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Old 11-22-2008, 05:37 AM
 
11,127 posts, read 12,652,436 times
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I ran across this piece while out hangin 2x5 on the www, and I don't normally give much weight to any single financial piece as it seems many are little more than guesswork at this point. In the case of this piece, I find myself thinking, yeah, this is plausible but other things are just too much to get my mind around.

In any event, Proof #3 in this piece discusses the need for people to actually spend money, to get money flowing, markets trading, etc... I see the logic to this but would like to hear other folks thoughts on this matter.

Why Washington Cannot Prevent Depression | Money and Markets: Free Investment Email Newsletter

At the time, President Hoover stated, “Gentlemen, when you go back home to your factories and your offices, here’s what I want you to do. I want you to keep all your workers. Don’t lay any off! I want you to keep your factories going. Don’t shut any down! I want you to invest more, spend more, even borrow more if you have to. Just don’t do any cutting. So we can keep this economy going.”

To which the result was, “If the president himself had to call us down to Washington to lecture us on how to run our business, then this economy must be in even worse shape than we thought it was.”

Quote:
They promptly proceeded to do precisely the opposite of what Hoover had asked: They laid off workers by the thousands. They shut down factories. They slashed spending to the bone.

And today, we’re beginning to see precisely the same phenomenon
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Old 11-22-2008, 05:42 AM
 
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So, is this just a matter of confidence in the market or just plain greed?
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Old 11-22-2008, 06:24 AM
 
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Originally Posted by PG77 View Post
So, is this just a matter of confidence in the market or just plain greed?
Good grief, I don't even attempt to contemplate all the aspects of the overall, why and how, and what to do's. In the part I was specifically referring to though, it seems to go completely against our natural instincts to borrow and to spend when a crisis looms. Yet it very well may be what is needed most.

Not entirely convinced of this, but I also see the logic to it and it seems plausible to me.
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Old 11-22-2008, 06:28 AM
 
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I apologize if I didn't answer your post the way you would have liked.
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Old 11-22-2008, 06:51 AM
 
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Originally Posted by PG77 View Post
I apologize if I didn't answer your post the way you would have liked.
Not at all, as truth is, I don't have a clue and if I were to venture a guess, I would say, both.
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Old 11-22-2008, 06:55 AM
 
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Originally Posted by TnHilltopper View Post
Not at all, as truth is, I don't have a clue and if I were to venture a guess, I would say, both.
Yeah, I guess I just like to get to the root of problems.
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Old 11-22-2008, 08:06 AM
 
Location: Florida
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If we all did keep spending, obviously it would help.
Problem is, who wants to go first?
If everybody doesn't, same as staying in the stock market....if everybody doesn't, those that do are screwed.
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Old 11-22-2008, 08:27 AM
 
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Originally Posted by TnHilltopper View Post
In the part I was specifically referring to though, it seems to go completely against our natural instincts to borrow and to spend when a crisis looms. Yet it very well may be what is needed most.
I'm not sure about instincts but it is sound economic sense that the only way to reverse a downturn in the economy is through economic stimulus, borrowing and spending. Paul Krugman pointed out to George Will that the only downturn in the economy during the depression came when Roosevelt listening to his critics attempted to balance the Federal budget. It was only through vast government spending that the Depression was ended.
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Old 11-22-2008, 11:26 AM
 
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Originally Posted by ovcatto View Post
I'm not sure about instincts but it is sound economic sense that the only way to reverse a downturn in the economy is through economic stimulus, borrowing and spending. Paul Krugman pointed out to George Will that the only downturn in the economy during the depression came when Roosevelt listening to his critics attempted to balance the Federal budget. It was only through vast government spending that the Depression was ended.

Well when you talk to the average John Q Citizen on the street while in the midst of an economic meltdown where people are even mentioning things like severe recession or depression, then tell them to spend some more. I believe most people naturally want to cling to their savings like grim death and I think it is only natural that folks will start pinching pennies. I guess we could say the bright side of this is that most American's don't even have savings and are forced to spend or use credit. Of course that is actually pretty sad really.
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Old 11-22-2008, 12:00 PM
 
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Originally Posted by TnHilltopper View Post
Well when you talk to the average John Q Citizen on the street while in the midst of an economic meltdown where people are even mentioning things like severe recession or depression, then tell them to spend some more.
I don't think that I was advocating the Hoover/Bush plea to go out shopping. My point is that when the government begins to pump money in tangible production, say construction that money follows back into the pockets of those John and Jane Q citizen. Eventually those credit cards get paid off, and disposable income increases.

The Fed can't stop a from happening recession but it can keep it from entering a depression. In many ways it already has.
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