I was just wondering, since Austrians and free market economists point to the Great Depression as a failure of government in helping "end" recessions, what were the measures taken by government in recessions after? Most notably the 70s, early 80s, late 90s (early 50s recessions)? I know that monetary policy generally involved cheaper interest rates and more credit, but did they ever enact big policies or fiscal stimulus to combat the recession? How long were these recessions generally? Or was government generally passive in dealing with these crisis until now?
If they did do stuff, and since we have gotten over those recessions, couldn't that be used as a rebuttal to the Austrian claim that government hurts a recession economy?
I've wanted to know this too...does anyone know this?
Nothing has changed since the great depression. The currency still suffers from the compound interest paradox. The fed will print money at interest and never print the money to pay off the interest, and it won't take property as payment on debts. This leads to an expected default rate on debts, and it causes bubbles and crashes.
The government has engaged in varying levels of intervention since the Great Depression. The Federal Reserve has bailed out big banks dozens of times. For the most part, fiscal activity has been somewhat limited. During the closest recession to the Great Depression we've had, Reagan lowered taxes, deregulated, and Volcker instituted a disinflationary monetary policy.
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There's no such thing as a "compound interest paradox." The Fed regularly monetizes the government's debt, which is a source for interest-free money.
Obviously there is. It is simply constantly avoided. And don't the banks loans + multiplier effect which leads to more loans mean that the interest-free money is sessentialy overwhelmed by the debt?
I'm not saying i know for sure, just asking.
Since you are asserting there is no such thing as the compound interest paradox, do you agree that if national debt was paid off with a 0% default rate that our economy would be fine? Its my assertion that we would not be fine and in fact a lot of people would die. All I meant by compound interest paradox is that the fed must always increase the speed at which it prints money/buys government debt.
bigwig:Obviously there is. It is simply constantly avoided. And don't the banks loans + multiplier effect which leads to more loans mean that the interest-free money is sessentialy overwhelmed by the debt? I'm not saying i know for sure, just asking.
twistedbydsign99:Since you are asserting there is no such thing as the compound interest paradox, do you agree that if national debt was paid off with a 0% default rate that our economy would be fine? Its my assertion that we would not be fine and in fact a lot of people would die. All I meant by compound interest paradox is that the fed must always increase the speed at which it prints money/buys government debt.
In order for the "compound interest paradox" to be true, the Federal Reserve would have to print significantly more interest bearing money than it prints non-interest bearing money. That means that the Fed would have to use the discount window extensively. Reality, however, is different. The primary tool that the Fed uses to control the money supply is open market operations. Open market operations are flooding the market with liquidity by buying privately held government debt. The Fed then monetizes (excuses) that debt. This is the creation of non-interest bearing money. The discount window is rarely ever used. On the rare occasion that it is used, it is usually used for bailing out banks with bad asset sheets, since the Fed's discount rate is often lower than the interest rate other financial institutions would charge the failing bank.
The "compound interest paradox" would be true if the Fed stopped purchasing treasury notes and used the discount rate for about 100 years or so and then called in all of its loans.
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