Retired Bubblehead
March 21st, 2009, 6:57 pm
Contrary to popular myth, the most severe economic crash in American history occurred in 1920, not nine years later. According to the US Commerce Department, real GDP contracted 14.8 percent in a single year from 1920 to 1921, and the US dollar deflated by more than 35 percent in the same period. So why have most Americans never even heard of the Crash of 1920, when everyone knows about the one that happened in 1929?
The answer lies in the stark differences between the courses of action chosen by President Harding and President Hoover. Harding’s government slashed federal spending from $6.3 billion in 1920 to $5 billion in 1921, and cut taxes from $6.6 billion to $5.5 billion. The Federal Reserve (which was only seven years old at the time) took no action except to guarantee adequate reserves would be available to prevent runs on any of the banks. By contrast, Hoover did exactly what President Obama is doing now – massive spending on ambitious infrastructure projects, combined with massive federal relief programs, all of this intertwined with extensive intervention on the part of the Federal Reserve.
Harding’s policies resulted in the economy recovering fully in less than a year, ushering in one of the most prosperous periods of the twentieth century. Hoover’s policies spawned the Great Depression.
President Obama is following the wrong example.
The answer lies in the stark differences between the courses of action chosen by President Harding and President Hoover. Harding’s government slashed federal spending from $6.3 billion in 1920 to $5 billion in 1921, and cut taxes from $6.6 billion to $5.5 billion. The Federal Reserve (which was only seven years old at the time) took no action except to guarantee adequate reserves would be available to prevent runs on any of the banks. By contrast, Hoover did exactly what President Obama is doing now – massive spending on ambitious infrastructure projects, combined with massive federal relief programs, all of this intertwined with extensive intervention on the part of the Federal Reserve.
Harding’s policies resulted in the economy recovering fully in less than a year, ushering in one of the most prosperous periods of the twentieth century. Hoover’s policies spawned the Great Depression.
President Obama is following the wrong example.