mm328: Today’s economics lesson: Depression 101

MUDGE’s Musings

Paul Krugman of the NYTimes is an economics professor who has a clear grasp of the big picture. Guess that would be macroeconomics, wouldn’t it?

And he has a way with words.

For yr (justifiably) humble svt, as a child of children of the Depression, its lessons were removed by time, heavily insulated by the cornucopia of plenty that followed the cleansing and rebirth that was World War II for the U.S.

Only those who were very young during the Thirties, certainly not policy makers, are around now, so it’s good that Prof. Krugman is here to teach us some important lessons.


Partying Like It’s 1929

By PAUL KRUGMAN | Published: March 21, 2008

If Ben Bernanke manages to save the financial system from collapse, he will — rightly — be praised for his heroic efforts.

But what we should be asking is: How did we get here?

Why does the financial system need salvation?

Why do mild-mannered economists have to become superheroes?

The answer, at a fundamental level, is that we’re paying the price for willful amnesia. We chose to forget what happened in the 1930s — and having refused to learn from history, we’re repeating it.

Contrary to popular belief, the stock market crash of 1929 wasn’t the defining moment of the Great Depression. What turned an ordinary recession into a civilization-threatening slump was the wave of bank runs that swept across America in 1930 and 1931.

It’s like this, children: after the banking debacles of 1930-31, that contributed directly to the global unrest that culminated in the war, the U.S. at least put into place checks and balances on the banking system to prevent recurrence of the calamities.

So Congress tried to make sure it would never happen again by creating a system of regulations and guarantees that provided a safety net for the financial system.

Our bankers, especially the mega-bankers of Wall Street, have spent the better part of the years since the Thirties first chafing under regulations, then finding sneakily legal workarounds.

Well, it caught up to them:

The financial crisis currently under way is basically an updated version of the wave of bank runs that swept the nation three generations ago.

[Please click the link below for the complete article — but then please come on back!]

Partying Like It’s 1929 – New York Times

Lately it seems that we all seem to looking over our shoulders.

We hear about some famous banking names taking hallucinogenic quarterly losses, bailed out by cash infusions from “sovereign wealth funds” (Saudi princes) and one get sold to another at pennies on the dollar.

We read the reports: oil at $109 (and gas at the pump certain to hit $4/gallon before long), the Euro at $1.59, gold over $1,000.

We watch the “For Sale” signs on our neighbors’ homes get old, and hear about declining values for housing and growing numbers of foreclosures nationwide, trends that threaten every middle class household’s economic stability.

We read about the Federal Reserve, whose last two (exalted) leaders let us get into this mess (if not caused it outright), and whose current one is an academic still getting his feet wet in the real world.

This is not a drill, Ben.

Buckle up, faithful reader, we may be in for a very bumpy ride.

It’s it for now. Thanks,


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7 Responses to mm328: Today’s economics lesson: Depression 101

  1. ClapSo says:

    A very timely post mudge. It looks like we are on the verge of a major economic collapse that could out do even the great depression! Sorry I’ve been away for so long, but I’m back now…

    The scientifically impossible I do right away
    The spiritually miraculous takes a bit longer


  2. mudge says:

    Glad to have you back, ClapSo. Thanks.

  3. […] recession in America, and perhaps the world. What’s going to happen to your job this […]

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