- The great stock market rally looks like a permanently high plateau.
- Irving Fisher, leading economist of the 1920s. (Note: Two days after the proclamation the market crashed.
Every school kid learns about the Great Depression of 1929. The problem in the classroom shows itself in the stock market.
The central defect in teaching about the economic fallout that autumn lays in the defense of the Federal Reserve. The blame gets shifted to the Smooth-Hawley Act. People, that bill that put tariffs on 900 imports was passed in 1930. Classroom history books were not good in math as clearly the blame comes after the event.
My problem here is losing focus because I see another problem. Obviously, Congress was anti-labor prior to 1930. The tariff bill had the central idea to protect workers. I ask, why didn't they seek to protect them before 1929? By the way, this is the same central problem in our economy today except it is worse. Now, we import everything. And yes, it is true by putting tariffs on imports we will add to inflation.
Dear Reader, this is the sin of outsourcing in the first place. When we outsourced jobs, the products that we purchased became cheaper due to cheaper foreign labor costs and currency manipulation. Now, with onshoring, the opposite economic effects take place. However, once we return to higher paying manufacturing jobs, inflation will fade. The middle class will grow again and so will social mobility. Family structure will help to stop drugs, crime and regain our schools to a level where innovation will reappear. Long-term, it is all good while long-term outsourcing is all bad. We see the results today with homelessness, unaffordable housing, no social mobility and a shrinking, dying middle class.
Now, the Federal Reserve as they usually do, made things worse. All of a sudden they cautioned against "call loans" (margin loans). They raised interest rates which had unintended consequences. International banks raised their rates in tandum to protect the outflow of money. The result was a world slowdown that hurt all economies.
Why didn't they say something about call loans during the Roaring 20s? Why didn't they raise rates to limit speculation in the market during that period? One reason is ego. The Fed in 1920 raised rates sharply to prevent inflation and the outflow of gold. Their action gave the nation a recession and deflation. They never do anything right except protect the status quo. We say, "End the Fed!"
Anyway, the month of October has a historical spell on it that is really due to farm loans. When farmers harvest in autumn, they repay seed loans from spring. If prices fall or a poor harvest, loans go bad in October. This is no longer a big deal because farmers have insurance and the size is corporate with strong financial backing. The stock market should really be looking into late February/March time period. Christmas seasonal help is let go. There is less travel and consumer spending. The weather limits construction and infrastructure. On the flipside, Christmas spending must be repaid as well as all our monthly bills. Late winter, early spring is the new October crash time. Peace
