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Wednesday, July 6, 2011

Double Dip, Or Base Jump Without A Parachute

There is a lot of talk about the economy and if we are in a double dip recession.  If it is a dip or a freefall will depend on the actions of Congress.  People think it has to almost be over.  Well if we are measuring it against the Great Depession.  Please bear with me and take note of these few facts. The first dip lasted three years and nine months till it hit bottom. Just based on that alone we are still thirteen months from the bottom.  What Congress does will determine if we hit bottom gently or with a deadly thud.  In the Great Depression unemployment peaked at just over 25%, however for the young and elderly it hit almost 50%,  Just like now the housing bubble burst before the market collapsed.  The similarities of then and now are staggering.  Reading articles and papers from that period and a couple years into the Depression the President and Congress argued it was just a blip and it would all work itself out.  There were actually three dips and the whole thing lasted eleven years and four months and the only thing that pulled us out of the slump was the start of World War II.  It is argued that the reactions to World War I were the triggers for the collapse.  Prohibition did not help any as the government lost the tax revenue from alcohol. ( A drug war that is not even close to successful and the billions it sucks up might be todays Prohibition)  At the Depresssions peak tax revenue fell almost 40% while the national debt almost tripled.  Today it is the government that is bankrupt.  Back then it was banks and big business.  The government does not have the resources to bail out the economy without just printing paper which will cause runaway inflation.

     In the spring or 1929, about half a year before the crash,  a Presidential Commission by the National Bureau of Economic research found no major problems.  Even though nine months before their report statistics had shown that Construction and Heavy Industries had shown major declines.  Yet even as the economy collapsed around them politicians professed that there were no major problems.  This continued into the third year of the Depression.  Hoover tried to balance the budget while in denial there was a major problem.  When Roosevelt took over he tried to spend his way out of the Depression with government programs and deficit spending.  The fact Roosevelt did not take over till the third year of the Depression and it went on for another eight years or so.  The truth is evident.  Nothing the government did worked.  It was manufacturing war supplies that turned the tide.  It was not till November 1940 that the economy reached pre depression levels.  This was after Europe was over a year into World War II.

    If you have stayed with me this far let me add a few more details.  The United States went off the Gold Standard and let the dollar lose value to help America afford the imports that it needed to make war materials.  Right now America is screaming for China to devalue its money.  Think about this for a minute.  If China does lower the value of their money the dollar will go up.  Which means we will owe China more money.  At the same time the cost of American goods will go up in foreign markets and hurt our own exports.  We need to hold the line and take actions that will create jobs.  The national budget has to be balanced.  The Republi-can'ts do not want to raise taxes.  They want a balanced budget but do not want to pay for it.  The Dum-ol-crats on the other hand are more than willing to raise taxes.  However they do not want to do it to balance the budget.  They want to do it to have more to spend on new programs.  America desperately needs a third party that is Constitutionally based and fiscally responsible.  The last third party to win an election was the Republicans who elected Lincoln.  We can look back and see the outcome of that election.  The Republi-can'ts claim to be anti big government, but their spending habits do not reflect that.

      If the those in power do not come to an agreement to not only raise the debt ceiling, but to force the government to balance and cut spending, America as we know it will cease to exist.  We live in a service oriented economy, but when no one can afford services, unemployment will sky rocket and you have seen nothing yet.  If they are foolish enough to not deal with the economic problems that they have created.  They will deal with the system of anarachy they risk creating.  When they start cutting services and checks to the citizens they will find a different side of their constituents.  Tar and Feathers may make a comeback.

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