1. the reduction in the fiscal deficit and the Federal Reserve’s decision to double reserve requirements – do not appear to have been powerful enough to generate a recession of the magnitude seen.
2. 'It suggests that, in a weak recovery, a pre-emptive monetary strike against inflation (which was very low at the time, as it is today) is capable of producing a devastating recession.'
3. It indicates that the policy of 'repatriation of profits' being held overseas by transnationals can have a very stimulative effect on the US economy in the same way that gold inflows did during the Depression.
FDR and the Communists in his administration.
I tend to agree that the gold-sterilization policy was the primary cause of the recession within a depression. Secondary causes were the passage of the National Labor Relations Act in 1935 and Roosevelt’s threats to tax corporate retained earnings.
The former set off a firestorm of strikes and violent union organization. The latter, designed to get business to invest, served only to reinforce fears and led business to cling to its capital more fiercely.
In the end, FDR’s patrician disdain for common merchants (capitalists) caused him to implement scores of policies which worked against what he claimed to promote. It’s interesting to re-live those times now.
Bush’s fault.
Some have suggested that we have little inflation despite an expansionist monetary policy because of excess supplies of both capital and labor and because of a lack of velocity. People and companies that have money are saving it or using it to reduce debt, rather than spending it. For example, many people are refinancing their mortgages not primarily to reduce their monthly payments but to reduce the term of the debt and the total interest they will pay over time. They are moving to 15 year and even 10 year mortgages.
Perhaps people (and companies) are choosing this conservative path because they believe that the risks of using their capital in more agressive ways are not justified by the potential returns. If so, the challenge for policy makers at all levels is to find ways to reduce the risks and increase the potential return associated with the deployment of capital. The threat of higher taxes and the actual imposition of an expanded regulatory regime by the Obama administration would seem to be exact of oppositie of what we need in that regard.
the key domino was smoot-hawley....and the sudden contraction of the money supply...
This is why we should seriously look at going to the Steve Forbes no-loophole 17% flat-rate income tax with its generous initial earned income exemptions as the minimum for a massive income tax reform that will hyper-stimulate the economy.
Can/did Obama time-travel?!?
On a related note, contrary to popular belief, the depression wasn’t caused by the stock market collapse. The economy was limping along after the crash until Hoover decided to put the recovery on the backs of the rich in the form of absurd tax hikes for the “rich”. It was at that point the economy slipped speedily into a depression.
They just never learn, & those that don’t learn form history are doomed to repeat it.