Wednesday, February 4, 2009

Does "Stimulus" Work?

FDR's June 1934 Fireside Chat declared an end to the Great Depression. His New Deal Stimulus package, which ultimately rocketed American child debt to bankers to 130% GDP (about $18T in today's banker-inflated dollars), he believed, had substantially ended the downturn. Here are his thoughts on the effectiveness of his stimulus spending:

"It has been several months since I have talked with you concerning the problems of Government. Since January, those of us in whom you have vested responsibility have been engaged in the fulfillment of plans and policies which had been widely discussed in previous months. It seemed to us our duty not only to make the right path clear, but also to tread that path.

As we review the achievements of this session of the Seventy-third Congress, it is made increasingly clear that its task was essentially that of completing and fortifying the work it had begun in March, 1933. That was no easy task, but the Congress was equal to it. It has been well said that while there were a few exceptions, this Congress displayed a greater freedom from mere partisanship than any other peace-time Congress since the Administration of President Washington himself. The session was distinguished by the extent and variety of legislation enacted and by the intelligence and good-will of debate upon these measures.

I mention only a few of the major enactments. It provided for the readjustment of the debt burden through the corporate and municipal bankruptcy acts and the Farm Relief Act. It lent a hand to industry by encouraging loans to solvent industries unable to secure adequate help from banking institutions. It strengthened the integrity of finance through the regulation of securities exchanges. It provided a rational method of increasing our volume of foreign trade through reciprocal trading agreements. It strengthened our naval forces to conform with the intentions and permission of existing treaty rights. It made further advances toward peace in industry through the Labor Adjustment Act. It supplemented our agricultural policy through measures widely demanded by farmers themselves and intended to avert price-destroying surpluses. It strengthened the hand of the Federal Government in its attempts to suppress gangster crime. It took definite steps toward a national housing program through an act which I signed today designed to encourage private capital in the rebuilding of the homes of the Nation. It created a permanent Federal body for the just regulation of all forms of communication, including the telephone, the telegraph and the radio. Finally, and I believe most important, it reorganized, simplified and made more fair and just our monetary system, setting up standards and policies adequate to meet the necessities of modern economic life, doing justice to both gold and silver as the metal bases behind the currency of the United States.

In the consistent development of our previous efforts toward the saving and safeguarding of our national life, I have continued to recognize three related steps. The first was relief, because the primary concern of any Government dominated by the humane ideals of democracy is the simple principle that in a land of vast resources no one should be permitted to starve. Relief was and continues to be our first consideration. It calls for large expenditures and will continue in modified form to do so for a long time to come. We may as well recognize that fact. It comes from the paralysis that arose as the after-effect of that unfortunate decade characterized by a mad chase for unearned riches, and an unwillingness of leaders in almost every walk of life to look beyond their own schemes and speculations. In our administration of relief we follow two principles: first, that direct giving shall, wherever possible, be supplemented by provision for useful and 'remunerative work and, second, that where families in their existing surroundings will in all human probability never find an opportunity for full self-maintenance, happiness and enjoyment, we shall try to give them a new chance in new surroundings.

The second step was recovery, and it is sufficient for me to ask each and every one of you to compare the situation in agriculture and in industry today with what it was fifteen months ago.

At the same time we have recognized the necessity of reform and reconstruction—reform because much of our trouble today and in the past few years has been due to a lack of understanding of the elementary principles of justice and fairness by those in whom leadership in business and finance was placed—reconstruction because new conditions in our economic life as well as old but neglected conditions had to be corrected.

Substantial gains well known to all of you have justified our course. I could cite statistics to you as unanswerable measures of our national progress- statistics to show the gain in the average weekly pay envelope of workers in the great majority of industries—statistics to show hundreds of thousands reemployed in. private industries, and other hundreds of thousands given new employment through the expansion of direct and indirect Government assistance of many kinds, although, of course, there are those exceptions in professional pursuits whose economic improvement, of necessity, will be delayed. I also could cite statistics to show the great rise in the value of farm products—statistics to prove the demand for consumers' goods, ranging all the way from food and clothing to automobiles, and of late to prove the rise in the demand for durable goods—statistics to cover the great increase in bank deposits, and to show the scores of thousands of homes and of farms which have been saved from foreclosure.

But the simplest way for each of you to judge recovery lies in the plain facts of your own individual situation. Are you better off than you were last year? Are your debts less burdensome? Is your bank account more secure? Are your working conditions better? Is your faith in your own individual future more firmly grounded?

Also, let me put to you another simple question: Have you as an individual paid too high a price for these gains? Plausible self-seekers and theoretical die-hards will tell you of the loss of individual liberty. Answer this question also out of the facts of your own life. Have you lost any of your rights or liberty or constitutional freedom of action and choice? Turn to the Bill of Rights of the Constitution, which I have solemnly sworn to maintain and under which your freedom rests secure. Read each provision of that Bill of Rights and ask yourself whether you personally have suffered the impairment of a single jot of these great assurances. I have no question in my mind as to what your answer will be. The record is written in the experiences of your own personal lives."

- FDR, Fireside Chat, June 28, 1934

Contrast FDR's impression of a 1934 government-stimulated "recovery" with what happened next:
  • The Great Depression raged-on for 20 more years
  • The Dow finally reclaimed 1929 levels in 1954
  • 25% of American families became unemployed, most destitute
  • 70-80 million people died to affect the actual recovery which followed WWII


  1. Hello FDRA,

    Is this what you mean when you describe that banks are hungry for capital??

    "Community Banks Lure Clients With High-Yield Checking" a certain bank where I work we have a similar product, and it is highly effective to attract customers...

  2. "His New Deal Stimulus package, which ultimately rocketed American child debt to bankers to 130% GDP (about $35T in today's banker-inflated dollars),"

    That's what I call stimulus. I'm surprised we haven't gotten to that point by now.


  3. I view the New Deal as a massive failure, but I take issue with a couple of things:

    1) 130% of our GNP (approx. $14 T) is $18.2 T, not $35 T. Off by a factor of 2.

    2) The Depression didn't continue for 20 more years. Yes, it took WW2 to get us out, at a frightful cost in blood and treasure, but the economy basically boomed after WW2. People hadn't spent much since the early '30s, so there was lots of pent-up demand. There was no Depression in, say, 1951, some 17 years after this speech.

    3) We did reach 25% unemployment, but much of it was there already before 1933 or 1934. While I'd agree that the New Deal made things worse and dragged out the Depression, it wasn't responsible for what happened prior to its enactment. The economy ALREADY sucked when FDR (hawk, SPIT) assumed power.

    My only point is to be accurate. Don't worry, facts are on the side of those who don't care much for FDR and his policies. Distorting things (however unintentionally) only detracts from your case.

  4. The New Deal was how they transfered speculative losses to taxpayers, and still is.

  5. You're right, fixed the GDP figure. Thanks.

    Not that trivia makes any difference to my point that FDR's "stimulus" crushed the US and world economy and killed almost 100 million people in order to reorient the chaos he caused, all to pay the world’s richest men, and that he had no earthly idea what he was doing by his own account, and that we are repeating the same human disaster born of nothing more than ignorance of colossal proportion.

    There is nothing new under the eye/Sun.

  6. As far as the stock market (though not yet the economy) tanking right before FDR assumed power, we saw the same phenomenon in 2008 once it became clear that a socialist/central banker takeover was inevitable (forecast well in advance).

    The stock market is 100% forward looking, so the day a new administration/congress takes charge, their market discount is in place. That we only tanked 40% (after indexes kicked out the biggest losers) is testimony to the high level of optimism that continues to foreshadow a much broader disaster.

  7. FDR,

    Enjoyed your posts on MW and think it's great you've got a blog. I was wondering if you saw this article:

    Specifically, I'm wondering what you think about this:
    "People who are predicting price deflation, meaning significant price deflation of 5% to 10% per annum or more, operate on an assumption that the fractional reserve banking system no longer expands the money supply. They are assuming that banks will not lend. They are therefore assuming that the expansion of the monetary base which is already taken place is not going to be translated into an expansion of the money supply, because the Federal Reserve's program of asset sterilization by paying interest on excess reserves is going to be successful.

    If success is defined as "falling prices and a collapsing economy," success is not going to be allowed by the United States Congress and the Obama Administration. They have made it clear that they are going to mandate that the banks lend. As soon as the banks start lending, the fractional reserve banking process takes over, and the money supply will double."

    Keep up the great work and thanks.

  8. By the way, I'm not blaming Democrats alone, there is only One Party.

  9. "If success is defined as "falling prices and a collapsing economy," success is not going to be allowed by the United States Congress and the Obama Administration. They have made it clear that they are going to mandate that the banks lend. As soon as the banks start lending, the fractional reserve banking process takes over, and the money supply will double. "


    I think it is pretty clear that deflation is already in full swing, the debate has been over for a while.

    Another positive for the deflationary camp is that there were a total of about 6 of us who called this deflationary depression well in advance, while the market was rocketing through 14K. It was a lonely campfire. The current critics of deflation didn't see the problem coming, but now they claim to understand the dynamic.

    Lastly, the idea that government "won't allow" failure is pretty funny.

    A long time ago, on MW I cited the infallible Col. Hogan method of trading the massive stimulus plan, way before the government knew about their own plan:

    Col. Wilhelm Klink: What are you waiting for? Cut the wire.
    Col. Robert E. Hogan: That's the problem. One of these wires disconnects the fuse, the other one fires the bomb. Which one would you cut, Shultz?
    Sgt. Hans Georg Schultz: Don't ask me, this is a decision for an officer.
    Col. Robert E. Hogan: All right. Which wire, Colonel Klink?
    Col. Wilhelm Klink: This one.
    [points to the white wire]
    Col. Robert E. Hogan: You're sure?
    Col. Wilhelm Klink: Yes.
    Col. Robert E. Hogan: [Cuts the black wire, the bomb stops ticking]
    Col. Wilhelm Klink: If you knew which wire it was, why did you ask me?
    Col. Robert E. Hogan: I wasn't sure which was the right one, but I was certain you'd pick the wrong one.

    You need to know nothing more to sucessfully trade this disaster.

  10. Dude have you read FDR's blogs? Lending? To who?

  11. Anonymous said...
    I view the New Deal as a massive failure, but I take issue with a couple of things.

    Now that I see the GDP figure was "fixed" but if I may.

    1) I did not percieve the point to be to today's GDP multiplied by 130% and stopping there, but by the use of the word "child debt" and "banker-inflated dollars" I percieved the point to be a correlation to the gross national debt (GND) verus a % of GDP. Some may term this as the wealth of the nation in the present versus the unsustainable debt of our children in the future. So it seemed to me that the 130% figure roughly appeared to be the % ratio rise of GND to the GDP from 1934 to 1954 and the difference applied to today's dollars using the standard equation of the counterfeit fiat currency calculator, to arrive at the original $35T, but now "fixed" to 18T, which negates my perceivd point, I suppose. This is quite a perplexing "fix". Interesting.

    2 - 3) Semenatic and anecdotal interpretations may be applied to accurate figures as any way one perceives them to revise and/or justify historical facts.

    - PPT

  12. Comparing Great Depression dollars to 2009 dollars is trivia in the face of chilling reality, offered as an ancillary footnote below indisputable proof that FDR was completely in the dark about the economy. FDR readily admitted he was casually experimenting with our national survival and that he had no earthly idea what he was doing. He took pride in his own brand of reckless insanity:

    "It is common sense to take a method and try it: If it fails, admit it frankly and try another. But above all, try something. The millions who are in want will not stand by silently forever while the things to satisfy their needs are within easy reach." -FDR

    It is simply eye-popping stupidity which history, celebrated instead of seen, instructs us to emulate.

    There has never been a greater policy failure than the gruesome fallout of FDR's New Deal. Although FDR's global depression, swallowing nearly 100M lives in the final "recovery" (in quotes because we continue to crumble under New Deal burdens) could look rather rosy in a decade or two.

  13. Please explain the part about FDR's New Deal claiming 100M lives?



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