The Great Depression

Since the media loves to talk about it so much these days, let's have an honest look at part of what caused our greatest economic crisis.

International factors: Europe entered a crisis of their own making way before the United States felt problems. The massive war debts hung on Germany at the end of World War I stymied the economic engine of Europe. Only US loans kept that country afloat in the 1920s. When credit was cut off after the stock market crash, Germany and the rest of Europe collapsed completely.

Domestic factors: Agriculture and industry produced way too many goods for the market in a time when foreign trade was restricted by tariffs. Surpluses built up by 1929 that resulted in factories cutting jobs and food prices dipping too low for small farmers to survive. The closest analogy to today's problems was the stock market bubble fueled by irresponsible lending practices that depended upon an ever expanding market.

The response: President Herbert Hoover preached a strong adherence to classical capitalist non intervention. The Federal Reserve Board did not step in to prop up banks as they began to fail by the hundreds. At the same time, Congress passed a higher tariff that cut foreign trade by 2/3 between 1929 and 1932. The tariff, of course, was not part of classical capitalist theory. above and beyond that, the economic crisis took on political and social dimensions. People were suffering in a way we cannot imagine today. This would loosen their commitment to capitalism and later even democracy. Democratic and capitalist governments failed in Europe while even in the United States some favored the tinpot, Latin American style dictatorship of Louisiana governor Huey Long.

President Bush and Congress acted this month in a way that Hoover did not. They stepped in to prop up the banking system which is the foundation of any capitalist economy. The public perception that something is being done addresses the social fears while the action should help restore confidence in financial markets. Also the crisis has produced effects that should balance out the problems and restore some equilibrium. Here in Keyser, gas has dropped almost fifty cents in the last ten days. This drops prices across the board and puts more money into consumer pockets to pay their bills, go Christmas shopping, or do anything else.

This is not the Great Depression. Government acted decisively to stop the bleeding and I pray it works. Government intervention is like medical care. You do not need a doctor to watch over you daily, but when you get really sick, sometimes you need help. I realize this is not going to reflect the opinions of most people I know, but it's my perspective on the issue.

The Fed, good or bad?

Even with a Finance degree I am just starting to learn about the monetary system in our country. Here are a couple of articles that I will be reading. The question I find fascinating is this: Congress is given the power to print, i.e. "create" money. However this is actually being performed by the Federal Reserve Bank (and I thought they just played with my interest rates...). So, instead of printing our own money, the government is outsourcing this task to the Fed, then selling bonds (think of this as getting a loan) from the same bank. That's all well and good, but those bonds (loans) come with interest. Who pays the interest accumulated? You and I pay it in the form of taxes. Some of what I read indicates that this is as much as 40% of your income taxes going to pay interest on these "loans".

Quick summary, the government needs money so it borrows money from the federal reserve that will be paid back with interest. The federal reserve then asks the government to print the money that they need to loan to the government. Then the Fed charges interest to the government which is paid by your tax dollar.

Wouldn't it be better to simply tell congress to print their own money and stop outsourcing this job for an interest based charge? If you were taught like I was, you were taught that this was done to avoid a conflict of interest on the part of a politician leading he/she to print a bunch of money shortly before election day. Everyone is happy in November, then the country faces huge inflation. Although this isn't much different from the Fed creating a bunch of money on behalf of that politician it does take the accountability off of the Fed and pass the interest on to some of our countries wealthiest families. Afterall, who do you think owns America's banks.

Two possible solutions, First, the Fed should charge a one time fee for its money printing services each year. The job should be left out to bid and awarded to the best company for the job. I am fully aware that this company will make money and they most likely won't be the lowest bidder, it is politics after all. Then again, it would be easy for Americans to find out that they were paying billions if not trillions each year for a private company to decide how much money we should print this year. Keep in mind that the actual printing is done by the government, the Fed is just getting paid for saying how much to print and what interest rate they will charge for that determination. That is the kind of clarity we need from our government right now.

Possible Second solution, get rid of the system. Congress, print your own money and face the people every two or six years if you screw this up! Don't whine that it is too touchy for elected officials to be involved with, so are tax increases, public health care, national defense, and a host of other topics but our elected officials seem to manage to get involved in those areas...what's one more? Roll up your sleeves and earn that lifelong paycheck.

This whole issue is just complex enough to ward off most nosy taxpayers that would question the system. Combine this with the fact that the Federal Reserve Bank, The IRS, and the income tax were founded in the same year, things are a little fishy. Tack on the fact that purchasing the bonds created in the system provides a tax incentive (perhaps a nice word for bribe) to investors who might question the system and we have all the makings of a nice conspiracy. I look forward to reading more about this topic. I hope it turns out to be the best possible solution to the difficult job of determining monetary policy, but it is our job to constantly question those that serve as our representatives and even those that they partner with. I have a few links to articles that I will be reading below. God Bless

http://www.maxexchange.com/ybj/chapter2.htm

http://www.justiceplus.org/bankers.htm

http://www.scribd.com/doc/63639/The-Federal-Reserve-is-Privately-Owned-by-Thomas-D-Schauf

http://batr.org/markets/federalreserve.html

http://www.reformation.org/federal-reserve.html

http://www.lewrockwell.com/paul/paul53.html

http://www.bigeye.com/griffin.htm

http://www.maxexchange.com/ybj/chapter18.htm