# Who benefits from another Depression? **URL:** \ **Category:** Great Debates\ **Created:** [October 29, 2011, 4:44pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199 "2011-10-29T16:44:49Z")\ **Posts on this page:** 20\ **Page:** 1
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [October 29, 2011, 4:44pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/1 "2011-10-29T16:44:49Z")
From an article entitled, “[DOOM! Our economic nightmare is just beginning](http://www.tnr.com/article/economy/magazine/94963/economic-doom).” in the Oct. 6 issue of The New Republic: > [@](#): > > in the wake of the battle over raising the debt ceiling and Standard & Poor’s decision to downgrade America’s credit rating, [Romney] has come to Concord, New Hampshire, to speak to the local Chamber of Commerce. Beforehand, he agreed to answer a few questions from reporters. > Romney endorsed the congressional Republican plan, dubbed “cut, cap, and balance,” which would slash $111 billion from next year’s budget, reduce federal spending as a percentage of GDP from 22.5 to 19.7 percent in six years, and adopt a balanced budget amendment to the Constitution. The plan represents an attempt to achieve private-sector prosperity through public-sector austerity. > > “Mr. Romney,”… “I want to ask you something about history. you know, when Herbert Hoover had to face a financial crisis and then unemployment, his strategy was to balance the budget and cut spending, and that made things worse. When Roosevelt came in, unemployment was twenty-five and went to fourteen percent by 1937. With deficits. Aren’t you repeating the Hoover mistake?”… “Do you really think so?” he asked… > > “Let’s go back to the Hoover days,” Romney began. “The issue in the Hoover years was what was happening in the budget that year. This year, we are spending $1.6 trillion more than we take in, and that would have made anyone in either party blush if they saw numbers like that. And the issue today is not just this year’s deficit, it’s deficits as far as the eyes can see… America has to rein in the excessive spending not just this year, but over a long period of time.” > > … he seemed to be suggesting that the premise of my question was flawed because deficits are much larger today and wll probably continue unabated. And they _are_ larger- but that is because our GDP and government are also larger. Meanwhile, if our deficits stretch “as far as the eyes can see,” so did the deficits in Hoover’s day, which continued unabated for 16 years. Romney was insisting that there was nothing to be learned from Hoover’s response to the Great Depression. But, in fact, what happened in the United States and Europe in the '30s in an excellent- perhaps, the best- guide to what is happening to us now. The article then points out other leaders like David Cameron, Angela Merkel and Japan’s prime minister Yoshihiko Noda who are currently going down the austerity path. This is contrasted with Obama’s plans which generally follow the Keynesian approach, but we all know how Obama’s plans turn out lately- he can’t get anything passed. As the article’s title suggests, the author thinks this is very bad, and he continues: > [@](#): > > Unless there is a fundamental-and difficult-to-imagine- change in the way our politics interacts with our economy, the United States and much of the world are headed for a very grim future. You get the point- he is warning that repeating the mistakes of the past will lead to the results of the past, namely another Depression. My feeling is that top leaders who propose/apply austerity know where that will lead. Am I wrong in thinking that world leaders are familiar with economic history? If they know what they are doing and are purposefully leading us into another Depression, ITSM they must be motivated by that being of benefit to _somebody_. Who benefits from another Depression? Or are they simply unfazed by the prospect of another Depression? What explains their behavior? ---
**Author:** ![Terr](https://avatars.discourse-cdn.com/v4/letter/t/839c29/32.png) [@Terr](https://boards.straightdope.com/u/Terr)\ **Post date:** [October 29, 2011, 5:12pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/2 "2011-10-29T17:12:25Z")
> [@Try2B\_Comprehensive](#): > > You get the point- he is warning that repeating the mistakes of the past will lead to the results of the past, namely another Depression. There is another saying in financial circles. “Past performance does not guarantee future results”. ---
**Author:** ![smiling\_bandit](https://avatars.discourse-cdn.com/v4/letter/s/e9a140/32.png) [@smiling\_bandit](https://boards.straightdope.com/u/smiling_bandit)\ **Post date:** [October 29, 2011, 5:26pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/3 "2011-10-29T17:26:34Z")
The idea that Hoover was some kind of budget-conscious conservative is also rather nuts. He embarked on a rather ambitious welfare scheme - a large and very fast expansion of the budget. Never was clear where that myth came from. ---
**Author:** ![Der\_Trihs](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/der_trihs/32/233_2.png) [@Der\_Trihs](https://boards.straightdope.com/u/Der_Trihs)\ **Post date:** [October 29, 2011, 9:30pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/4 "2011-10-29T21:30:31Z")
> [@Try2B\_Comprehensive](#): > > If they know what they are doing and are purposefully leading us into another Depression, ITSM they must be motivated by that being of benefit to _somebody_. Who benefits from another Depression? The rich for one. It hurts them relatively much less, while increasing their power. People desperate for a job will put up with less pay, worse treatment, worse conditions. And since money largely equates to political power, them being the only ones with a significant amount left increases their power relative to those who have none left to spare. Another group that would benefit would be the “starve the beast” anti-government fanatics, who have been pushing for many years for massive debt and economic disaster in order to starve the government of revenue and force it to drastically shrink. They don’t care about the suffering involved or the other consequences; that’s what makes them fanatics. The evangelical Christians who think that suffering and despair are good things because they promote faith. ---
**Author:** ![gonzomax](https://avatars.discourse-cdn.com/v4/letter/g/e8c25b/32.png) [@gonzomax](https://boards.straightdope.com/u/gonzomax)\ **Post date:** [October 29, 2011, 9:46pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/5 "2011-10-29T21:46:11Z")
It would hurt the country. The rich have ways to survive. The rest of us don’t. An austerity program would be an economic death spiral. There is no bottom and no up once gutting starts. The tax base shrinks with every job cut and every home lost. We need demand. More people paying taxes will balance the budget. Cutting will shrink the economy, result in more jobs slashed and a steady drop in America’s economy. It will cut demand and the impetus to hire. That in turn will cut more demand. An austerity program would be a disaster taking millions of Americans down. It would keep the rich ensconced in their gated communities, safe , for a while. This could end the American experiment. ---
**Author:** ![Linden\_Arden](https://avatars.discourse-cdn.com/v4/letter/l/53a042/32.png) [@Linden\_Arden](https://boards.straightdope.com/u/Linden_Arden)\ **Post date:** [October 29, 2011, 9:54pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/6 "2011-10-29T21:54:58Z")
Anyone with liquidity who wants to buy distressed assets benefit during a Depression. The Fox Theatre in Atlanta cost $2.75 million to build and opened in 1929. After the owners declared bankruptcy in 1932 it was auctioned. The winning bid was $75,000. The Fed exacerbated the Depression then with a tight monetary policy. Interest rates were raised to over 5%. Today they know better. ---
**Author:** ![Wesley\_Clark](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/wesley_clark/32/20581_2.png) [@Wesley\_Clark](https://boards.straightdope.com/u/Wesley_Clark)\ **Post date:** [October 29, 2011, 9:56pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/7 "2011-10-29T21:56:06Z")
I can’t find the entire article online, and am not subscribed to the new republic. But I would guess it is just short sightedness on the part of politicians and the public who elect them. We ignore climate change for the same reason. Plus is there a unanimous consensus among economists that the concept of austerity will lead to more depression? Seeing how most didn’t seem to see the current depression coming (if there were alarm bells coming from economists before 2007, I don’t remember hearing them en masse), it makes them seem less credible. Plus there are serious risks to constantly spending and borrowing. Where is all the borrowed money going to come from (ie, can you continue to borrow trillions year after year? Eventually people will realize you won’t pay it back and raise interest rates). I am not an economist, but if the US is borrowing 1.6 trillion a year, Europe is running deficits of roughly 10% of GDP too. If a country gets too deep in debt that does have serious problems in and of itself. But who wins? Whoever has cash to buy resources that are being sold off cheap. Around now is probably a good time to invest in real estate. China used its cash reserves to buy up a lot of natural resources back in 2008 and 2009, since nations were desperate for money. I don’t remember the details, but they cut some pretty good deals with nations like Russia where in exchange for money now, China would get oil at a discount for decades. So the only people who win are those with liquid assets who want to invest and hold onto the investments for when the economy recovers. ---
**Author:** ![SeldomSeen](https://avatars.discourse-cdn.com/v4/letter/s/7ba0ec/32.png) [@SeldomSeen](https://boards.straightdope.com/u/SeldomSeen)\ **Post date:** [October 29, 2011, 10:34pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/8 "2011-10-29T22:34:32Z")
Who benefits from a depression? The individuals and companies with a low debt load and strong cash position going in. People who are holding durable assets and are able to hang onto them for the duration. A depression drives down labor costs and lowers the purchase price of long-term investment items such as real estate, and drives out weaker competitors - and those who are able to take advantage of lower investment costs and hold out until the inevitable turnaround will ultimately be in a far better position. One surprising thing about the current recession is that the agricultural sector has stayed very strong. Commodity prices have remained relatively high, demand, especially for exports, has stayed strong, labor costs have not increased for several years, and the value of agricultural real estate has stayed at pre-recession levels (unlike, say, residential property). Those farmers and rural landowners who have kept their debt low and reinvested in their operation stand to do very well indeed. The people who can afford to buy low during a recession/depression, then hold their assets and eventually sell high will come out of the current situation stronger and richer than ever. SS ETA: Or what **Wesley Clark** posted as I was typing. ---
**Author:** ![Trinopus](https://avatars.discourse-cdn.com/v4/letter/t/2bfe46/32.png) [@Trinopus](https://boards.straightdope.com/u/Trinopus)\ **Post date:** [October 30, 2011, 2:18am UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/9 "2011-10-30T02:18:24Z")
Also, some specialized investors make a lot of money trading in “negative numbers.” I remember, some years ago, people making millions of dollars (of real money!) in swapping around Brazilian debt futures. It’s a little like making a bet on which race-horse comes in last in a specific race: the owner, trainer, and jockey are in a world of hurt…but they guy making the bet comes out smiling. Trinopus ---
**Author:** ![Terr](https://avatars.discourse-cdn.com/v4/letter/t/839c29/32.png) [@Terr](https://boards.straightdope.com/u/Terr)\ **Post date:** [October 30, 2011, 4:45am UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/10 "2011-10-30T04:45:47Z")
> [@Trinopus](#): > > Also, some specialized investors make a lot of money trading in “negative numbers.” I remember, some years ago, people making millions of dollars (of real money!) in swapping around Brazilian debt futures. It’s a little like making a bet on which race-horse comes in last in a specific race: the owner, trainer, and jockey are in a world of hurt…but they guy making the bet comes out smiling. “Specialized”? Anyone can do it, for any equity (or option, or futures contract) you can go either short or long. And any investor with any degree of sophistication goes short at least once in a while to hedge his gains. There is nothing wrong with that. Of course, if you decide to go naked short, and there is a sudden rally, you can get wiped out - but that’s the market for you. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [October 30, 2011, 11:10am UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/11 "2011-10-30T11:10:07Z")
> [@Try2B\_Comprehensive](#): > > Who benefits from another Depression? Hollywood (or its equivalent), eventually. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [October 30, 2011, 11:22am UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/12 "2011-10-30T11:22:23Z")
> [@smiling\_bandit](#): > > The idea that Hoover was some kind of budget-conscious conservative is also rather nuts. He embarked on a rather ambitious welfare scheme - a large and very fast expansion of the budget. Never was clear where that myth came from. [From somewhere in here:](http://en.wikipedia.org/wiki/Herbert_Hoover#Great_Depression) > [@](#): > > Calls for greater government assistance increased as the U.S. economy continued to decline. Hoover rejected direct federal relief payments to individuals, as he believed that a dole would be addictive, and reduce the incentive to work. He was also a firm believer in balanced budgets, and was unwilling to run a budget deficit to fund welfare programs.[43] However, Hoover did pursue many policies in an attempt to pull the country out of depression. In 1929, Hoover authorized the Mexican Repatriation program to combat rampant unemployment, reduce the burden on municipal aid services, and remove people seen as usurpers of American jobs. The program was largely a forced migration of approximately 500,000 Mexicans and Mexican Americans to Mexico, and continued until 1937. In June 1930, over the objection of many economists, Congress approved and Hoover signed into law the Smoot–Hawley Tariff Act. The legislation raised tariffs on thousands of imported items. The intent of the Act was to encourage the purchase of American-made products by increasing the cost of imported goods, while raising revenue for the federal government and protecting farmers. However, economic depression now spread through much of the world, and other nations increased tariffs on American-made goods in retaliation, reducing international trade, and worsening the Depression.[44] ---
**Author:** ![Jonathan\_Chance](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/jonathan_chance/32/701_2.png) [@Jonathan\_Chance](https://boards.straightdope.com/u/Jonathan_Chance)\ **Post date:** [October 30, 2011, 5:23pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/13 "2011-10-30T17:23:59Z")
> [@Terr](#): > > “Specialized”? Anyone can do it, for any equity (or option, or futures contract) you can go either short or long. And any investor with any degree of sophistication goes short at least once in a while to hedge his gains. There is nothing wrong with that. Of course, if you decide to go naked short, and there is a sudden rally, you can get wiped out - but that’s the market for you. Flag on the play. Just a small one. While it’s true that the use of options, both puts and calls, can and is used by a wide variety of people and investors it would be at least a bit over the top to say anyone can do it. There are generally certain requirements to quality for a broker dealer certification on margin accounts. They are not terrible stringent but there are some. - Jonathan Chance, FA, Ser7 ---
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [October 30, 2011, 10:31pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/14 "2011-10-30T22:31:17Z")
From [Rich People Create Jobs! and five other myths that must die for our economy to live](http://motherjones.com/politics/2011/10/charts-economic-myths-jobs-deficit-taxes): > [@](#): > > Only an Idiot Turns Down Free Money > > The real answer to future deficits is to spend money now to get the economy growing again. Yields on federal bonds are at record lows. That means, as University of California-Berkeley economist J. Bradford DeLong has calculated, that the government could inject a big stimulus into the economy at an unbeatably low price: Spend $1 trillion but (because of low interest rates and the tax revenue from a faster-growing economy) borrow only $400 billion. Act now! > > Estimated short-term economic impact from $1 of government speding: **$1.50** > Estimated short-term economic impact from $1 trillion of spending: **$1.5 trillion** > Estimated resulting short-term increase in tax revenue: **$600 billion** > Due to boost to tax revenue, amount US actually has to borrow long-term: **$400 billion** > Cost of borrowing $400 billion by issuing 30-year bonds at 2% interest: **$640 billion** > Cost to government for each 1 of economic impact: \*\*.043\*\* That’s the Keynesian view. It appears Romney/The GOP would prevent such returns on taxpayers’ money since gains for the public don’t always translate to gains for the top. ---
**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\ **Post date:** [October 31, 2011, 2:51am UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/15 "2011-10-31T02:51:20Z")
> [@Try2B\_Comprehensive](#): > > From [Rich People Create Jobs! and five other myths that must die for our economy to live](http://motherjones.com/politics/2011/10/charts-economic-myths-jobs-deficit-taxes): > > The real answer to future deficits is to spend money now to get the economy growing again. Yields on federal bonds are at record lows. That means, as University of California-Berkeley economist J. Bradford DeLong has calculated, that the government could inject a big stimulus into the economy at an unbeatably low price: Spend $1 trillion but (because of low interest rates and the tax revenue from a faster-growing economy) borrow only $400 billion. Act now! > > Estimated short-term economic impact from $1 of government speding: $1.50 > Estimated short-term economic impact from $1 trillion of spending: $1.5 trillion > Estimated resulting short-term increase in tax revenue: $600 billion > Due to boost to tax revenue, amount US actually has to borrow long-term: $400 billion > Cost of borrowing $400 billion by issuing 30-year bonds at 2% interest: $640 billion > Cost to government for each 1 of economic impact: .043 Has someone got a decimal place wrong? It looks to me as if the cost of $1 of economic impact is $0.43 ($640 bn divided by $1.5 trillion). And why use a 2% interest rate for 30 year bonds? I am not sure that yields have ever been that low. Even in the current very low interest rate era, the yield on 30-year bonds is 3.36% Strangely, when I calculate the cost of borrowing $400bn over 30 years at 3.36%, I get $640bn - exactly the amount quoted for a 2% rate. ---
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [October 31, 2011, 11:38am UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/16 "2011-10-31T11:38:15Z")
> [@amarone](#): > > Has someone got a decimal place wrong? It looks to me as if the cost of $1 of economic impact is $0.43 ($640 bn divided by $1.5 trillion). Oops. Should have been $0.43, you are right. > [@](#): > > And why use a 2% interest rate for 30 year bonds? I am not sure that yields have ever been that low. Even in the current very low interest rate era, the yield on 30-year bonds is 3.36% Strangely, when I calculate the cost of borrowing $400bn over 30 years at 3.36%, I get $640bn - exactly the amount quoted for a 2% rate. That’s a good question too. Maybe they meant to suggest borrowing at the Fed’s rate. Or maybe they are talking about ‘real rates’- in the section before these charts the author points out: > [@](#): > > As I’m writing this, 10-year real treasury yields are at 0.00 percent. The seven year rate is actually negative I gotta go, I’ll try to figure it out later. ---
**Author:** ![amarone](https://avatars.discourse-cdn.com/v4/letter/a/e0b2c6/32.png) [@amarone](https://boards.straightdope.com/u/amarone)\ **Post date:** [October 31, 2011, 11:42am UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/17 "2011-10-31T11:42:31Z")
> [@Try2B\_Comprehensive](#): > > Or maybe they are talking about ‘real rates’. That would make sense - it gives a better number for the true cost than using nominal rates. 2% would then be conservative. ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [October 31, 2011, 12:24pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/18 "2011-10-31T12:24:41Z")
Look, is there really a subset of the PTB sitting in a boardroom somewhere saying, “A Depression would be good for **our** interests, how do we bring it about?” ---
**Author:** ![Try2B\_Comprehensive](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/try2b_comprehensive/32/65_2.png) [@Try2B\_Comprehensive](https://boards.straightdope.com/u/Try2B_Comprehensive)\ **Post date:** [October 31, 2011, 2:03pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/19 "2011-10-31T14:03:35Z")
> [@BrainGlutton](#): > > Look, is there really a subset of the PTB sitting in a boardroom somewhere saying, “A Depression would be good for **our** interests, how do we bring it about?” PTB? What does the Worker’s Party of Belgium have to do with this? ---
**Author:** ![BrainGlutton](https://avatars.discourse-cdn.com/v4/letter/b/82dd89/32.png) [@BrainGlutton](https://boards.straightdope.com/u/BrainGlutton)\ **Post date:** [October 31, 2011, 2:10pm UTC](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199/20 "2011-10-31T14:10:08Z")
> [@Try2B\_Comprehensive](#): > > PTB? What does the Worker’s Party of Belgium have to do with this? Those fools are deluded dupes of the **Dutch,** I tells ya! :mad: [Next page](https://boards.straightdope.com/t/who-benefits-from-another-depression/601199.md?page=2)