More Free Money for AIG...Thanks Uncle Sam

[IE]

I'm sorry, but I really don't have much confidence in our current FED chair. His inclination to cut FED interest rates and devalue our currency is probably one of the reasons we are in this mess. Leading up to the GD there was a lot of inflation in the money supply like there has been recently because of the FED wanting to keep interest rates low to boost the economy.

Getting off the gold standard was, IMO, ultimately a terrible thing. Fiat currency has destroyed the value of our dollar and given what IMO are unconstitutional powers to the federal reserve. A lot of the things the gov't. did (Hoover's and FDR's policies) might have hurt the situation further. Allowing the contraction to occur, IMO, might have solved the whole problem. Instead, we tried to prop up the economy and we probably prolonged and worsened the situation to the point that, as you said, only WWII could have brought us out.

I share your doubts re: the Fed chair - but that doesn't make him not an expert on the economics of the GD.

There are some principled arguments against the gold standard, and some for it. One thing for sure is the gold standard slows the velocity of money, and therefore growth.

I don't know what you mean if you're saying that we somehow didn't allow the GD to happen. The economy certainly contracted dramatically, and for a long time - in spite of increases in money supply, which every economist will tell you will stimulate the economy.

Like I said earlier, I'm not comfortable with people casually saying "bring it on" to a Depression without really knowing what that means to them personally or us collectively. I don't like the "fiat" bravado.

[swami]

What I mean is that we tried to prop up the economy and it might have prolonged and worsened the contraction we now know as the GD. I'm not an expert on the GD or economics, but I know the gov't. took measures to increase the money supply to do just what you're saying - stimulate the economy. The problem is this continued artificial stimulation of the economy (a practice that occured in the 1920s and has occured in the past decade) created more serious long term problems for the economy than a minor contraction or recession would have.

We've been trying to artificially stimulate the economy for a while now by cutting FED interest rates. I just don't think more inflation of the money supply is going to create a real or sustainable economic growth. I think this economy will have to contract a lot before it gets better and what I'm worried about is that trying to "lessen the blow" by inflating the money supply will actually mean a longer and more dramatic contraction.

You stated earlier that "overconfidence" in the economy is one of the things that got us in our current situation. I agree, but I think that overconfidence had a lot to do with the artificial stimulation of the economy because of the decrease in interest rates. I just don't want to see us try and remedy a problem with more of the policies that created the problem in the first place.

Volcker played a big role in the 70's crisis by limiting the growth of the money supply. It worked. I think a similar course of action would work now.

[IE]

What I mean is that we tried to prop up the economy and it might have prolonged and worsened the contraction we now know as the GD. I'm not an expert on the GD or economics, but I know the gov't. took measures to increase the money supply to do just what you're saying - stimulate the economy. The problem is this continued artificial stimulation of the economy (a practice that occured in the 1920s and has occured in the past decade) created more serious long term problems for the economy than a minor contraction or recession would have.

We've been trying to artificially stimulate the economy for a while now by cutting FED interest rates. I just don't think more inflation of the money supply is going to create a real or sustainable economic growth. I think this economy will have to contract a lot before it gets better and what I'm worried about is that trying to "lessen the blow" by inflating the money supply will actually mean a longer and more dramatic contraction.

You stated earlier that "overconfidence" in the economy is one of the things that got us in our current situation. I agree, but I think that overconfidence had a lot to do with the artificial stimulation of the economy because of the decrease in interest rates. I just don't want to see us try and remedy a problem with more of the policies that created the problem in the first place.

I can't argue with any of that. I agree that government action (deregulation; intentional deconstruction of Glass-Steagall, artificially low interest rates to keep people feeling well-off and buying things to distract them from the war) is a major cause of our current economic problems.

At the end of the day, in a representative democracy like ours, government is "us". So I look at it like this: as a collective of brothers and sisters in the American family, we really blew it by throwing an immense, irresponsible party while our parents (our conservatism and our conscience) were out. We lived it up, consumed more than we should (some more than others), and did some major damage to our house. So now we are waking up to survey the damage. The first thing we did is kicked the people who convinced us to throw the party out of our house (the Republican government). And now Daddy's home (the Dem government), and unfortunately Daddy has to pay for the party damage... and we're going to be grounded for the forseeable future (hopefully just a very bad period of no fun).

[swami]

You're right in some respects. The thing is, someone had to do something to encourage the massive amounts of borrowing and buying on credit that caused this crunch. In the end, I think cutting interest rates to try and fend off a recession led us down a really, really bad road because it led to rampant borrowing and lending that was bound to collapse the system. The thing I disagree with is how to fix it. If Daddy really wants to ground us, he'll let the thing contract without these stimulus plans and he'll warn us of the consequences of lowering interest rates to try and fend off minor contractions. It will hurt for awhile but it will force people to use more caution and become more fiscally responsible.

I just hope that in the future we learn from this, as it's probably caused 2 significant economic crises. Inflating the money supply to try and create an artificial economic stimulus is a bad, bad thing that IMO usually leads to a more prolonged and intense contraction. I know I've repeated this over and over in my posts, but I think it's a really important lesson to be learned from our current situation.

[gaba]

Strawman?
(No idea, I just wanted to contribute.)