How Government Stimulus Caused the Great Depression

All through the Roaring Twenties, government spending declined, letting the economy grow. Immediately upon entering office, Hoover began increasing spending and regulation, stagnating the US economy, a pattern followed by the next two presidents. The economy did not truly recover until that behavior ended, with the revolt against Truman in 1946.

How the Deficit Depresses Our Economy

Our national debt, financed by treasury notes, bills, and bonds, depresses the economy by destroying private investment

The political class insists that we can’t cut our massive, $1,600,000,000,000 Federal deficit, because it would depress the economy and cost jobs. Their excuse is that the private economy is not creating jobs and wealth, so the government must take up the slack.

But what mysterious burden, on our economy, is preventing the basic private investment that creates wealth, allowing the economy to grow, jobs to be naturally created, all of us to prosper?

Ironically, it’s that very deficit.


It’s because of the way the deficit must be financed:

The government has to raise every penny of the deficit it spends, by issuing treasury notes, bonds, and so on. Private people buy these, imagining they are “investing” by doing so. But real investment creates wealth, while government securities just finance deficit spending, as a debt that will be paid back by your grandchildren, as gigantic tax burdens.

This year, the Federal government will have to convince people to “invest” 1.6 trillion dollars in government notes and bonds, to pay for its deficit. Every single penny of that would, otherwise, have been invested in private enterprise, to create wealth.

Imagine if the private economy got an “extra” trillion-plus dollars of investment, next year. The massive growth in wealth and jobs is almost unimaginable.

Now imagine if, instead, the private economy had a trillion-plus in investment REMOVED from it by government. The massive loss in growth and jobs is entirely imaginable, because it’s what we’ve been suffering since the deficit increased almost one trillion dollars in 2009.

Every dollar the government spends steals one dollar from the private economy…either directly, by taking it through taxes, or indirectly, by financing it through a bond or note that steals that dollar from private investment.

Keynes is Dead, Long Live…Keynes?

Each time a government has tried to spend its way out of a depression, the result has been ongoing economic failure

John Maynard Keynes was an economist…or at least a political activist who used economic-sounding arguments to justify government intervention.

In the 1930s, he was THE economist, if you believed in that government intervention.

But, as we all know, his Theory proved to be a complete failure. It failed to produce results during the Great Depression, but staggered on until the 1970s, when it failed so spectacularly, causing staflation, that it was pronounced dead, even by Liberals in the US and open socialists around the world.

But, unfortunately, George Bush came along in 2001, and after having run as a free marketer, governed as a Keynesian. He infected the political scene with the premise that you could stimulate an economy out of a downturn, by having the government spend massively, even as it increased regulation (in part, by putting strings on the spending). When the economy fell into trouble because of his bad foreign and domestic policies, he responded with Stimulus and Bailout™ packages. That trademark, of course, means that he must pay the Keynes estate a royalty for each mention.

Obama, having run as the Anti-Bush, has committed the perplexing political suicide of simply building on every Bush precedent…most of which really are more Liberal Democrat in tenor, anyway…and one of the symptoms is that he continued the Stimulus and Bailout™ packages.

The problem, as we predicted and is now proving true, is that stimulus spending and bailouts don’t help the economy: They hurt it.

This pattern of behavior has caused what people denying the word Depression call a “double dip recession”, which we’re entering (again) right now.

The only way out, is to end the Keynesian meddling, and let the economy grow on its own. Japan and Sweden learned this the hard way, after each suffering a “lost decade” in the nineties. Now it’s our turn.

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