Monday, October 27, 2008

"Socializing" the American Dream

Where it all went wrong-

America has always been an experiment in progress. Social, Economic, Legislative, lots of different things have been tried in our country. This is one of the things that has made us strong. However, I believe there was one huge national tragedy, one failed experiment, that has burdened America for more than 70 years. That experiment? FDR's "New Deal". Let's take a look at the New Deal and draw some parallels to today.

From Wikipedia- By March 4, nearly all banks in the country were closed by their governors, and Roosevelt kept them all closed until he could pass new legislation. On March 9, Roosevelt sent to Congress the Emergency Banking Act, drafted in large part by Hoover's Administration; the act was passed and signed into law the same day. It provided for a system of reopening sound banks under Treasury supervision, with federal loans available if needed. Three-quarters of the banks in the Federal Reserve System reopened within the next three days. Billions of dollars in "hoarded" currency and gold flowed back into them within a month, thus stabilizing the banking system. During all of 1933, 4,004 small local banks were permanently closed and were merged into larger banks. (Their depositors eventually received 85 cents on the dollar of their deposits.) Anti-New Deal economists Milton Friedman and Anna Schwartz said, "The 'cure' came close to being worse than the disease." To avoid future "cures" the Congress created the Federal Deposit Insurance Corporation (FDIC) in June, which insured deposits for up to $5,000. The establishment of the FDIC virtually ended the era of "runs" on banks.

Sound familiar? The Federal Government bailing out banks? The New Deal set a dangerous precedent. If something doesn't work, Uncle Sam will step in and fix it. The Welfare State for businesses. Not to mention, it was small depositors who got burned. If the Fed determined your bank did not fit their model, they simply closed it down, and as a consequence, stole 15% of your saved money as a penalty for being stupid enough to trust a small local bank. Seems to me the Fed was creating a system of banks beholden to Uncle Sam. With smaller, less controllable, local banks out of the picture, and larger banks being propped up with Federal money, the Fed could now dictate the rules to these banks.

Oh my God! The Fed is making a move to control banking again? Apparently they didn't feel it worked well enough when FDR did it, because the current administration just did the same thing. Even going so far as to force stable banks to take bailout money. But wait, it gets better (or worse)!

From Wikipedia- In March and April in a series of Acts of Congress and executive orders Roosevelt and Congress suspended the gold standard for United States currency. Under the gold standard, the Federal Reserve was prevented from lowering interest rates and was instead forced to raise rates to protect the dollar. Actions to suspend the gold standard included Executive Order 6073, the Emergency Banking Act, Executive Order 6102, Executive Order 6111, the 1933 Banking Act and House Joint Resolution 192. Anyone holding significant amounts of gold coinage was mandated to exchange it for the existing fixed price of US dollars, after which the US would no longer pay gold on demand for the dollar, and gold would no longer be considered valid legal tender for debts in private and public contracts. The dollar was allowed to float freely on foreign exchange markets with no guaranteed price in gold, only to be fixed again at a significantly lower level a year later with the passage of the Gold Reserve Act in 1934. Markets immediately responded well to the suspension, although it was assumed to be temporary.

Why is this significant? Well, as long as the government was on the Gold Standard, your money was actually worth something. With this action, the Fed now controlled how much the dollar was worth. You could no longer make a direct exchange for something tangible, and if you had any gold put away, you had to give it up, at a price set by the Fed. In addition, when things get tough economically, the government could now artificially stimulate the economy by lowering interest rates. This makes things look better, although there is no actual rise in personal wages or personal wealth. This was a "feel good" measure by the government, and ever since, whenever something goes wrong economically, instead of fixing the problem, our government lowers interests rates, giving us a false sense of stability.

Wow, we are getting screwed. Quite a realization. Surely there is a bright spot, right? Surely since our government is expecting us to make sacrifices to help the economy, we can be assured that they are doing everything they can to keep a lid on their spending? Think again, monkey-boy!

From Wikipedia- The Economy Act, drafted by Budget Director Lewis Douglas was passed on March 14, 1933. The act proposed to balance the "regular" (non-emergency) federal budget by cutting the salaries of government employees and cutting pensions to veterans by forty percent. It saved $500 million per year and reassured deficit hawks such as Douglas that the new President was fiscally conservative. Roosevelt argued there were two budgets: the "regular" federal budget, which he balanced, and the "emergency budget," which was needed to defeat the depression; it was imbalanced on a temporary basis.

So let me see if I got this right. Rather than be more fiscally responsible, the government created 2 different budgets? The first being the "Just for Looking at" budget, which they balanced by cutting wages for Federal workers. By the way, would you quit your job in protest over a pay cut in the middle of a depression with a 25% unemployment? This is the Federal government equivalent of raping a retarded girl. It's not like she can do anything about it, right? And just to get a little more money, let's take away money that we have promised our veterans. "Thanks for risking your lives when you country called, now turn around and drop those trousers, Uncle Sam is going to hit that!" But that does balance the budget, and the President can go in front of Congress and say so. Now, what about this other budget? Well, turns out that is the "real" budget. That is what is the true measure of Federal spending. The other one exists only on paper. And this second budget will not be balanced. Why? Well, those new social programs that the President is touting have to get paid for somehow. (Sound familiar in 2008?).

Wow, this sucks so far. Our government, who we elected, is putting the screws to us pretty hard. They shut down our local banks, and stole 15% of our savings while doing it. They took away the guarantee that printed money was worth something. They have banking in their pocket. They are artificially stimulating the economy via interest rates and they are lying to us about having a balanced budget. How much worse could it get? Grab you ankles America, here comes daddy!

From Wikipedia- Roosevelt was keenly interested in farm issues and believed that true prosperity would not return until farming was prosperous. Many different programs were directed at farmers. The first hundred days produced a federal program to raise farm incomes by raising the prices farmers received, which was achieved by reducting total farm output. The Agricultural Adjustment Act, created the Agricultural Adjustment Administration (AAA) in May 1933. The act reflected the demands of leaders of major farm organizations, especially the Farm Bureau, and reflected debates among Roosevelt's farm advisers such as Secretary of Agriculture Henry A. Wallace, Rexford Tugwell, Lewis C. Gray and George Peek. The AAA used a system of "domestic allotments," setting total output of corn, cotton, dairy products, hogs, rice, tobacco, and wheat. The farmers themselves had a voice in the process of using government to benefit their incomes. The AAA paid land owners subsidies for leaving some of their land idle with funds provided by a new tax on food processing. The goal was to force up farm prices to the point of "parity," an index based on 1910-1912 prices. To meet 1933 goals some growing cotton was plowed up, and little pigs killed. The idea was that the less produced, the higher the price, and the farmer would benefit. Farm incomes increased significantly in the first three years of the New Deal, as prices for commodities rose. One legal historian says that consumers bore the brunt of higher food prices and were "horrified with its policy of enforced scarcity." A Gallup Poll printed in the Washington Post revealed that a majority of the American public opposed the AAA.

Wait, let me see if I have this right. Our government just took over the farms and told farmers how much they could produce? And it appears this was done RAISE prices on food? Why would they want us to pay more for food? Why would the government destroy resources and create scarcity? Well, gentle reader, it seems we had just a little too much freedom. The natural ebb and flow of supply and demand economics didn't work for Roosevelt's "Brain Trust". Seems these over-educated, East Coast elitists decided for us that a free market economy was not the way to go. I checked the Constitution, Congress has the right to regulate commerce, but I would be willing to bet my worthless 401k that this is not what the framers of the Constitution had in mind when they assigned that power.

Now, in case you think I am just another "FDR Hater", I will give the New Deal it's props. Here are the good things:

Creation of jobs and rural development through programs such as the CCC, REA, WPA, Forest Service and TVA. People needed work, and FDR found it. My Grandfather was a CCC firewatcher in the Kisatchie Nation Forest during the Great Depression. Electricity came to areas of the country that desperately needed it. Real, tangible, concrete improvement in the way of dams, roads, schools and National Parks were built.

The repeal of Prohibition. Why America was ever so stupid as to let morality overwhelm the ability to collect taxes on our vices escapes me. FDR saw the light. Legal booze flowed again, and we collected the taxes.

Set minimum wage, maximum work week and limits on child labor. As much as I hate government interference is any kind of economics, it was truly needed in these areas. With 25% unemployment, the American worker had nothing to bargain with against management. Evening the playing field was in order.

However, in the grand scheme of things, this grab for power by the government has had dire consequences for America. Government regulation, deregulation, price manipulation, interest rate variation and a general sense that Uncle Sam should control the economy have led every successive administration to apply their version of control to our economy. What you see in the markets is not real. Prices are driven by speculation. Commodities such as gas and oil are sold on "futures". This does not take into account real world economic situations, but instead leaves the American consumer vulnerable to the whims and worries of investors. This is why gas prices increase every time the "President" of Iran breaks wind.

I don't have an easy fix. No one does. However, I think that it is our duty as Americans to be informed and whenever possible to call out our government for it's attempts at fascism (and/or socialism). When I went to school, someone told me that our government was "of the people, by the people and for the people". I think we need to remind Uncle Sam who he works for.


Avatar said...

Today the value of the Gold held is the US is worth $210,585,164,529.42 at today's prices. The rest of the world's holdings are $561,554,397,491.24

RipperBravo6 said...


Is that privately held gold in the US, or US government holdings? Just wondering.

Thanks, RB6

fallout11 said...

To be fair to FDR, the alternative was simply to "stay the course" and allow the country to undergo a revolution, either of the Russian variety, or the Nazi German/Japanese/Italian kind.