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Will US repeat mistakes of 1937?

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WriteDown Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Sep-22-09 10:13 AM
Original message
Will US repeat mistakes of 1937?
"The specter of 1937 hangs over the economy and the stock market.

That's the year when overconfidence that the Roosevelt administration had whipped the Great Depression and that it was time to balance the federal budget led to another deep recession that wiped out three years of growth and sent the economy reeling back to the Depression depths of 1934.

The Dow Jones Industrial Average ($INDU), which had climbed 127% from a low of 85.51 in July 1934 to a high of 194.40 in March 1937, fell 49% to 98.95 by the end of March 1938 -- not far above its '34 low. (Remember, it takes only a 50% loss to wipe out a 100% gain.)

After that collapse and another one in 1942, stocks didn't match that 1937 peak until 1945.

I wrote on my blog a few days ago that "most of the time," after big rallies like the one going on now, the stock market has remained higher a year later.

Almost always. The one big exception, the one that delivered a loss big enough to wipe out portfolios, came in 1937....."
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rurallib Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Sep-22-09 10:16 AM
Response to Original message
1. probably
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WriteDown Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Sep-22-09 10:17 AM
Response to Reply #1
2. Haha...
Short and to the point.
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pampango Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Sep-22-09 10:35 AM
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3. Obama has to balance several things in addition to maintaining fiscal stimulus.
He has to be aware of possible inflation that may result from large sustained deficits (though who knows how big and for how long they have to last to spark inflation), a significant decline in the dollar that would antagonize our numerous foreign creditors and raise the interest rate the government pays (and contribute to possible inflation), and the political pressure to balance the budget that always seems to exist in the US.

FDR only had the last of these - the usual pressure to balance the budget. He didn't have to worry about foreign creditors and inflation was not a risk during the Depression. Obama has more reasons to cut back on fiscal stimulus even more quickly than FDR did, given our huge foreign debt and possible inflation, but he also has the advantage of history and knowing what happened when FDR tried to balance the budget in the late 1930's.

I bet that Obama doesn't repeat the mistake of 1937, but if repubs win enough seats in 2010, they could cause problems that he can't avoid.
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WriteDown Donating Member (1000+ posts) Send PM | Profile | Ignore Tue Sep-22-09 11:30 AM
Response to Reply #3
4. A few things....
there WAS a large deficit in 1937 per the article and have you heard much about balancing the budget these days?

Also, FDR was coming off the heels of The Great War and watching the rise of Nazism in Germany among numberous other things. I'd say he had plenty on his plate.
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