This is from Steve Christ at Wealth Daily, and he brings it to us courtesy of Marriner S. Eccles, the Chairman of the Federal Reserve from 1934 to 1948. With all the talk about the Great Depression over the last few weeks, Steve thought it would be worthwhile to get an opinion on what caused the first one. Some of this will have a familiar ring to it. In fact, it almost appears as though we’re following a script that was written by those early 20th century culprits.

In his 1951 memoir, Beckoning Frontiers, Eccles detailed what he believed caused the massive downturn in the 1930s. “As mass production has to be accompanied by mass consumption,” Mr. Eccles wrote, “mass consumption, in turn, implies a distribution of wealth – not of existing wealth, but of wealth as it is currently being produced – to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery.

“Instead of achieving that kind of distribution, a giant suction pump [like the one in Wall Street?] had by 1929-30 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants. In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellow could stay in the game only by borrowing. When their credit ran out, the game stopped.

“That is what happened to us in the twenties. We sustained high levels of employment in that period with the aid of an exceptional expansion of debt outside of the banking system. This debt was provided by the large growth of business savings as well as savings by individuals, particularly in the upper-income groups where taxes were relatively low. Private debt outside of the banking system increased about fifty percent. This debt, which was at high interest rates, largely took the form of mortgage debt on housing, office, and hotel structures, consumer installment debt, brokers’ loans and foreign debt. The stimulation to spending by debt-creation was short-lived and could not be counted on to sustain high levels of employment for long periods of time. Had there been a better distribution of the current income from the national product – in other words, had there been less savings by business and the higher income groups – we should have had far greater stability in our economy. Had the six billion dollars, for instance, that were loaned by corporations and wealthy individuals for stock-market speculation been distributed to the public as lower prices or higher wages and with less profits to the corporations and the well-to-do, it would have prevented or greatly moderated the economic collapse that began at the end of 1929.

“The time came when there were no more poker chips to be loaned on credit. Debtors thereupon were forced to curtail their consumption in an effort to create a margin that could be applied to the reduction of outstanding debts. This naturally reduced the demand for goods of all kinds and brought on what seemed to be overproduction, but was in reality underconsumption when judged in terms of the real world in stead of the money world. This, in turn, brought about a fall in prices and employment.

“Unemployment further decreased the consumption of goods, which further increased unemployment, thus closing the circle in a continuing decline of prices. Earnings began to disappear, requiring economies of all kinds in the wages, salaries, and time of those employed. And thus again the vicious circle of deflation was caused until one third of the entire working population was unemployed, with our national income reduced by fifty percent, and with the aggregate debt burden greater than ever before, not in dollars but measured by current values and income that represented the ability to pay. Fixed charges, such as taxes, railroad and other utility rates, insurance and interest charges, clung close to the 1929 level and required such a portion of the national income to meet them that the amount left for the consumption of goods was not sufficient to support the population.

“This then, was my reading of what brought on the depression.” –

And Steve ends by asking, “Now does any of that sound familiar?”

Have we learned anything from our past experiences, or have we saddled ourselves with the same kind of people – the corporate establishment – who forced the Great Depression upon us? Their thoughts and intentions are written up in today’s media for all to see. They’re not even hiding anything because they know that most of us haven’t the mental capacity to handle anything but the sports pages or the comics. We’ve been “dumbed down”, thanks to them.

Their brazen message is that if the U.S. economy eventually recovers and current trends continue, U.S. workers won’t be celebrating in the streets. The corporate establishment has made it clear that a strong recovery depends on the U.S. workers making great sacrifices in the area of wages, health care, pensions, and more ominously, reductions in what they call “entitlement programs” – what we’ve been calling, Social Security, Medicare, and other social services.

In The New York Times, for example, we read that;
– “American workers are overpaid, relative to equally productive employees elsewhere doing the same work. If the global economy is to get into balance, that gap must close.”
– “The recession shows that many workers are paid more than they’re worth … The global gap has been narrowing, but recent labor market statistics in the United States suggest the adjustment has not gone far enough.”
– And the solution offered by The Times? “Both moderate inflation to cut wages and a further drop in the dollar’s real trade-weighted value might be acceptable.”

Even the business journal, The Atlantic, is out in left field. “So how do we keep wages high in the U.S.? We don’t … U.S. workers cannot ultimately continue to have higher wages relative to those in other nations who compete in the same industries.”

You’ll notice that it’s the “American workers” that are overpaid – not the those lucky “Nearly 700 at Merrill in Million-Dollar Club”, or those on Wall Street who paid themselves bonuses of $ 1.6 billion right after the bailout “at the height of the financial crisis”.

And did you notice that the media doesn’t say a thing about putting the unemployed back to work?