Thursday, October 13, 2016
Most people do not know anything about Hoover or more specifically the economic environment which propelled him into office so we'll try to present them as concisely as we can so you can see the comparison to the present..
When Hoover was elected President in 1928, the Republican was riding on a tidal wave of economic prosperity based on nothing solid
The stock market was floating on a seismic economic bubble..
In other words in a span of 8 years, stock valuations had spiked 500%'
The US economy was back then a creditor nation rather than today where we are debtor but everything has its plusses and minuses.. Creditor means someone owes you and if they delay repayment or never make restitution, then the creditor ultimately gets screwed
Once the German economy went kaput and fell into heavy depression opening the door for the Nazi Party to be voted into power, the funds that the Allies depended upon to re-pay debts went dry and then ultimately we never got back the money we put out
A lot of US budget expenditures for the 1920s and beyond were based on projections assuming those repayments were being received..
One-fourth of the nation was out of work and destitute as instruments of Communism and Fascism tried to tempt Americans away from free enterprise Capitalism.
Historians like to say it took us getting into WWII in late 1941 for the economy to finally get out of the Great Depression but looking simply at stock market charts, Wall Street did not once again reach 350 until 1956, making it a span of nearly 30 years of Dow being lower than 1929 highs..
So lets bring things to the present..
No one was arrested.. No one went to jail.. No one went to Guantanamo for the crime of economic terrorism and No corporation or bank paid a fine that really meant a damn
And all under Obama
The website for the Minneapolis Fed which is a branch of the Federal Reserve has an interesting calculator where you can see the valuation of money from a given year in time compared to another
For instance $1 in 1929 when Hoover took office had the same purchasing power as $13.96 today which means for instance Babe Ruth made a salary of $70,000 for the 1929 season which in today's money would be $977,200 -- still, quite a steal compared to today's baseball players
In other words, people are working longer and harder for salary that provides less purchasing power than they had 10 years ago whereas during year 2 of the Great Depression, people still had greater purchasing power than they did a decade prior
Now let's take a moment to look at real GDP growth..
While it normally seems that the higher the number, the better this is not automatically the case
You'd think the more growth, the better.
However, a healthy GDP growth rate is like a body temperature of 98.6 degrees. Obviously, if your temperature is lower than the ideal, you know you're sick and if too low, you're near death. But a higher temperature also means you're sick; if it's over 100, you have a fever and if it's above 104 degrees for any period, you're deathly ill.
In fact, if GDP growth starts spiking above 4% for several quarters, it usually means there is an asset bubble of some kind and remember, all bubbles ultimately pop
When the economy grows too fast, it overheats because there's too much money chasing too few real growth opportunities.
It doesn't end until prices are low enough to stop the madness and attract vulture Investors again.
Here was the real GDP rate between 2003 and 2007:
2.5% in 2003... 3.9% in 2004... 3.2% in 2005... 2.7% in 2006... 2.0% in 2007.
Q1 -1.2% Excuse was lackluster holiday sales.
Q2 4.0% High as growth rebounded from a bad 1st quarter
Q3 5.0% High due to 16% bump in military spending.
Q4 2.3% This was a healthy quarter
Q1 2.0% Low number blamed on 'winter storms' ~eyes rolled
Q2 2.5% Healthy number as economy rebounded.
Q3 2.0% Barely healthy
Q4 0.9% Very weak because strong dollar slows exports
Q1 0.8% A second horrible quarter in a row
Q2 1.4% Still very weak.. 12 full months of GDP at 2% or less
Nothing about the 2008 crash was ever fixed; just papered over and the new President will actually have to deal with the rots in the economic foundation whether he/she wants to or not..
And that will ultimately mean a one-term Presidency and a lot of suffering for many along the way
Posted by Susquehanna at Thursday, October 13, 2016