“While the crash only took place six months ago, I am convinced we have now passed the worst and with continued unity of effort we shall rapidly recover. There is one certainty of the future of a people of the resources, intelligence and character of the people of the United States-that is prosperity.”
President Herbert Hoover, May 1, 1930
“The money was all appropriated for the top in the hopes that it would trickle down to the needy. Mr. Hoover was an engineer. He knew that water trickled down. Put it uphill and let it go and it will reach the driest little spot.
But he didn’t know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night anyhow. But it will at least have passed through some poor fellow’s hands.
They saved the big banks, but the little ones went up the flue.”
Will Rogers, 5 December 1932
“The sense of responsibility in the financial community for the community as a whole is not small. It is nearly nil.”
John Kenneth Galbraith, The Great Crash of 1929
Busts are created by their preceding booms.
The collapse of 1930-32 was made inevitable by the boom of the Roaring 20’s.
The boom was self-limited because excess bank credit ran into the semi-elastic limits of the gold standard (and silver coinage), but what animated this was social mood, which had a rally and a correction.
The social mood rally of 1947 to 1964 was a period of phenomenally rising living standards in the USA. Credit growth was large, and when it began to pressure silver prices (making 90% silver coins worth more as silver than face value), silver was removed from coins so the credit growth could continue. This was amplified in 1971, and we saw rapid growth in credit translate into high consumer price inflation.
Bonds were in a bear market, which bottomed in 1981. It had nothing to do with Fed policy, which simply FOLLOWED the bond market’s lead.
With bonds rising in value, no brake existed to hold back credit growth and debt-supported spending. Stocks bottomed a year after bonds and it has been 35 straight years of credit growth and asset price inflation, all fueled by a social mood mania for the record books. Unlike in 1930, no consistent monetary measure (gold or silver prices vs “money”) existed to puncture the mass illusion of “Borrow-our-way-to-Prosperity.”
Bonds appear to have topped last August. Will the “TOP” mirror the bottom? Will Stocks top a year after bonds?
We’ll know soon enough.
PS: packing up US manufacturing to ship to 3rd world countries (making consumer goods dirt cheap) and opening US labor markets to WORLDWIDE competition kept wages dirt “cheap,” too. This was part of why the largest credit inflation in recorded history did not ramp consumer prices. (Food also got “cheaper” by becoming Frankenfood.) This was a ONE-OFF trend, and cannot be repeated.
I’ll save the discussion of how credit growth WARPED our economy to the point of caricature for another rant.
Boom•erang•s are created by boomslangs in Brooks Brothers bag suits. But…it takes 2 to ouroboros. The head doesn’t just eat the tail. The tail infiltrates, spirochete-like, the head. Will it go round in circles? Yes, yes it will.