Is President Obama As Hapless As Herbert Hoover?
July 14, 2010 by John Myers
“Herbert Hoover is the greatest humanitarian since Jesus Christ.”
The Chicago Tribune, 1928
With all due respect to Oprah Winfrey, she was not the first person to anoint a Presidential candidate as “The Chosen One.” The Chicago political machinery was doing that with regard to the father of the Great Depression—Herbert Hoover—seven decades earlier. Could it be that Oprah was just as wrong about her President? It looks that way.
Is It Live, Or Is It Memorex?
The double dip recession that became the depression of the 1930s is playing out once again. And as my mentor Chip Wood—the geopolitical editor of Personal Liberty Digest™—sometimes points out: “History might not repeat but it certainly hums.”
A whopping 8 million jobs have simply evaporated since the Crash of ’08 despite the more than $3 trillion in stimulus money, most of it courtesy of President Barack Obama. America hasn’t got much bang for the buck when you consider that the official unemployment number is almost 10 percent. And just two days ago 2 million Americans lost their unemployment checks. That number will continue to soar in July while Congress takes its vacation.
Consumer confidence continues to decline while the housing market looks to be heading off a cliff. The national mortgage delinquency rate grew to 9.2 percent in May, up 2.3 percent from a month earlier and almost 8 percent from a year earlier.
Like many Americans Allan H. Meltzer, a professor of economics at Carnegie Mellon University and the author of A History of the Federal Reserve, wanted to believe the President’s assertion during the 2010 State of the Union address that he would grow the economy. However, in the June 30 issue of The Wall Street Journal, Meltzer says that the President has done little to improve things.
“The administration’s stimulus program has failed. Growth is slow and unemployment remains high. The president, his friends and advisers talk endlessly about the circumstances they inherited as a way of avoiding responsibility for the 18 months for which they are responsible.”
Earlier this year The New Republic declared: “Barack Obama, You Remind Me of Herbert Hoover.” “It might seem ludicrous or unfair to compare Obama to one of the most vilified presidents of the last century. But to his contemporaries, Hoover had been the American most suited to be president.”
In fact Henry Ford practically gushed over the Hoover nomination. And yes, you are forgiven if it all sounds a bit familiar.
“The reason we must have a new kind of President is that we are on the threshold of a new kind of world,” said Ford. “(We need a man) who can direct and oversee and referee between all parties and keep them all busy at the main task of creating prosperity which shall be continued and equally distributed throughout the country.”
This comes from the man who once said, “History is bunk.” Perhaps it is not so surprising then that Ford adored Hoover; the man many say was a crucial cog in causing the Great Depression.
A Very Depressing Depression
I heard a lot about the Great Depression because it hit my parents so hard. They were just getting started in life and it changed them in so many ways. But even as I continue to read more on the past I am shocked at how bad things were.
From 1929 to 1933 national income in the United States reduced by half; from $88 billion to $40 billion. Output from U.S. factories fell by half and automobile production fell by 20 percent. By 1934 American steel mills were operating at just 12 percent capacity. In fact, pig iron production fell to its lowest level since 1886.
But the banking crisis is what crushed the spirit of the nation. In 1929, 659 banks failed. In 1930, 1,352 banks failed. And in 1931, 2,294 banks closed their doors.
Deflation was in full swing. Farming, still the centerpiece of the American economy was crushed. In 1930 alone farm income fell from $12 billion to $5 billion. Factories did little better. From 1929 to 1933 factory wages fell by the same totals. U.S. M2 money supply dropped from $47 billion to $32 billion.
At the depths of the downturn 1 million people in New York City were out of work. As for Chicago, there was payback to be had for backing Hoover. Times there were so bad Al Capone’s soup kitchen provided 120,000 free meals in the space of six months.
Double Dipping Dow
Most people associate The Great Depression with 1929—the year of the infamous stock market crash. Yet the worst of the Depression was in 1933. The Dow Jones Industrial Average rebounded smartly after hitting its 1929 low of 195.35 on Nov. 13, 1929. By December 9 it had bounced to 267.56—a gain of nearly 37 percent in less than a month. By April 16, 1930, the Dow had risen to 297.25—a gain of 52 percent from the 1929 lows.
Many investors thought the worst was over and piled in looking to recover losses suffered in the ’29 Crash. They couldn’t have picked a worse time. The Dow collapsed, shattering the 1929 lows. In December of 1930 the Dow finished at 154.45 on Dec. 17, 1930. The ultimate bottom was not hit until 1933 when the Industrial Average closed at 49.68 on February 27.
The Crash of 1929 was triggered by a crisis of credit similar to what we are experiencing now. In fact, one could make the argument that today’s debt implosion is even worse, encompassing not only stocks purchased on margin, but also real estate—both residential and commercial—as well as consumer credit. Credit cards weren’t around in 1929. Neither were adjustable-rate mortgages.
The Bulls claim that stocks always seem to climb a wall of worry. And until a few months ago it just looked as if they might be correct. The Obama stimulus package seemed to erase fears of deflation.
The Dow Industrial Average, which hit 6,440 in March of last year, did make a remarkable recovery. This past March the Dow was back close to 12,000. However, the Dow never did break the 12,000 mark and it has since fallen back to about 10,000. Meanwhile we seem to be slipping into a summer of discontent.
I believe we are at the edge of another depression, an economic collapse that began with the failure of Lehman Brothers.
Of course this is not what was expected to happen. Obama was supposed to usher in a new age of prosperity. Then again the New York Herald Tribune declared that Herbert Hoover’s election: “Marks an epoch in American political history… America stands at the threshold of a new era.”*
Action To Take
Sell equities in anticipation of history repeating itself. Physical gold, blue chip gold shares and a handful of resource stocks will provide protection from the storm. Do not delay in taking action. Summer will provide only temporary reprieve at best. My long-term target for the Dow Jones Industrial Average is 6,000, almost 40 percent lower than where it currently sits.
Yours for real wealth and good health,
Myers’ Energy and Gold Report
* If you want to know about the Great Depression, including its causes, I strongly recommend you pick up a copy of, The Year of the Great Crash, 1929, by William K. Klingaman, 1989, Harper & Row, New York. You can buy a new or used copy of it in hardcover at Amazon.com by clicking on the link above.