Great Depression, Revisited

(Conspiracy Nation, 09/06/07) -- “The course of history is more often decided by economic factors than by the brilliance of generals,” writes Isaac Asimov, in the Introduction to From Harding To Hiroshima, by Barrington Boardman. (Republished as Flappers, Bootleggers, 'Typhoid Mary', & The Bomb. New York: Harper & Row, 1988). It is an age-old question: How do you tax your subjects without destroying them?

Something brand new had arrived in the 1920s: Installment buying. The Capitalist press always says, “This makes things such as cars and houses affordable for average Americans.” What they never say is the other side of the coin: that Installment buying causes car and house prices to inflate, making them less affordable for average Americans. By 1927, two-thirds of automobiles were bought on the Installment plan. If you could not “charge it,” you just went to Beneficial or Household “or one of the other finance companies that were growing at the rate of 30 percent a year.” (Boardman, op. cit.)

In 1926, there was a Florida land boom. It was the time of Charles Ponzi and “creative financing.” Some people bought land that they later discovered was underwater. There was a frenzy. Land was purchased one month, then sold the next, at enormous profit. Then, in September, the bottom fell out. A hurricane roared through Florida, property damage was huge, and land prices dropped to a tiny fraction of before.

President Calvin Coolidge believed in letting business alone. Herbert Hoover wanted to curb the inflation of credit which was feeding Wall Street speculation. But “Silent Cal” (Coolidge) refused to act.

On February 2, 1929, our old friend the so-called “Federal” Reserve sent a secret memo to banks: “Please do not lend money for purposes of stock speculation.” Too much credit was being absorbed in speculative loans, decided the “Fed.” By March, stock markets had been going into swan dives. Heroes of Wall Street appeared. Charles Mitchell of National City Bank defied the “Fed” and announced his bank would lend to brokers at favorable rates. When markets would sink, the Capitalist press would say, “These are only corrections,” or “These are buying opportunities.” On September 11, 1929, Alfred Wiggin, head of Chase Bank, secretly began shorting his bank's stock. (Wiggin was betting on a serious decline.) Many in-the-know Englishmen liquidated their positions in the American stock market. Money swam overseas, to Britain, where higher interest rates were available. Britain had also gone back to the Gold Standard about this time. (See “Blood Bonds Of 1917,” http://www.shout.net/~bigred/BloodBonds.html)

Following the panic of October 24, 1929 (“Black Thursday”), Richard Whitney, vice-president of the New York Stock Exchange (NYSE) and hero of Wall Street, dramatically strode onto the floor of the exchange and prominently began buying blue chip stocks. Onlookers cheered. Whitney was backed by leading financiers, who had pooled together $240 million for the stunt. It didn't work. On Tuesday, October 29, 1929 (“Black Tuesday”), losses on the NYSE were twice the value of all currency in circulation in the United States at that time. (Boardman, op. cit.)

But the stock market reached its bottom soon thereafter, in mid-November 1929, and then began a slow climb. By Spring of 1930 it had recovered half its losses. Less than a month after the October 1929 crash, Bernard Baruch had sent a telegram to Winston Churchill: “Financial Storm Definitely Passed.” Christmas shopping sales were better than in 1928. Yet the stock market crash of 1929 is lodged in people's minds as causing the Great Depression. It wasn't the stock market. The stock market decline was only a symptom of a sudden contraction in credit.

“The stream of time often doubles on its course, but always it makes for itself a new channel,” wrote Frederick Lewis Allen. In 1930, consumer demand dropped precipitously. Inventories piled up. Factories closed. Commodity prices plummeted. There was a severe drought. President Herbert Hoover nonetheless assured the public, “The economy is fundamentally sound.” By 1932, however, it was “the cruelest year,” according to Allen. As early as 1924, farmers were already suffering an economic depression. Then, on November 11, 1933, a dust storm hit the Middle West. The sky turned dark as far away as Albany, New York. R.D. Lusk, in the Saturday Evening Post, wrote, “By noon it was blacker than night, because no one can see through night and this was an opaque black... [People] were afraid because they had never seen anything like this before. When the wind died, and the sun shone forth again, it was on a different world. There were no fields, only sand drifting...”

Franklin Delano Roosevelt (FDR) had promised to avoid deficit spending. By 1936, though, FDR had almost doubled the national deficit. The federal government expanded, like a cancer. The Supreme Court declared parts of the “New Deal” to be unconstitutional. FDR responded with an attempt to increase the size of the Supreme Court by six members! Even fellow Democrats hit the ceiling at this attempt to pack the court. FDR's enlargement plan for the Supreme Court failed, but attrition of members eventually favored Roosevelt's New Dealism.

The stream of time often doubles on its course, but always it makes for itself a new channel. Once more, in 2007, the nation is experiencing a credit contraction. “Federal” Reserve chief Ben Bernanke believes increasing liquidity will solve the problem. But what good will an infusion of cash to the system bring to people who have already maxed out their credit lines? Sure, the banks will have plenty of cash ready to lend. But if you are already in debt up to your ears, the banks won't be lending that liquidity to you. And you can't use your house as collateral, to persuade the banks, because your house value is evaporating.

Conspiracy Nation

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