Great Depression Online Archive Issue:

Extraordinary Popular Delusions

Great Depression Online
Long Beach, CA
July 16, 2010

Inside This Issue You Will Discover…

*** Does Anyone Care?
*** Keynes In A Nut Shell
*** Extraordinary Popular Delusions
*** And More

Does Anyone Care?

With three months still to go in the 2010 fiscal year, the federal budget deficit’s surpassed $1 trillion.  Does anyone care?

Not a soul in Washington gives a rip, as far as we can tell.  We hear tough talk from the President, perhaps to score political points, but no serious action has been taken.  Instead of spending less the government does the exact opposite; they spend more. 

Spending more, of course, is what the government knows how to do.  What’s more, they’re good at it.  For they do so with the best of intentions. 

~~~~~~How To Prepare?~~~~~~

The shocking 1990 collapse of the Japanese Market.  The extraordinary U.S. economic boom of the ‘90s and early 2000s.  The devastating global recession that began in 2008.  These impacted everyone’s lives, investments, and fortunes.  The signs of their arrival were visible years and years in advance.  And yet…Almost No One Predicted Them.

The mainstream media didn’t.  The top economists didn’t.  The great financial advisers didn’t.  But One Man Did.

What’s coming Next?  When will it happen?  What should you do to Prepare for it?

Click Here for the Answers 

~~~~~~~~~~~~~~~~~~~~~~~~~

Keynesian economics tells them that by spending money they don’t have they are somehow saving the commoners from the deprivations of capitalism; in other words, from the deprivations of working hard, saving money, and paying for one’s chicken nuggets.

Here’s what we mean… 

Keynes In A Nut Shell

“In the long run we are all dead,” said John Maynard Keynes.  With those eight single syllable words John Maynard Keynes provided the rationale for direct government intervention in the economy.

The idea seemed a bit suspect from the get go.  Namely, that during a period of economic stagnation the government should not save money; rather it should spend it.

Keynes believed that long term economic progress would improve.  In fact, in 1930, at the onset of the Great Depression, he “…predict[ed] that the standard of life in progressive countries one hundred years hence [would] be between four and eight times as high as today.”

But in the short run, he argued, the economy needed a little help from the government to stimulate demand.  By using public expenditures to pump money into the economy – Keynes theorized – unemployment would go down, and the boom and bust cycle could be avoided.

He illustrated his method for stimulating a depressed economy as follows…

“If the Treasury were to fill old bottles with bank notes, bury them at suitable depths in disused coal mines which are then filled up with town rubbish, and leave them to private enterprise on the well-tried principles of laissez faire to dig them up again… there need be no more unemployment and, with the help of the repercussions, the real income of the community and its capital wealth also would probably become a great deal greater than it actually is…”

In a nut shell, when people run out of money to spend, the government should just give it to them so that they can keep spending.   

Extraordinary Popular Delusions

The fundamental tenet of Keynesian economics is deficit spending.  The fundamental tenet of Keynesian economics, no doubt, is absurd.  Where does the Treasury get the money to give away to people?

It gets some of the money from the tax receipts of its productive citizens.  The rest – the deficit part – it borrows.

The U.S. Government, like most governments, has been running budget deficits practically nonstop for nearly 50 years.  In fact, they’ve been spending more than they tax for so long they’ve managed to run the national debt up to over $13.1 trillion.  Throw unfunded liabilities for Social Security and Medicare into the mix and the debt balloons up over $50 trillion.

U.S. consumers took the exemplar of their government – and the seemingly endless supply of cheap credit from the Federal Reserve – and racked up debts all over town.  Economists cheered the consumer’s abundant contribution to GDP growth.

Yet no one paused to consider the world was spending itself broke…

Why save money when you can spend it?  Why squirrel away some nuts for a rainy day when the sun always shines?  Why accumulate wealth when you can spend your way to riches?  Why just have your cake when you can both have it and eat it too?

“Myths and legends die hard in America,” said Hunter S. Thompson.

Like Elvis Presley – or the U.S. Constitution – U.S. consumer capitalism and the magic of the Keynesian fiscal elixir are finished.  That they ever became such extraordinary popular delusions will be one of history’s enduring contemplations.

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  “We’ve seen the greatest credit bubble and greatest real estate bubble in modern history, which means we have inflated asset values and, more importantly, way too much debt in our system,” warned financial author and publisher Harry Dent recently to Moneynews.com.

Debt Kills

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