Spending, Recession, and the Great Depression

With all of this talk about recession and after watching too much History Channel, I’ve been reading up about the Great Depression of the 1930s. Check out this excerpt from a paper entitled Main Causes of the Great Depression:

One obvious solution to the problem of the vast majority of the population not having enough money to satisfy all their needs was to let those who wanted goods buy products on credit. The concept of buying now and paying later caught on quickly. By the end of the 1920′s 60% of cars and 80% of radios were bought on installment credit. Between 1925 and 1929 the total amount of outstanding installment credit more than doubled from $1.38 billion to around $3 billion. Installment credit allowed one to “telescope the future into the present”, as the President’s Committee on Social Trends noted.

This strategy created artificial demand for products which people could not ordinarily afford. It put off the day of reckoning, but it made the downfall worse when it came. By telescoping the future into the present, when “the future” arrived, there was little to buy that hadn’t already been bought. In addition, people could not longer use their regular wages to purchase whatever items they didn’t have yet, because so much of the wages went to paying back past purchases.

Sound familiar? Now add in a stock market slump:

This speculation and the resulting stock market crashes acted as a trigger to the already unstable U.S. economy. Due to the maldistribution of wealth, the economy of the 1920′s was one very much dependent upon confidence. The market crashes undermined this confidence. The rich stopped spending on luxury items, and slowed investments. The middle-class and poor stopped buying things with installment credit for fear of losing their jobs, and not being able to pay the interest. As a result industrial production fell by more than 9% between the market crashes in October and December 1929. As a result jobs were lost, and soon people starting defaulting on their interest payment.

So let’s see. First, people were spending too much. Then, people suddenly became afraid of losing their jobs, so they stopped spending. This meant businesses stopped making money, so… people lost their jobs.

Eighty years later, here we are getting mailed “economic stimulus” checks. But if people are truly scared, why wouldn’t they just hoard it as well? I still don’t understand macroeconomics for the life of me.

Comments

  1. Yes Jonathon, nothing new here if you read some artciles at Mises.org.

    The Austrian school of economics talks about how too much credit backed by nothing leads to malinvestment and the business cycle.

    Of course, the cause of the business cycle in this country is the Federal Reserve. But since most academic economists are econometric Keynesian nitwits, they won’t admit it.

  2. Jonathan, you are not alone. A lot of people claim that they understand macroeconomics, but nobody is able to consistently predict stuff happening. Which means that they do not, in fact, understand anything. :)

  3. Even if they pay off bills or put the check in the bank. The business will use that money to fund future projects (thereby keeping jobs). The bank will have more money to loan out, making borrowing easier for businesses, enabling them to finance projects.

    Ultimately, a $100 stimulus ends up creating like $900 worth of transactions, which ultimately increases gov’t revenues.

    And hey, it’s our money to begin with!

  4. Economics major here – Keynes was shoveled down my throat for 4 years! Jonathon (and others) take a look at:

    http://en.wikipedia.org/wiki/Keynesian_economics

    Please note the quote,
    “Government investment in infrastructure – the injection of income results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth. The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.”

  5. What’s the difference? We have a service economy now, so what would happen if everyone went out and took their rebate and bought a tv. Nothing – we need everyone to sue everyone else!!

  6. Best thing for the economy actually /would/ be if people saved as much as they could. You can’t consume everything and then expect to have left overs for growth.

  7. I think one significant difference between now and the depression is that despite all the TV attention to the American consumer, we are far less dependent on the American consumer. With the dollar being as weak as it is, exports are at an all time high. Tourism from Europe etc, is also booming. Sure some industries might be hurt but overall I think we are doing better than we think.

  8. Independent George says:

    Chris – the problem is that the money is being paid for by debt issued by the government. That debt is purchased by the banks. So, basically, the money that the banks before would have invested in corporate bonds, now goes to the treasury, which sends them back to us, so we can put them back into the bank.

    The Keynesians are right in that there is a psychological element to having cash in hand which would have a stimulative result. The problem is that the effect is miniscule, and does nothing to address the underlying structural problems behind the current situation.

    We have a lot of bad debt that needs to be written off before lending & growth can resume, but the people controlling that debt have huge financial incentives (that is, their jobs) to look the other way and hope everything will blow over. If they write it off now, the economy as a whole will benefit, but they’re likely to be fired; if they wait, they’ll still be fired, but will be able to keep collecting paychecks until the whole thing blows up.

  9. Jonathan,
    I hope you don’t mind the off-topic reply. I was wondering if you have anyplace in particular that you recommend – or advise against – for opening an IRA.

  10. Ted Valentine says:

    My view is this is what you get when business is driven by quarterly earnings and daily stock price fluctuations instead of long term stability and earnings.

  11. Well, you’ve hit on the big problem of this “rebate.”

    Bush wants you to spend it immediately. However, most people probably won’t.

  12. Yes, the situation does sound familiar, but this limited look at the situation during the great depression leaves out a substantial amount of what made the situation worse. Milton Friedman and others have written extensively about the disastrous effects of the actions taken by policy makers, be they the central bank or lawmakers. No action was taken to address the deflationary effects of the depression (or the actions taken made deflation even worse), which it is argued created a vicious cycle. I am not suggesting I understand the position completely, but there is another side to the great depression story than just the consumer side.

  13. The problem that you are talking of is very much typical of U.S. consumer spending habits. The way people spend in this country is incredibly foolish.

    Developed and developing countries have a much higher savings rate than the United States will ever. People in America place value on “living for the moment” whereas most Middle Eastern and Asian societies encourage people to save. There is no panic. A good example is Japan where the government is trying new methods to kick in domestic consumption but so far it has been unsuccessful.

    The United States has dug itself into a pretty big mess and the foreign investors are bailing this country’s economy. This time, the roles have reversed and in a global economy, the United States needs capital and help from foreign governments to keep it afloat.

    I encourage you to take a trip to Brazil and Thailand and see how people spend their money compared to fellow American citizens. I for one am not very sympathetic to what is happening in the U.S. on a macro and micro-level because most of the trouble we are seeing are self-inflicted wounds.

    As a fellow Singaporean investor said to me, the United States is not what it used to be.

    Let’s enter phase II of the train-wreck.

  14. I know I have cut back on discretionary spending quite a bit this year, but it is not due to job concerns or sub-prime/mortgage worries, its due to the secondary effect of the stock marking tanking…. Companies and govt want us to take more ownership of our retirement/finances BUT then they get upset when we save vs spend! lol. Give me a bigger pension guarantee and I will spend more today! I think that is a subtle twist in all of these economic factors: if govt/private want us to shoulder more of our retirement, the COST is that we’re withholding more in SPENDING TODAY…..

  15. I finally read through the whole article. It makes some interesting points. A particularly key point is how protectionism was one of the key causes of the depression. We were dependent on Europe to buy our goods but when the government raised tariffs to “protect our jobs” the europeans stopped buying. I see a danger of this happening yet again with the populist rhetoric being thrown about in the current election cycle particularly by those on the left although there are certainly folks on both sides who favor protectionism. I really don’t understand the point the article is making about distribution of wealth. “In an economy with such disparate distribution of income it is not assured that demand will always equal supply.” He doesn’t cite a reference for this statement and I question it. “Three quarters of the U.S. population would spend essentially all of their yearly incomes to purchase consumer goods such as food, clothes, radios, and cars.” I could be wrong, but radios and cars were luxury items in those days, like flat screen tvs and IPhones. Is it really a crisis when the poor cannot afford luxury goods? Nonetheless it should be noted that those goods were all produced domestically, today most the in-demand luxury goods are produced abroad, so it would seem likely that a slow down there would affect Asia before it affected the US.

  16. Justjoeguy says:

    The sconomy of the 1920′s is not anything like the economy of today so there is no real way to compare them. What the economy needed a few weeks ago was more credit pumped into it and the Federal Reserve did that by cutting interest rates. Now it’s the Federal goernment’s turn to pump more money into the economy but the House version of the Stimulus bill has too many flaws such as it allows illegal aliens to get checks. That’s why you should support the Senate version. It gives something to almost everybody including seniors and veterans and won’t give anything to illegal aliens. That’s all there is to it.

  17. What would be the effect on the economy if everyone paid cash for their purchases for a month? Won’t you consider your purchases carefully if you had to pass over $120 in cash rather than swiping the ole’ credit card?

    Just a thought, as I wonder the ratio of people in 1920-30s that were using extended credit and the number of people that used cash and the ratios and the relative amounts being financed today.

    I still hear the stories of “what we did without” and “you don’t know how good you’ve got it”… and may be the bill may be coming due.

  18. I’d really rather not get this rebate to be honest. Yeah, the money is nice, but they are just going to take it away from some other more necessary program that we will have to pay for later on. Like they will cut down their school subsidy to each state next year, and somehow this “rebate” will show up as an increase in my school tax bill + 10%. No thanks. It’s not free money, we will pay for it and for what?

  19. CNN Money poll of the day 2-7-08

    “What are your spending plans for the next month?”

    a. Looking for bargains only 22%

    b. Cutting back to essential purchases 68%

    c. Planning to make major purchase 10%

  20. Moneyandpf says:

    This post looks a little bit like….the present. I hate economics though so as far as the money the govt is giving us I don’t know for sure what effect it will have. I do believe most Americans will spend that money however. I will be saving it or paying off some student loans but I know many that will go buy clothes, shoes, cars, tv’s, etc. Just the way your average American does things these days.

  21. This paper has it all wrong, unfortunately.

    Recessions and depressions are primarily a response to the contraction of the money supply – monetary NOT fiscal policy.

    The Federal Reserve in 1930 RAISED interest rates in response to the bank failure, which so reduced the supply of money that widespread deflation occurred. The deflation drove the job loss and it grew into a vicious cycle.

    The article’s author cites primarily a single book written in 1984 called The Great Depression. The viewpoint of both authors was that lack of savings and income inequality caused the GD with no mention of the monetary influences. We have learned much since 1930 – hell, since 1984 – about the causes and remedies for recessions. The scholarship in this article reflects none of those recent learnings.

    The best new book on The Great Depression is called “The Forgotten Man” by Amity Shlaes. Basically it says that, had the Federal Reserve cut interest rates after the Stock Market crash, banks would not have failed (because they would have had access to liquid capital) and there would have been no cataclysmic deflation. No Great Depression.

  22. Yes, but this it is different ;-)

  23. “I still don’t understand macroeconomics for the life of me.”

    You understand macro economics just fine. Its the combination of macroeconomics and politics that you, and everyone else in the world, struggles so much to understand.

  24. If you read up some more on your economics, you’ll find that the great depression was largely a result of the Fed’s hesitation to the banking problems of that time. They waited too late.

    That is not to say there would not be economic hardship…because there definitely would be….but the Fed’s response made it much much worse. Think of it as a very hard landing…

  25. The biggest difference between now and the Great Depression era is that the present state of global economy. I am not too worried about the economy.

    The biggest problem America facing now is not gay marriage or immigration. It is the DEFICITS of the governments and the individuals. I really don’t like politicians (either Democrats and Republicans) because their so-called help and promise just mess things up.

  26. The Great Depression and the bubble burst of 2000 were the result of the monetary policy at the times. If you’re really curious, I suggest Milton Friedman’s book “Money Mischief”.

  27. I loved macro-economics for just this reason, being able to explain why this is supposed to work (in theory).

    This is what I said to a friend of mine the evening of Bush’s 2002 States of the Union Address, with respect the first round of rebates:

    “It’s an economics thing–when taxes are lower, the normal trend is that people will spend more. However, the economy also has a way of fixing itself without the fed and without the government. I think bush should have left taxes at what they were and I think that Greenspan should have quit cutting interest rates over 6 months ago. What’s going to happen now, probably right around the time Bush is about to leave office, is our economy is going to get overheated again and it’s going to burst just like it did a year or so ago. What the fed and the government are trying to do is to avoid the recession in the now but I don’t think they are really accounting for all these long term effects.”

    It almost sounds prophetic, doesn’t it? Overheating occurred in housing. Then, things started to fall apart in housing and the credit industry about a year, year-and-a-half, after Bush was re-elected (Fall 2005/Spring 2006). We’re only just now starting to realize the full damage, even after a 2007 full of debt write-downs and restatements.

    Amazing that my not-quite-college-graduate mind could come up with that, nearly 6 years before it actually happened.

  28. Chris was right regarding the unregulated banking industry, the securities industry was also guilty of many abuses. That is why we have the Securities Acts of 1933 and 34, and Glass-Steagall Act (Banking Act) of 1933. Economics of the past seem hard to compare to today, considering we now have such a global marketplace, and large emerging markets like China. Through 2006 household debt increased 80% adjusted for inflation (150% non-adj), and with negative savings rates – I am concerned. I think our government should be considering other measures than Bush is proposing, how about incentives for people to start new business to generate more capital and employ more people?

  29. I believe the typical explanation isn’t the one given above, but rather that the Fed reduced the money supply by about 1/3, which directly caused the depression.

  30. Thailand’s not a good example as the prices have increased drastically from my first visit in 99 to my last visit in 07. We’re talking a 300% increase for most things. Yikes!

    As for spending, my wife and I have cut back drastically (no more dinner out, presents for friends/family are capped at $25, we take lunch daily, we drive the more efficient car or walk to markets), while increasing our 401k contributions to the max. Oh and our salaries have increased over 30% in the last year. Our only goal right now is to protect ourselves should the economy bottom out or one of us ends up out of a job.

    So does that mean we’re hurting the economy by saving and investing greater amounts into 401k? We’re not helping small businesses or any retailers for sure.

  31. One interesting thing about the Great Depression and our current Fed Chairman:

    Ben Bernanke is particularly interested in the economic and political causes of the Great Depression, on which he has written extensively. (source: http://en.wikipedia.org/wiki/Ben_Bernanke)

  32. So let’s summarize. Spending too much is bad, but then when we save too much it’s bad as well.

    But now we’ve already gone and spent too much already, so the only way to fix it is to stop spending and start paying off bills. Oh wait, can’t do that.

    My head hurts. :(

  33. maxing out ur 401K is a bad thing!
    I hate 401K and any retirement plans.

    With moderate salaries, my wife and I have saved over $500K in 7 + years with zero debt.

    Are we doing it all wrong? We believe in money now and not the future.

    Why sock away for the future and have credit card loans, mortage loans, student loans etc?

    I am doing it the reverse from the majority and it seems to be working.

  34. bgdc, you wrote:
    “As for spending, my wife and I have cut back drastically (no more dinner out, presents for friends/family are capped at $25, we take lunch daily, we drive the more efficient car or walk to markets), while increasing our 401k contributions to the max.”

    This is what 401K is doing to people. Making them too worried about retirement. As a result, they dont enjoy life TODAY!

    Think of the hundreds of countries outside the US that dont have 401k or retirement plans…..the people seem to do OK!!

    We have been oversold on the dream of owning homes and retirement plans!!

  35. The Drake says:

    Wow. Serendipitous timing. An e-newsletter that I receive from agorafinancial.com had an interesting observation related to this topic:

    ****
    Bank reserves in the U.S. turned negative in January for the first time since the Great Depression.

    In December 2007, total bank borrowing from the Fed topped 36% of reserves. That was the highest proportion since March 1933, when it hit 46%. Back then, President Roosevelt declared a “bank holiday” to prevent bank runs.

    But…“In January 2008,” writes our friend John Williams of Shadowstats.com, “the U.S. banking system met its reserves only by borrowing an amount in excess of 100% of reserves:

    “Mr. Bernanke has promised not to repeat the mistakes made by the Federal Reserve in the 1930s,” Williams explains, “whereby the banking system and the money supply collapsed into a deepening, deflationary Great Depression.

    “The latest data on bank reserves suggest that something along the lines of an attempted nonrepeat of 1933 is under way. Faced with a devil’s choice, the Fed has acted in the last several months with a series of emergency actions to hold the banking system together and to prevent a debilitating implosion in the money supply. The Fed will create whatever money is needed to prevent a collapse of any portion of the financial system.”

    That can’t be good…
    ****

    The United States of the Weimar Republic anyone?

  36. I do have self-employed IRAs and 401k (both with a reputable firm). I don’t consider myself naive about investment services. But after I read a recent Bloomberg News story about Undisclosed 401 Fees: http://www.bloomberg.com/news/.....tory3.html
    I just can picture my 401 administrator laughing all the way to the bank, as my accounts continue to slide down this year.

  37. Devin Miller says:

    What a terrible cycle. But unfortunately, the economy is a cyclical beast. We hit recession every 7 years or so I read somewhere. The only way to best prepare for it is to count those pennies each day and control your own destiny. There was an article in the Economist a few months ago that spoke of the Japanese business culture, and it used to be that in Japan, each big company had its own bank that it encouraged all employees to deposit into. The result was that the company would have payroll and all the employees would put their paycheck in the company bank, which the company would lend to itself for expansion. This helped expedite the issues they had in the 90s I guess. Again, watch out for yourself or no one else will.

    Great post,
    Devin

  38. Chris in Boston says:

    Hal… The Forgotten Man is an EXCELLENT Book! I encourage all here to buy/borrow a copy. A very worthy read! Even if you are not inclined to ready history or economic related books this book is a fun read. The opening chapter covering the suicide of a young boy in a New York Tenement was a buzz kill tho’

  39. I am from Russia where people didn’t have retirement plans. I am told that young workers now have some kind of plans in Russia too.

    My parents for sure didn’t have any retirement plans. They are in Russia and they get a small government pension, very small. My mom is 74 years old and she manages to earn money for extras in her own creative ways. The need to earn is actually motivates her to get out and be active and creative. I know that her daily accomplishments make her really happy.

    So, here is my take: 401k is good if you got it. But if you don’t, no need to panic. As long as you have all your faculties, you should be able to figure out a way to earn for your daily bread and then some extras, no matter how old you are. There are actually ways, some pleasant ways to earn money. It doesn’t have to be your 9 to 5 job. You don’t have to bag groceries at your local grocery store, unless you enjoy it. The key is to stay open-minded… and try all kind of things.. and opportunities will come your way…..

  40. I love the euphemism treadmill. First they were “panics.” Then they were “depressions.” Next came “recession,” and soon, judging by the way the r-word so is hesitatingly spoken, we’ll be calling them “slowdowns.”

  41. I still don’t know how to find a job that I lost last week since I am a professional with limited scope for my talents.
    I don’t know how to pay for Cobra and car payments.

  42. Glad you’re reading up on the Great Depression. I’m sure you are also aware of the 1920s real estate bubble in Florida and the fact that many farms had large mortgages placed on them. Essentially we are repeating the past. There was a great article that I found in an old Harpers journal, 4 years into the Great Depression. You might as well erase the 1932 year and affix 2008, we are repeating the exact cycle:

    The Menace of Mortgage Debt

  43. ***Chris was right regarding the unregulated banking industry, the securities industry was also guilty of many abuses. That is why we have the Securities Acts of 1933 and 34, and Glass-Steagall Act (Banking Act) of 1933.***

    On page 161 The Four Pillars of Investing, author William Bernstein wrote that the Glass-Steagall act had “recently been repealed. Sooner or later, we will likely painfully relearn the reasons for its passage almost seven decades ago.”

  44. Aditya, you just dont get it. Maybe you shouldnt have bought something without any money!!!!??

    This is what this whole blog is about!!!!

  45. aditya, dont pay for cobra!!

    go to http://www.ehealthinsurance.com

  46. xmasy – My company matches 50% of 401k contributions to the max (hers only does 25% to 10% of salary). So if I put in 15k of my salary this year, I end up with 22.5k in my 401k for 2008, not including interest. I’m getting a 50% ROI while also protecting us from taxation hell, thus the ROI is really closer to 70%. Can you get 50% ROI in the stock market? Can you get 50% on anything since the housing bubble burst in 2005?

    We own 3 homes too (rent two of them), so the “dream” of owning a home isn’t such a big deal to us.

  47. toasty aroma says:

    depressions/recessions are created when the Fed (or other central banks around the world) manipulate credit and the money supply and create bubble economies, and the inevitable result is that the economy collapses on itself. A sound currency would smoothen this effect and no longer would we have the business cycle, or on a larger scale, bubble economies that collapse into depression/recession (whatever you want to call it).

    In other words, vote for Ron Paul.

  48. Rick,
    where did I say that I bought anything without money?
    In case you don’t know, Cobra is the full health insurance premium after you get laid off from your job but you are supposed to pay for it even when your paycheck stops.
    Once you stop paying for it and get sick you cannot get any other health insurance.
    As far as car, it was a necessity and hardly anyone can live in this country withoout it and get to work.
    Ther was a no warning that a depression was coming that will take away my employr’s budget. How long will the $600 give away last?

  49. varsitygirl17 says:

    It doesn’t take a rocket scientist to recognize we are headed for implosion!
    As a state delegate I listened to a congressional candidate running in my district say (a prosecuting atty. for 17 yrs. His bro. was our Gov.):

    “the american people will have to bear serious sacrifice willingly in the decade ahead or they will have tremendous change forced upon them in order for our country to survive the impending crisis.”

    I thought, “well there is the truth…I don’t like it, in fact I’m furious I allowed our gov’t to get us there, but nonetheless this is the truth and I will have to buck up too.”

    He actually said, among many other things, it is our patriotic duty to raise responsible children that won’t become a burden on society, get out of debt. We can’t expect our gov’t to do something we are not willing to do as individuals, stop accepting subsidies that are simply welfare disguised etc. A few wise words for an unclear future.

  50. So this is how you get to lead a class discussion while not professing. You will make an excellent professor some day…i hope you choose finance/economics over engineering! Although i’m sure your approach for any subject would be equally effective.

  51. bgdc,

    u said “I’m getting a 50% ROI while also protecting us from taxation hell, thus the ROI is really closer to 70%.”

    It is tax defered not tax exempt. so it shouldnt be really closer to 70%.

    There is no such thing as free money. Basic principles of economics. Most employers match under certain conditions. lets say only if u stay with them for 5 years do the match become 100%. In the meantime, in that 5 years, u missed some other job opportunities that could have come ur way had u been looking, instead of waiting it out…..i know, weak argument, but this is just an example of NO FREE MONEY.

    Have u heard about the hidden fees within 401K?

  52. Thank you xmasy for insurance linnk.

  53. xmasy,

    Yes, it’s tax deferred but anyone arguing against getting 50% immediate ROI is really nitpicking.

    Name something else that returns 50% immediately.

  54. What are you investing in that gives you a 50% ROI

  55. hayek Von friedman says:

    You have it just about right. Only one thing missing. Add a populist trade protection bill called Smoots-Hawley with its tit-for-tat predictable result and the parallels betwixt then and now become even more pronounced.

  56. There is absolutely no reason not to contribute to your employers 401k up to the match, even if they only match a max of 3%. At 50k/year that’s still an extra $1500 they are essentially giving you, for free. Granted there are fees and it’s taxed when you withdrawal, but where else can you essentially be given $1500 for nothing?

  57. Chris,

    Some employers – mine included – match 50% of your 401k contributions up to the max. So if you drop in 15k this year, the company adds in 7500. That’s a 50% ROI and pretty hard to beat. 5 years of that and without any compounding interest you’re well over 112k with only 75 coming out of your paychecks.

    I want to know how one can beat that as Xmasy seems deadset on poo-pooing 401k under all circumstances.

  58. Back to the Great Depression vs. today, and the tax rebate, I think it all depends on your mindset to begin with, your age, and probably how you were raised. My parents were born in the depression, and it appears that the effects lasted for many years. I heard all the stories, but my children have no idea what a depression, or severe recession can do.

    I am a baby boomer, and I will save my rebate. All of my energy has been devoted to getting out of any kind of debt and saving money for the things I want (while earning interest, of course). I’ve got retirement accounts and pension plans, but I still want a good amount of my money to be liquid, because ‘I’m not done livin’ yet’. Still, I watch my money very carefully.

    My three daughters will spend the rebates immediately on luxuries, regardless of their debt, or even their needs. When I was younger, I had more than the required amount of credit cards and loans. Now I just don’t want the debt, and don’t trust “the system” enough to think things will be okay.

    My oldest daughter just got a $6,000 tax refund (because she makes so little and has 2 kids). She lives week to week, and has a car that could break down at any time. She went out and bought a flat screen TV, is getting unnecessary new living room furniture, and moving to a bigger place…not even thinking about the NEAR future.

    I’m not an economics expert, but I think my way is better. Unfortunately, none of us can really predict what the American public will do…it all depends on how big of a gambler you are.

  59. Rhonda,
    Your daughter did not get $6000 for free. It was hers which she had loaned to govt interest free. She should have adjusted her W4 so that she should have ended up
    paying a tax and not getting a refund and earning interest in a bank account.
    I never get a refund but owe 2% of my liability.

  60. aditya,
    I completely agree with you, but in my daughter’s case, she really did get taxes back she didn’t pay. They give extra tax credits for low income and extra kids, plus even another extra credit. She paid much less than that in taxes on her paycheck. When my kids were young, I got unbelievable tax credits.

    I, on the other hand, have finally realized the truth. I will pay less taxes than I owe (as long as it’s not too much), and earn interest on the money until taxes are due. Then I will pay them on a debit/credit card that will give me 1.5% back on my payment.

  61. A very interesting article on this very issue
    http://tinyurl.com/2e6edq

  62. Mickey Blue Eyes says:

    Another complicating factor with the Great Depression is that many states had unit banking laws. Instead of having branch banking to spread out the depositors and loans over a wider economic/industrial/geographic area, there could only be one bank and they can only serve customers within a certain radius. As a result, if a particular industry failed, or crops in a particular location failed, there would be a run on the bank and it would fail. A bank run could be caused simply by a neighboring state’s governor calling for a bank holiday, scaring people to get their money.

    With branch banking established and FDIC insurance — even if your bank fails (Netbank), your money will be delayed but you will get it back — I don’t see that contributing to the “fear” that people had back then.

  63. Mightycline says:

    I stumbled into this line looking for another subject. There are alot of chicken littles that do not understand what keeps the whole together…….. together! Certainly the remants of Keynesian Economics still breathes due to blantant ignorance. There certainly is a need for some government in our financial affairs. The redistribution of money is not one of them that works very well. The recent tax rebate that includes massive amounts to people that do not pay taxes is an example of the farcical government interferrence. Art Laffer wrote an article in the Wall Street Journal this week. Read it and understand free market economy and learn about Milt Freedman. The spending of all one’s money of things that one does not need to survive is killing the finances of too many people and not just the young folks. You (most assuredly alone) are responsible for your financial mess you find yourself in. Period. There are many people that are thrifty and save. There are those that actually are a negative net worth and they even borrow against their next paycheck. Talk about morons. The Neandertals still roam our Earth and some even drive rented BMW’s, spend too much on every sort of un-needed items. Just look at all the people that line up to charge a $5.00 latte every day at Starbucks alone. There are now cash machines and credit cards allowed to get thru McDonalds for breakfast, lunch and dinner. God bless the thrifty, what ever that means today. I am now retired and make (believe it……) a salary for still working and social security for my daughter and I of $2,783.00 per month and Medicare is almost free compared to what young folks pay today for employer sponsored health care with out of pocket and out of network charges that would kill any savings. Love you all for providing me and the greatest generation with all the perks we never paid for…..and all this time you al are thinking the government is going to be there for you; they cannot continue to reward everyone for their own tragic mistakes and catastrophies such as we now think the government owes us….even hurracanes bring expensive purses to the poverty stricken and the theives are still thick. I even feel like a thief on days the social security funds are directly deposted into one of my many accounts. Keep it up and go to work every day. I do.

  64. The UK versus US experience of the great depression shows that the government priming the economy with money is better than the government doing nothing, the US came out of recession much quicker than the UK
    Mike

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