep the dirham pegged to the dollar, a U.A.E. central bank official said.


  33. readerOfTeaLeaves says:

    For all the palaver about markets, it’s historically accurate that the original temples were places where ‘moneta’ — seeds! — were stored. Each year, some of the harvest was held back, and the seeds carefully stripped and put into clay pots (and also baskets), then placed with care into the temple ‘treasury’ for future use.

    Seems like we’ve just let the rats eat up a whole lot of future ’seeds’, and now we’re letting the rats run the damn show. This will only lead to more rats, and smarter, more bold rats.

    Dems need a few smart economic cats to corner more than a few rats, and keep them in line after scaring the living sh*t out of them. Scared rats leave fewer offspring.
    Ian Walsh seems to qualify. Who else?

  34. wigwam says:

    If this is the worst financial crisis since WWII, it’s the worst since the Great Depression, for there was no intervening financial crisis between the Great Depression and WWII.

  35. BooRadley says:

    Strictly FYI, I pulled this off another site. I thought it might provide a window into some of the frustrations inside the heavily right wing Republicans in the financial services.

    Re: Bear Stearns sold for $2 a Share Reply

    haliker- citi unceremoniously whacked off alot of brokers (myself included) months ago. no reason was given. i had an impeccable record with them. who knows what pile of sh!t loans BofA is getting from countrywide. don’t get me started on those guys. their wholesale divsion/servicing sector are the whores of mortgage banking. i’m sure mozillo will go straight to hell when his time on earth is done. what a f*cking crook!!! “unbiased pre-determined sale of his stock”….fund a loan with them on monday, by tuesday morning their servicing department is calling my borrower trying to break my long term relationship. as far as other banks, all i know is i deal mainly in the jumbo conventional market out here in SD, and the liquidity issue keeps kicking us in the nuts every few months. i heard rumbling that WAMU was getting out of wholesale lending. Homecoming Financial/GMAC seems to not want jumbo paper any more. the “magic 8 ball” probalby knows more then any of us. strap in. this is the worst rollercoaster ride i’ve seen in my 17 years in real estate finance. this is the first time however that our “mess” has rolled into the general economy…

    • readerOfTeaLeaves says:

      What does bug me is the failure to look at their own, individual role in the mess. Kind of like Enron in that respect, as near as I can fathom.

  36. Sara says:

    Well, I have an FDR model like solution for everyone to take a crack at.

    First, Put all the foreclosed housing that meets FHA standards into a management pool under the auspices of State Housing Agencies (they are contractual agents for HUD).

    Second, Allow individual communities to establish not for profit management agencies. These non-profits would then oversee the rental of these properties, (in some cases hopefully to the foreclosed resident), using local market-rate rental pricing. Distribute rents 1, cover local assessments, 2, pay fees of non-profit management, 3, pay partial payments to note holder, and 4, establish escrow accounts for each renter to serve as security deposit, and once market normalizes, can be converted into partial down payment under traditional fixed rate FHA terms. Non profit management would serve as landlord for duration — responsible for repairs in essential housing systems (electrical, plumbing, heating, etc.)

    My objective here is to take the air out of the bubble without destroying local government, dependent on property taxes, public education, also so dependent, and not compromising neighborhood housing values any more than necessary. I also intend to limit the exposure of tax payers to short term massive bail-outs, and spread the necessary deflation in housing values over several parties, and over time. There is also social value in limiting stress on families, keeping kids in their current schools, allowing community institutions such as churches and organizations to function and support recovery. The large scale management-maintence function would create salaried jobs for former Real Estate Agents, and for maintence crews.

    Once the market for housing improves, or normalizes in a deflated status, — these non-profits would be obligated to arrange sale of property, at market rates, with preference given to those who rented, and had good records.

    As I channel FDR, (and I know a lot about his administration) I think something like this is what he would do. To be sure, HUD would have a hard nosed inspector system required to audit all parts of the system.

    We need to understand that the use of the term “after WWII” is not only intended to avoid mentioning the Depression, most of all it is about not mentioning New Deal Style Solutions that were identified with FDR. In fact there was no recession after WWII — yes, industry had to reconvert to peacetime products, but because of the Depression and the War, there were about 15 years of pent up demand for cars, housing, clothes, and all the rest in the system, and as a result of rationing and forced savings during the war, there was consumer savings to pay for it once it was produced. And then they came along with TV and LP records — and the late 40’s were consumer heaven. The big debate in congress in the wake of WWII was all about whether to avoid sharp inflation by keeping price controls in place, and there was a certain upset among many that the GI Bill actually put the construction of VA approved housing at the top of the list for contractors. But 16 million vets had a GI benefit, and 4 million of them bought homes in that period. (no money down, 25 years to pay at fixed mortgage rates.) (Yes, another FDR program also supported by the VFW and American Legion.)

    In the meantime, before we can elect a congress willing to do such things, they can put back some of the Banking and Finance regulation they junked during the Reagan through Clinton era. Not exactly the same rules and regs, but an updated version of it all.

  37. Dismayed says:

    And man, oh, man. Do the dems ever need to go after the right wing richie riches on this one – In the biggest, meanest, and most public way possible. This is something everyone can understand, will effect every household, and gives perspective on this administration’s deliberate derilection of duty for the purpose of creating a robber barron paradise.

    Dem leadership needs to hammer some Republican ass on this.

    By the way. Hi, Sara. Enjoyed your comment. Nice to see you.

  38. prostratedragon says:

    Stats on-line on the Great Depression are surprisingly hard to come by, compared to stats on the post-war economy. But this article from answer.com summarizes pretty well why I’m reluctant to use the term, and why I say there’s not a good playbook on what causes a depression or how we could know if that’s where we’re headed:

    So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.

    By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in recent memory using this definition.

    During the Depression, unemployment is said to have risen to 25 percent in 1933 as FDR was inaugurated. Then after abating eventually to around 14 percent when the NRA and other first term actions were taken, the recession of 1937-8, an ass-kicker by any standard, sent the rate up again to around 19 percent. (Wikipedia has a lot of this in their Great Depression articles.)

    Cutting across all segments of the population, these numbers are just mind-bogglingly bad compared to anything we have now or can immediately expect. On the unemployment front, they rival nothing we have seen except present-day numbers on unemployment among teens in the labor force (Feb 2008, seasonally adjusted: 14.4 percent white, 31.7 percent black). On the GDP front, just nothing, period.

    The one thing that so far is beginning to resemble the Depression era is the prevalence of householders that are underwater or otherwise at risk. And of course, housing is at least as important a sector in our economy as it was in the 1920s.

    So in a general sense, when looking for a comparison, post-WWII is safer in that the reference is more likely to be similar to the subject. But in thinking about how much there still is to play out in the financial and housing sectors, getting familiar with those Depression numbers is probably a good idea; there is a chance we’ll need them. However we’re not yet there, and should probably not assume that we have to go all the way there. You know, fear itself and all.

    (That recession of which they speak is happening now, oh yeah.)

  39. Sara says:

    Prostratedragon — Great problems with statistically contrasting Great Depression with current situation, unless you weight sectors of the workforce. It was only in 1920 that we experienced “crossover” from an economy where 50% of our population lived in Rural American, and were primarily employed in some aspect of food and fiber production. By 1930 it was approaching 45%, but during the great depression most of the migration from farm to urban industry stopped. Today — stretching it — about 2% are in a raw food and fiber producing workforce. Today you have far greater production with a much smaller workforce, but that was accomplished by applying vast amounts of capital in the form of large machines and energy from oil to the process of production. In the 1920’s about a third of the larger farms still used horsepower, and grew their own fuel. The methods for counting the under and unemployed during the 1930’s did not come close to measuring the surplus workforce in the Agricultural Sector.

    Likewise, in Industry, the tendency was not to lay off workforce, rather many mass production industries cut wages and hours. These individuals were not classified as unemployed. As examples, in Rubber, auto tire builders were getting 11 hours work per week, and truck tire builders were down to 9 in the first quarter of 1933. Tirebuilders were a skilled segment of an industrial workforce. (Today most of it is off shore, and what is in the US is automated. The Great Grandson of the tirebuilder likely tends a computer terminal, and produces a multiple of the tires his granddad did.)

    All this to illustrate the difficulty in doing comparisons. The best contrasts emerge from things that have ultimately remained the same, carloads of building lumber for instance, month by month, or sales of truck tires month by month. Such index trends can be compared so as to suggest economic activity in key sectors, such as transport or home construction.

  40. prostratedragon says:

    Quite. That’s how one might attempt to make comparisons in an academic study if one wanted to use a continuous data series, though I should note that, depending on the purpose, many econometric studies might use the aggregates and impose shift parameters to separate the eras instead.

    But note how far from most people’s everyday experience the alternative measures are. That I think is one reason that even some who are not inherently afraid to say the D-word might resort to changing the basis of comparison instead, so as to keep speaking in terms of the broadest statistics that summarize the economy, with which the average person has some familiarity. And once the use of what looks like a continuous data series (though as you say it is not, really, and partly because the event itself led to major changes in social measurement) is out there, the comparisons start.

    I should think most data adjustments on labor would actually make the Depression look even worse in the numbers than it was, though it’s interesting to think about what adjustments for women’s labor might be like. So until we catch up to the GD quantitatively, as we already have with some housing data, comparing things to it is probably selling way short just how miserable the ’30s actually were for most people, is my main point.

    Btw, t emphasize, I don’t think it’s impossible that we could get there; to me the path is sort of undefined, is all. Those Bushvilles, or maybe we should call them Greenspanvilles*, springing up in CA are really, really worrisome.

    *Maybe that should be trademarked, especially since the dude can’t stay out of our hair. I was just having some fun calculating some of the house price growth rates (next-last column; just calc x-quarter some year/year before percent change) that Greenspan should have been informed of, but which he didn’t seem to think indicated something fishy had to be going on. 34 percent y-y growth, 2004-1 versus 2005-1 in Bakersfield!

  41. Sara says:

    Btw, t emphasize, I don’t think it’s impossible that we could get there; to me the path is sort of undefined, is all. Those Bushvilles, or maybe we should call them Greenspanvilles*, springing up in CA are really, really worrisome.

    Yes — one could probably figure a way to compare Greenspanvilles with Hoovervilles. Teaching this stuff for years, I found a total lack of awareness of who was Hoover — too much misidentification with the guy who headed the FBI. (You can’t underestimate the lack of Historical Knowledge.) Anyhow, there is good statistical information on Hoovervilles and the phenonema of Families doubling and tripling up in housing. (Thanks largely to one of the New Deal Programs that provided employment for underemployed economists.)

    One of the huge differences I see today is that the Great Depression in Agriculture really began long before 1929. Market for Farm products was very high during and immediately after the First World War — leading to converting grasslands in Colorado and Oklahoma to crop production land. But the market fell apart in 23-24, when Europe and the Soviet Union restored ag production. It never recovered, but overproduction for existing domestic and foreign market continued, drove down prices below cost of production, and then when climate changes made the former grass-lands into the dust bowl, the ag sector was profoundly depressed. Add to this the Boll Weavel in Cotton, which dates from the mid 20’s and you see the complexity of it all. Add to this the size of the total workforce dependent on this sector, and you increase the scope of the problems.

    In contrast — today and in the foreseeable future the market for Grain and many other farm products in the world market is huge. The use of ag product for potential energy is bidding up land prices and commodity prices. For the 2% of the American Workforce in Ag today — all the signals are certainly not about Depression. Moreover many landowners can increase income by installing wind turbines, with no loss of productive capacity. I personally predict that in the near future we will find small scale manufacturing moving to small town midwestern America, simply because of energy potential. It is the complete opposite of Great Depression conditions, but the favorable conditions impact a very small slice of the workforce.

    If FDR had any underlying theory for the New Deal, it was to minimize competition for jobs in the private workforce, by creating conditions for keeping additional competition out of the potential workforce. With the National Youth Administration, High School students were paid to stay in school to graduate, rather than leave and compete for unskilled jobs. With ADC as part of Social Security (Aid to Dependent Children) assistance was based on an unemployed mother careing alone for underage children, when no Father was in the home. The logic behind the GI Bill as initially conceived was to keep returning military out of the workforce, by diverting them into training for higher skilled and higher value jobs. CCC which paid a dollar a day to enrollees, allowed participants $5 per month for personal spending, the additional 25 dollars went to an unemployed family, and was frequently the sole family cash support. Many WPA projects were planned along the same lines — about 21 dollars per week for 35 hours work was attractive enough to temporarily limit competition for scarce jobs, region by region. Roosevelt believed it was only when employers were forced to pay higher rates as a result of both wages and hours rules, but also because of diverted competition, that the economy could be re-inflated — which was afterall his objective. And the conditions he faced were fairly similar in all segments of the economy.

    The situation today is probably very different, and should Government take an activist approach, it would have to approach sectors with more specially targeted approaches. I would, for instance, certainly do educational diversion into areas where the market has failed to deliver needed personnel — early childhood education, K-12 education, Nursing and Practical Nursing, all areas where commitment to higher professional wages would also be essential. In essence, any new activist effort would need to be predicated on comprehension of what the Germans call “Social Market Economy” in American Clothes — and this would require a huge effort to defeat the ideas from Conservatives regarding the value of the raw market economy.

    So it is not the same, but it is very similar.

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