Copyright by Alan Jewell 2010
Alan Jewell is a grain farmer in Southwest Wisconsin. He has been honored four times as having one of the best-managed farms in the United States. Alan works with producers and processors, specializing in marketing and hedging their production. He is a featured speaker at many events involving the Agriculture community. He can be reached at 608.935.2596 and [email protected] This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Past articles can be found at http://www.farmandlivestockdirectory.com/columns.html
The Great Crash, 1929’ is a book penned by John Kenneth Galbraith. It has constantly in print since being published in 1954. The story that Galbraith paints from the Roaring Twenties includes nearly verbatim quotes and stories from today’s news media in 2010. Although the actors have changed, the basic human frailties and the gullibility of the masses are still are a bulwark of human psychology today. Galbraith recounts the step by step historical background leading up to the peak of prices in 1929 and the ensuing collapse into the bottom of 1932 and 1933, followed by the economic struggle out of that economic malaise.
The general lesson learned in the 1929 debacle is just as important today as it was 80 some years ago. The author chronicles this path with his observations, interviews, and newspaper articles of the decade long march prior to the euphoric high of the stock market in 1929, the blow off top, and then describes the debilitating economic collapse that ushered in the world wide depression of the 1930’s.
The Roaring Twenties started with a depression born on the recovery from World War 1. There was an acute recession during 1920 and 1921, especially in the farm economy; as a matter of fact the farm sector never did recover until the late 1940’s. The unemployment in 1921 was 20% with raging inflation in attendance. Washington decided to reduce taxes, protect the collapsed farm sector, and deal with the immigration problem. Government had limits placed on its ability to intrude into big business. A reduction in the top rate of income taxation was lowered from the WWI high of 77 percent to 25 percent. Remember that prior to WWI, the top rate for income tax was about 7% and about 1 to 2% for wage earners. A period of relatively calm then ensued for the better part of the decade.
The growing confidence that the average person felt in the 1920’s, from the steadiness of job growth and encouraging economic progress, allowed a speculative bubble to grow in the stock market and the housing market. Escalating Florida real estate property values led the way for normal people to obtain the good life with little concern that the growing bubble would burst unexpectedly. As a result of the sustained growth in the stock market, with few retracements, the American public financially over-extended themselves. This was especially true in the stock market by the neophyte speculators buying stocks ‘on margin’ to enrich themselves with the leveraged payoff from a blow-off stock market. Institutions of higher learning, bankers of national standing, and politicians all proclaimed that a new economic higher plateau was the base from which men could now harvest their god given right to wealth.
Getting rich without working was the new found mantra of politicians claiming credit for the nation’s good fortune. “Vote for me,” said the Washington pols, “we have proved to you how well the government can mange the economy.” Con men, charlatans, Ponzi scheme operators, and stock market manipulators led the gullible public to a perfect set-up of catastrophic proportions.
1928 brought on the “escape into make believe” in the stock market. One prominent professor said of the leveraged stock investors “as having vision for the future and boundless hope and optimism” and not “hampered by the heavy armour of tradition.” The leveraged stock purchases were fueled by heady interest rates of 12% on the loans that floated the stock purchases made on margin. This was much more than the prevailing Fed discount rate of 3.5%. Gold, from all over globe, then flowed to Wall Street to help purchase even more stocks on margin.
Ultimately, the great crash of the stock market arrived, along with the crash of the housing market, and the crash of several parallel domino chains led by the banking industry. Debts had to be paid, so people and institutions began to sell stocks in a distressed market to raise cash to pay the loss of margin. As assets are sold in a selling stampede, the prices of assets are devalued. Businesses that were on relatively good footing before are now unable to sell product, all of which negatively compounds the economic viability of the businesses and ushers in new bankruptcies. Now the public is spooked and becomes more cautious when buying, causing even more businesses to reduce output and thus cause additional reductions in employment. Pessimism invades the mass of consciousness across the globe and infects buying decisions in every direction. The interest rates fall, but the actual interest rates go higher because deflation is shrinking the value of every asset.
The blame game started after the stock market topped in 1929 with all parties united in a circular firing squad. There were plenty of culprits to blame and there was an abundance of ammunition. Suffice it to say, from what ever political persuasion and economic school of thought, that even today in 2010, there are still arguments for and against what ever actions the government and political actors devised as solutions or remedies to the problems at hand during the depth of the depression in the 1930’s.
Without complicating the story too much, the aftermath of the run up and collapse from the 1920’s left high unemployment, debts to be repaid, a banking system that had many, many failures and WWII on the doorstep, just as we were coming out of the depression. So, the government needed to raise taxes to pay bills, borrowed more money from the future, and created the biggest Ponzi scheme of all time called Social Security.
So, where are we today, with one eye looking back to 1929, and the other eye especially looking ahead at the new programs and spending that is borrowed from our children’s future?
Just as when communist Russia collapsed after the Berlin Wall came down and where the middle class and elderly of Russia had their meager savings and housing disappear into nothingness is where we are setting up our fiscal house of cards. This is where our government’s back door tax increases and freakishly high borrowing from the future puts all of us at risk of taking this great recession into the granddaddy of all depressions.
The expiring Bush tax cuts are set to see our long term capital gain rates soar from 15% to 22.9%. The latest stimulus bill calls for an additional $10 billion in taxes. Farm estate taxes are going to expire causing farms to be sold that otherwise could remain in that family. Property taxes are going through the roof even though property values are lower, if not plummeting in many residential areas. States are raising taxes and refusing to pay bills and freezing tax refunds.
The New York Times says the Social Security system will “pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.” ‘“When the trust fund gets to zero, you have to cut benefits,” said Alan Greenspan, architect of the plan to rescue the Social Security Plan the last time it got into trouble.’ For some reason I am recalling that every decade or so the folks in Washington provide a new forever-fix for the fiscal problems at the Social Security System. Could it be that some of our politicians actually lie sometimes?
It is said that our Social Security system has a trust fund. If that is so, then ask our friends in Washington the same question that Bernie Madoff was asked: Where’s the money, old boy? You already know the answer. There is no money in the vault, nor was there ever any money saved anywhere in either Ponzi scheme.
Mr. obama’s 2011 budget, according to our congressional Budget office (CBO), will generate $10 trillion in cumulative budget deficits over the next 10 years. That is 90 percent of the nation’s economic output by 2020. please read that again.
The public debt that was $56,000 per household when Mr. Obama took office will have $170,000 per household in debt in 2020, according to the CBO. That would be 90 percent of the estimated gross domestic product in 2020. The USA had a debt-to GDP ration at 109 percent at the end of WWII. The economic basket case of Greece has a current ratio of 115%.
Ever wonder how are states are having a hard time of paying the bills? Listen to the march 15th issue of Forbes: the governor of new Jersey is quoted “one state retiree, 49 years old, paid, over the course of his entire career, a total of $124,000 toward his retirement pension and health benefits. What will we pay him? $3.3 million in pension payments over his life and nearly $500,000 for health care benefits – a total of $3.8 million on a $124,000 investment. Or this “A retired teacher paid $62,000 toward her pension and nothing, yes nothing, for full family medical, dental, and vision coverage over her entire career. What do we pay her? $1.4 million in pension benefits and another $215,000 in health care benefit premiums over her lifetime.
Institutional investor magazine says that since 1999 california’s “…pension outlays have ballooned by 2,000%, while state revenues have increased only 24%.”
For years our governmental bodies have been taxing us to the limit, confiscating and borrowing every penny they could fraudulently grab, but now that sorry charade has come to an inglorious end because the tax receipts have been dropping because of deflation. This is clear. But is it clear to our citizens, taxpayers, and governing élite that another round of deflation is on the horizon?
Alan Jewell is a grain farmer in Southwest Wisconsin. He has been honored four times as having one of the best-managed farms in the United States. Alan works with producers and processors, specializing in marketing and hedging their production. He is a featured speaker at many events involving the Agriculture community. He can be reached at 608.935.2596 and [email protected] This e-mail address is being protected from spambots. You need JavaScript enabled to view it . Past articles can be found at http://www.farmandlivestockdirectory.com/columns.html
The Great Crash, 1929’ is a book penned by John Kenneth Galbraith. It has constantly in print since being published in 1954. The story that Galbraith paints from the Roaring Twenties includes nearly verbatim quotes and stories from today’s news media in 2010. Although the actors have changed, the basic human frailties and the gullibility of the masses are still are a bulwark of human psychology today. Galbraith recounts the step by step historical background leading up to the peak of prices in 1929 and the ensuing collapse into the bottom of 1932 and 1933, followed by the economic struggle out of that economic malaise.
The general lesson learned in the 1929 debacle is just as important today as it was 80 some years ago. The author chronicles this path with his observations, interviews, and newspaper articles of the decade long march prior to the euphoric high of the stock market in 1929, the blow off top, and then describes the debilitating economic collapse that ushered in the world wide depression of the 1930’s.
The Roaring Twenties started with a depression born on the recovery from World War 1. There was an acute recession during 1920 and 1921, especially in the farm economy; as a matter of fact the farm sector never did recover until the late 1940’s. The unemployment in 1921 was 20% with raging inflation in attendance. Washington decided to reduce taxes, protect the collapsed farm sector, and deal with the immigration problem. Government had limits placed on its ability to intrude into big business. A reduction in the top rate of income taxation was lowered from the WWI high of 77 percent to 25 percent. Remember that prior to WWI, the top rate for income tax was about 7% and about 1 to 2% for wage earners. A period of relatively calm then ensued for the better part of the decade.
The growing confidence that the average person felt in the 1920’s, from the steadiness of job growth and encouraging economic progress, allowed a speculative bubble to grow in the stock market and the housing market. Escalating Florida real estate property values led the way for normal people to obtain the good life with little concern that the growing bubble would burst unexpectedly. As a result of the sustained growth in the stock market, with few retracements, the American public financially over-extended themselves. This was especially true in the stock market by the neophyte speculators buying stocks ‘on margin’ to enrich themselves with the leveraged payoff from a blow-off stock market. Institutions of higher learning, bankers of national standing, and politicians all proclaimed that a new economic higher plateau was the base from which men could now harvest their god given right to wealth.
Getting rich without working was the new found mantra of politicians claiming credit for the nation’s good fortune. “Vote for me,” said the Washington pols, “we have proved to you how well the government can mange the economy.” Con men, charlatans, Ponzi scheme operators, and stock market manipulators led the gullible public to a perfect set-up of catastrophic proportions.
1928 brought on the “escape into make believe” in the stock market. One prominent professor said of the leveraged stock investors “as having vision for the future and boundless hope and optimism” and not “hampered by the heavy armour of tradition.” The leveraged stock purchases were fueled by heady interest rates of 12% on the loans that floated the stock purchases made on margin. This was much more than the prevailing Fed discount rate of 3.5%. Gold, from all over globe, then flowed to Wall Street to help purchase even more stocks on margin.
Ultimately, the great crash of the stock market arrived, along with the crash of the housing market, and the crash of several parallel domino chains led by the banking industry. Debts had to be paid, so people and institutions began to sell stocks in a distressed market to raise cash to pay the loss of margin. As assets are sold in a selling stampede, the prices of assets are devalued. Businesses that were on relatively good footing before are now unable to sell product, all of which negatively compounds the economic viability of the businesses and ushers in new bankruptcies. Now the public is spooked and becomes more cautious when buying, causing even more businesses to reduce output and thus cause additional reductions in employment. Pessimism invades the mass of consciousness across the globe and infects buying decisions in every direction. The interest rates fall, but the actual interest rates go higher because deflation is shrinking the value of every asset.
The blame game started after the stock market topped in 1929 with all parties united in a circular firing squad. There were plenty of culprits to blame and there was an abundance of ammunition. Suffice it to say, from what ever political persuasion and economic school of thought, that even today in 2010, there are still arguments for and against what ever actions the government and political actors devised as solutions or remedies to the problems at hand during the depth of the depression in the 1930’s.
Without complicating the story too much, the aftermath of the run up and collapse from the 1920’s left high unemployment, debts to be repaid, a banking system that had many, many failures and WWII on the doorstep, just as we were coming out of the depression. So, the government needed to raise taxes to pay bills, borrowed more money from the future, and created the biggest Ponzi scheme of all time called Social Security.
So, where are we today, with one eye looking back to 1929, and the other eye especially looking ahead at the new programs and spending that is borrowed from our children’s future?
Just as when communist Russia collapsed after the Berlin Wall came down and where the middle class and elderly of Russia had their meager savings and housing disappear into nothingness is where we are setting up our fiscal house of cards. This is where our government’s back door tax increases and freakishly high borrowing from the future puts all of us at risk of taking this great recession into the granddaddy of all depressions.
The expiring Bush tax cuts are set to see our long term capital gain rates soar from 15% to 22.9%. The latest stimulus bill calls for an additional $10 billion in taxes. Farm estate taxes are going to expire causing farms to be sold that otherwise could remain in that family. Property taxes are going through the roof even though property values are lower, if not plummeting in many residential areas. States are raising taxes and refusing to pay bills and freezing tax refunds.
The New York Times says the Social Security system will “pay out more in benefits than it receives in payroll taxes, an important threshold it was not expected to cross until at least 2016, according to the Congressional Budget Office.” ‘“When the trust fund gets to zero, you have to cut benefits,” said Alan Greenspan, architect of the plan to rescue the Social Security Plan the last time it got into trouble.’ For some reason I am recalling that every decade or so the folks in Washington provide a new forever-fix for the fiscal problems at the Social Security System. Could it be that some of our politicians actually lie sometimes?
It is said that our Social Security system has a trust fund. If that is so, then ask our friends in Washington the same question that Bernie Madoff was asked: Where’s the money, old boy? You already know the answer. There is no money in the vault, nor was there ever any money saved anywhere in either Ponzi scheme.
Mr. obama’s 2011 budget, according to our congressional Budget office (CBO), will generate $10 trillion in cumulative budget deficits over the next 10 years. That is 90 percent of the nation’s economic output by 2020. please read that again.
The public debt that was $56,000 per household when Mr. Obama took office will have $170,000 per household in debt in 2020, according to the CBO. That would be 90 percent of the estimated gross domestic product in 2020. The USA had a debt-to GDP ration at 109 percent at the end of WWII. The economic basket case of Greece has a current ratio of 115%.
Ever wonder how are states are having a hard time of paying the bills? Listen to the march 15th issue of Forbes: the governor of new Jersey is quoted “one state retiree, 49 years old, paid, over the course of his entire career, a total of $124,000 toward his retirement pension and health benefits. What will we pay him? $3.3 million in pension payments over his life and nearly $500,000 for health care benefits – a total of $3.8 million on a $124,000 investment. Or this “A retired teacher paid $62,000 toward her pension and nothing, yes nothing, for full family medical, dental, and vision coverage over her entire career. What do we pay her? $1.4 million in pension benefits and another $215,000 in health care benefit premiums over her lifetime.
Institutional investor magazine says that since 1999 california’s “…pension outlays have ballooned by 2,000%, while state revenues have increased only 24%.”
For years our governmental bodies have been taxing us to the limit, confiscating and borrowing every penny they could fraudulently grab, but now that sorry charade has come to an inglorious end because the tax receipts have been dropping because of deflation. This is clear. But is it clear to our citizens, taxpayers, and governing élite that another round of deflation is on the horizon?