Keith Olbermann Worst: FDR caused the Great Depression

Rapidly changing technology brings new products into the home at a pace never seen before. Rising home prices lure renters into buying and tempt homeowners into moving up. A sea of new lending instruments fuels both a boom in consumer purchases and an explosion of investment derivatives. If that sounds like a description of the last eight years, it is. It's also a description of America in the 1920s. Eighty years ago, consumers were eager to own vacuum cleaners, radios, and refrigerators -- just as consumers today lust after DVRs, flat-screen TVs, and the latest computers. And in both cases stores and banks extended more and more credit to keep the debt-driven action going. Thanks to efforts both then and now to free the financial institutions from regulation and "creativity" among lenders, the pool of available debt became staggering. For most of the nation's history, the burden of debt was equal to about half the gross domestic product. Only twice did that debt rise so sharply that more money was owed than the total of all the goods and services produced by the national economy. Once was in 1929. The other time was in 2008. In both cases the increase in debt was rapid, shooting up in less than a decade from normal levels to unsustainable heights. The result in both cases was a fragile, debt-driven economy -- a tower of spun sugar, ready to shiver apart at the first stiff breeze. The structure of the Great Depression and the Great Bushwhack are remarkably similar. Both are outgrowths of Laissez-faire purists driving down barriers to greed and of government neglect. Even though there are conservative sources that now try to paint the Great Depression as nothing more than an ordinary recession grown fat on a mishandled recovery, the facts are very clear. Starting in 1929, the economy suffered an extraordinary four year decline, creating an event whose severity was unmatched at the time -- and which will hopefully remain unmatched in the future. The crash of 1929-1932 did not begin to recover until Franklin Roosevelt took office and implemented the first programs of the New Deal. Those programs, and the immediate positive effect they had on the struggling economy of the 1930s, serve as the model for the stimulus package that President Obama is pushing forward today. In Japan...The Lost Decade (which would actually last for a good fifteen years) was on...both in America in the 1930s and in Japan in the 1990s,companies and individuals had gotten their balance sheets into such a mess that there was only one agent with enough clout to keep the system from complete collapse: the government. Not all the actions of the Japanese government were effective. Just as happened recently in the United States, the Japanese equivalent of the Federal Reserve Bank chopped interest rates in an effort to restore market liquidity. In fact, Japan cut it's rate to zero. It didn't work. Frightened companies with mounting debt and shrinking sales were in no mood to take loans, even if those loans were free of interest. What did work? Well, the right will tell you that stimulus failed...the numbers reveal a very different picture. Counting the value of real estate and stocks, Japan lost wealth equivalent to three years' worth of gross domestic product... With private borrowing and spending frozen, the Japanese government stepped in, spending on highways, bridges and other infrastructure, and running up big deficits. Where the Japanese government erred, Koo says, was in worrying about those deficits. It cut back prematurely on the stimulus. The economy faltered, and the government had to resume spending. Still, by 2005, companies had repaired their balance sheets and the Japanese economy was marching forward — until the latest crisis. In both the Great Depression and the Lost Decade, it wasn't stimulus that failed. Only when the government put deficit concerns ahead of stimulus efforts (as the United States did in 1937) did recovery falter. Conservatives want to paint President Obama's response to the economic crisis as a blow to free enterprise, but Koo's work shows that Obama's response is not only the correct response, but the one that free enterprise needs if it's going to survive. Until business can clean up it's act, government must step in to hold up the faltering economy. When business has recovered, it will be time for corporations to carry more of the economy forward while government gets the chance to trim the debts it took on during the downturn. The example of the Lost Decade reinforces the lessons of the Great Depression. Not only can Japan's experience help us find our way to recovery more quickly and with fewer missteps, it can also help us avoid falling into this trap again. Three times is more than enough. http://www.dailykos.com/storyonly/2009/3/1/12218/40570/560/703198

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YouTube | March 2, 2009

Tags:. .renters. .fdr. .owed. .dvrs. .staggering