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Friday, March 26, 2010

A Short History of Government Stimulus Spending and Economic Prosperity in the 20th Century

To be able to critically analyze economic probabilities, one needs to know the history of previous similar situations. For the first 125 years of our county we had no Federal Reserve Bank and no income tax. We also had virtually no inflation and the average economic downturn lasted only 10 months.
In late 1913 the Federal Reserve Bank (FED) was created. It made it possible for the government to create money out of thin air. Also a permanent income tax was passed.
From 1915 to 1920 inflation was over 75%. Since 1915 there has been over 340% inflation according to government statistics.
By 1920-21 the USA experienced the greatest economic downturn and depression in US history. Our economy contracted by 21% in one year putting millions out of work.
What caused this? Among other things, the Federal Reserve Bank became the vehicle to borrow and create money to fund WW I along with a Federal income tax and many new regulations on businesses.
What did President Harding’s administration do to get out of this depression left by President Wilson? Government spending in 1922 alone was slashed by 34%. They reduced taxes on businesses and individuals from 73% to 24%. They also repealed a lot of the costly government bureaucratic regulations on businesses. The result was a huge increase in tax revenues and prosperity, as has always happened when government intervention in the economy is reduced.
We had the roaring twenties, the time of the greatest economic and technical improvement in the standard of living of the American people in our history. Also there were government budget surpluses every year and much of the WWI debt was paid off...

Source: James Davis, in the WNC Sentinel (go read the rest of the column)
Related: WNC Sentinel on Facebook
Related: Survial Blog
Related: The Survival Podcast


I am beginning to think that there is nothing we can do to prevent an economic disaster of biblical proportions from striking this nation, something that will be greater than the Great Depression. The Greater Depression, perhaps? 

I'm not advocating that you do something stupid like buy overpriced Gold or Silver. I suggest that you do something practical, like start a garden. You'd be surprised at how much food you can grow in a relatively small amount of space. It also wouldn't hurt to start a stockpile of items that might come in handy if cash got a little short.