Brian27

Macroeconomic Policy for a Stronger Recovery, Part 2

Friedman Schwartz in 1963 presented evidence that declines in money supply preceded declines in nominal GDP. M1 defined as monetary base (M0) and checking accounts declined 30% by 1933 but increased 33% by 1939. Some of the decline in M1 can be explained by reduced checking accounts caused by falling output. The M0 declined 3% by 1933 but had doubled by 1939.

If negative M1 growth caused the depression why didn’t the economy return to normal growth as M1 was expanding during the 1933-39 period. Secondly, the M0 only declined in 1930 and increased thereafter so it was not a negative factor in the depression.

Lastly, it is a generally subscribed theory that money shocks affect the economy through Keynes nominal wage rigidity. However, despite Hoovers 1929 attempt to stop industrial nominal wages from being cut they were actually quite flexible after 1930.

Another problem with rigid wage explanation is that as employees are laid off the remaining employees become more productive. This is counter factual, labour productivity actually fell by 15% form 1930 to 1933 and real wages were below normal.

Banking failures and the M1 contraction had a role in the Great Depression but the explanations of their roles are weak

Macroeconomic Policy for a Stronger Recovery, Part 2

It was called the Great Depression because after 10 years GDP was 85% of the 1929 level. That is why it was called the Great Depression and the unconstitutional policies after 1933 were as much to blame as Hoover's market interference policies.

On Oct 01 12:46 PM chap08 wrote:

> Err, no. The major falls in GDP occurred in the years 30 to 33. After
> that, due to policy changes, real GDP grew by:
> 34: 11%
> 35: 9%
> 36: 13%
>
> Policy was disastrously reversed again in 37 causing the second slump.
>
>
> On Oct 01 12:04 PM Brian27 wrote:

Macroeconomic Policy for a Stronger Recovery, Part 2

The Great Depression became the great depression because of the policies followed from 1933 to 1939.


On Oct 01 08:43 AM chap08 wrote:

> Brad, your article is just not going to be popular with SA's collection
> of cowboys and Austrians. I, on the other hand, would have some sympathy
> with your view, if we had not had such bad government for many years.
> Unfortunately though, we have had bad government for many years and
> that has left us with a massive national debt. Without the debt,
> I would be supportive of more counter-cyclical spending. Sadly though,
> we can't afford it. We spent it all in the good times, in a stupid
> pro-cyclical way. Now we're close to bust.
>
> So instead, I advocate another approach. This approach is even less
> popular on SA if you can believe that! My approach is to let the
> dollar devalue - to get it down to something approaching fair value
> - where it would be without currency intervention.
>
> Currently the dollar is propped up by the mercantilists. If they
> stepped back, then the dollar would fall. The Chinese and others
> keep the dollar up so that they can keep domestic unemployment low.
> The other side of that coin is that our unemployment stays high.
> The reality of our trade deficit and high unemployment will not change
> without a lower dollar. To believe otherwise is a fantasy. You can
> talk about fiscal stimulus, trade barriers and other sticking plasters,
> but the only real solution is a lower dollar.
>
> In 33/34, they used the gold standard to devalue the dollar by over
> 65%. That was a key part of the medicine that cured the Great Depression.
> We don't need anything on that scale or at that speed, but we need
> some of the same medicine. History and international experience shows
> that currency devaluation is just as effective as fiscal stimulus
> in creating growth.
>
> You can throw more taxpayers money at it. You can throw more future
> taxpayers money at it. You can stimulate and stimulate. But, we live
> in a globalized world now, and until we are internationally competitive
> again, we will never properly recover.

Macroeconomic Policy for a Stronger Recovery, Part 2

We all know that cutting marginal tax rates grows the economy. In theory and practice. Government spending is wasteful, inefficient and unresponsive to changing market conditions. Only liberal idealogue's call for more government spending after 6 years of spending growth.

Cramer's Mad Money - 5 Mistakes Amateur Investors Make (7/31/09)

Number one reminds me of the Mayor of a small town who complained that there was never a cab at the train station late at night when he arrived into town. So he legislated that there be at least one cab at the train station at night.

When he arrived the next night he hopped in the cab and exclaimed take me home. To which the cab driver said, I can't there has to be at least one cab at the train station.

Moral: A cash cushion constraint of 10% is silly if you have to sell to remain at 10%. If the constraint is 0% or 30% it makes no difference because you still have to sell to maintain your cash position.

10 Winning Stock Themes in an Obama Administration

1) Bigger government subsidies would help alternative energy stocks.

2) The discount retailers will definitely benefit from falling after tax incomes and the higher end retailers and teen retailers will be hurt.

3) Increased educational subsidies to educational companies will obviously improve returns.

4) Increased government spending on roads and bridges will clearly help construction companies.

5) The democrats in congress want to control spending on drugs by reducing reimbursements. That is a negative for all drug making companies. More importantly for biotechs the democrats want to make it easier for generics to copy their drugs. One of the great features of biotechs is their difficulty to replicate and the costs of testing before introduction. The democrats want to make it easier, quicker and cheaper to bring generics to market. How the democrats are positive for biotechs is difficult to imagine.

6) Higher tax rates on capital and income will reduce the savings of the wealthy and cause a decline in demand for muni bonds. This will have a negative effect on the muni bond market.

7) Not clear how higher taxes on REITS will help them.

8) The sectors in decline from foreign competition will not obviously benefit from protectionist policies. Switching GM production to the US from Canada or Mexico is not necessarily going to make GM more profitable.

9) With lower after tax incomes individuals will prefer to save money by completing their own tax forms.

10) Higher tax rates on capital gains and income will reduce after tax incomes and hence reduce savings for retirement. This is a negative for asset management firms. Higher capital gains taxes means that asset accumulation will be lower. As individuals will have to cash out to pay higher taxes.

Wall Street Breakfast: Must-Know News

Electric cars are nice, but were is the electricity going to come from? FPL wants to build a solar farm in Martin County Fl at a cost of $660 mil. to supply electricity to 11,000 homes. That is an estimated pre construction cost of $60,000 per home!!
Not to mention the cloud cover in Florida gives this project the look of a disaster in the making.

At these electricity costs $4.00 a gallon looks cheap.