How to Recover From a Depression

Fire Chief Bernanke (thx Daily Reckoning Australia). Article by Bill Bonner asking how will the economy improve? Bill asks, “What are they [assets such as houses and stocks] worth, now that the economy that created them no longer exists? That’s the big question. The U.S. economy has been expanding for the last 60 years – largely by increasing consumer spending and debt. Now, neither consumer spending nor debt is increasing.” Bill goes on to ask, “… if it is no longer an economy that grows by increasing consumption and debt…how does it grow at all?”

I think I know how the economy will recover but it certainly won’t be from government spending. See the quote below.

New Deal
In 1933, Roosevelt became President and appointed Morgenthau governor of the Federal Farm Board. In 1934, when William H. Woodin resigned because of poor health, Roosevelt appointed Morgenthau Secretary of the Treasury (an act that enraged conservatives). Morgenthau was an orthodox economist who opposed Keynesian economics and disapproved of some elements of Roosevelt’s New Deal. In New Deal or Raw Deal?, Burton Folsom quotes Morgenthau, testifying before the House Ways and Means Committee in May 1939: “We are spending more money than we have ever spent before and it does not work. I want to see this country prosperous. I want to see people get a job. We have never made good on our promises. I say after eight years of this administration we have just as much unemployment as when we started and an enormous debt to boot.” (emphasis added)

What scares me is that the only way for an economy to┬árecover is for demand to rise to prior levels. If we can’t do that through credit anymore (and we can’t) then, and this is the scary part, perhaps the only solution is time. Time for population growth to rise enough to provide the necessary demand. Thus we are talking about the time required to create a whole new generation of people which usually takes about 25 years. Told you it was scary.


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One Response to “How to Recover From a Depression”

  1. Bill Cash Says:

    I just stopped by your blog and thought I would say hello. I like your site design. Looking forward to reading more down the road.

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