In the 1930s, Joseph Stalin was convinced that the Great Depression, as it became called later, was all the evidence that he needed that capitalism had failed and that his state-controlled model economy would prevail.
Communism would triumph. He wanted someone with credibility to confirm his belief so ordered Nikolai Kondratieff, an economist of note, to produce a study to that end.
Kondratieff did as he was asked up to a point. He produced the study, but did not come with the conclusion that Stalin was looking for. Kondratieff reasoned that the economic depression was the trough of a long term economic cycle, a grand business cycle so to speak, and that the depression would purge the economy of excesses that would be deleveraged and eventually prepare the world for another period of economic growth.
Capitalism was dynamic and perennial. In the depth of the Great Depression, Kondratieff was forecasting the next economic recovery and super-cycle expansion.
The global economy is now crawling along trying to avoid the mistakes of the 1930’s in another deleveraging period.
We are very fortunate to have a man such as Ben Bernanke as Fed Chairman who was a student of the Great Depression and who is doing all that he can to the limits of monetary policy to keep the foolish politicians in Washington from deepening the Great Recession that we are experiencing into another Kondratieff Wave Depression. Congress controls fiscal policy and there has never been such an inept set of crooked shooters in office than the bunch we have today.
As I hear the phony politically motivated economic “so-called” experts criticize the Fed, I am taken with the reality that most of these political idiots, some now running for president, never read a history book or retained any worthwhile information from it.
They have no historical economic perspective of where we are and most of what they propose would overwhelm the Fed’s good work. Some are ideologically opposed to Fed policy, but there is no place for ideology in sound economics.
When they say they would never reappoint Ben Bernanke as chairman, it is akin to saying that you would force out the skilled surgeon trying to save the guy shot in a hunting accident and would put their crazy uncle in charge instead.
The historical correlations between the last K-wave trough and this one are striking. For example, it was noteworthy to me to read that the North Korean News Agency released a dispatch recently titled, “Capitalism has no future.” The Associated Press wrote, “The agency reported that North Koreans are proud of the country’s socialist system, because it is ruled by science and will continue to flourish in the future.
“North Korea is bragging about its socialist system saying the Occupy Wall Street movement shows that people are fed up with capitalism’s ills.” At least we are free to protest.
The North Koreans are right about where Stalin was in the 1930’s, making the same mistake of concluding that capitalism was terminally flawed.
North Korea is relying on capitalists to feed its 24 million people by threatening the world with a nuclear deterrent – so this is a mock peace of propaganda. No better example of a comparison between a capitalist and communist centrally controlled economy exists than the differing economic performances of North and South Korea.
Another historical correlation to the 1930s is the rise in protectionism that we are seeing. It is not just in the U.S. Protectionist pressures are growing around the world.
When an economy sours, unemployment rises and people are hurting from a weak economy, protectionism is a natural response to the angst. You have to have leaders that can think despite the political pain, as the mistaken consensus response to raise trade barriers will only make the recession worse.
Our Congress is just as stupid today as the one that enacted the Smoot-Hawley tariffs that deepened and prolonged the world depression and we have GOP candidates running for president who profess to be in a hurry to get the trade war with China started.
Our sitting president knows enough history to understand the folly of trade protectionism, but is under great political pressure to do the wrong thing, too, as Hoover did.
Recent ratification of three free trade agreements were a break with repeating history, but there is nothing to suggest that was more than an anomaly as the Senate passed the Smoot-Hawley-like China Currency Bill and the House would too if Speaker Boehner would let them vote.
There are a lot of people in office and others who are angry running for office that have no clue as to the economic historical perspective of what the right things are to do.
Most of what is done is for political reasons; so thank God that the Fed is politically insulated, since some of the fools running for president would tear down that protective firewall destroying our economic security, too.
David Kruse is president of CommStock Investments Inc., author and producer of The CommStock Report, an ag commentary and market analysis available daily by radio and by subscription on DTN/FarmDayta and the Internet.
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