If you don't understand American history then you don't understand where we are today. You know America's been around a while, over two centuries. We Americans have done many things. We've had a lot of challenges. We've done some things right and some things wrong. And we learn from that. All human beings are supposed to learn from their experiences. And it's important to do it. So it's first and important to know the facts.
A lot of talk about this economy, the Great Depression and so forth. And history can help us. Now there's been this myth that goes on and on, it's taught in the public schools, even one of the dufus' in talk radio was talking about this once; about how the Great Depression came to be and the myth is, all these people buying on margin, buying stocks on margin, and there was a recession, and because they couldn't get their money out of the banks to pay their margin calls the stock market collapsed and everything went from there. THAT is what you're taught in schools. THAT IS A LIE BECAUSE IT'S ONLY A PIECE OF THE PUZZLE . You actually have to go before the stock market crash of 1929 to understand what happened because it didn't just crash because of a recession, stock markets don't just crash because of a recession. The Great Depression actually didn't START in 1929 with the stock market crash. The stock market crash was a symptom of terrible policies, government policies, federal government policies that extended and deepened what had been a relatively routine recession.
And the New Deal as Franklin Roosevelt called it actually was started under Herbert Hoover although he didn't call it the New Deal. THAT began before 1929 as well, and before FDR's election to the presidency. In 1928 the Federal Reserve board severely cut the money supply in the face in the teeth of a recession. The discount rate to banks, that is the cost TO banks to loan money and make it available to consumers in business, was increased 4 times from 3 ½% to 6% in an 18 month period! The money supply, that is the money spicket that the government turns on and off through the printing press, shrank 30% over the next 3 years. In other words the hands around the throat of the economy kept tightening and tightening and tightening as a result of government policy.
The Federal Reserve was monumentally incompetent. By slashing the money supply it caused the economy to contract. So while some investors saw what was going on with the money supply and got out of the stock market just before the crash of October 29, most did not. There was a massive dumping of stocks on what became known as Black Thursday. But that's not all…
In June of 1930 the Hoover administration urged Congress to pass the Smoot-Holly tariff. This came on top of a tariff that was passed in 1922, the Ford-Neimacumber tariff, which had already started destroying the nations agricultural economy. These acts slammed the door on the importation of foreign produce and goods, igniting an international trade war the world had never seen before.
The recession turned into a depression. And under Smoot-Holly tariffs actually INCREASED during the depression. Foreign governments blocked American exports which meant there was nowhere to sell American goods. In 1930 and 1931, Federal spending soared! With hundreds of millions of dollars in subsidies being paid to farming.
Congress passed another law called the reconstruction finance corporation, which distributed hundreds of millions of dollars, which today would be in the billions but, it was back then. So they distributed hundreds of millions of dollars to businesses. I'm not done.
In 1932 Hoover signed the Revenue Act. It was the largest TAX INCREASE IN PEACE-TIME HISTORY! DOUBLING income tax rates. The top bracket jumped even more, from 24% to 63%!!! Soak the rich! And so we have… So we have a mixed bag of monumentally bad decisions. With economy contracted the government grew, you have a relative handful of politicians and bureaucrats trying to figure out how to get out of it. What do they do? They cut off the country to International Trade. They massively raise taxes. They tighten the money supply. While at the same time they're subsidizing certain targeted businesses. And certain targeted parts of the economy. It doesn't work. Not only didn't it work, but it created the Great Depression.
Herbert Hoover, said to be a free-market Republican, he was never a free-market Republican. He oversaw the most massive intervention in the American economy of any president before Franklin Roosevelt. And when FDR first ran for President he was governor. And when he first ran for President he called for a 25% cut in taxes. A balanced budget. The end of government intervention in much of the marketplace. And an end to Hoover's farm subsidies. And then when he came to office, he took the Hoover plan and shot it with an overdose of steroids.
He (FDR) increased taxes even more. He massively increased subsidies to certain industries. The trade barriers were higher and wider than ever before. But FDR saw it as an opportunity to build a political force. So they passed union laws which increased wages and benefits for a very small percentage of workers because the unemployment rate at the height of the depression during FDR's administration was 23-24%. The recession became a depression. The recession lasted 3 times longer than any recession in American history. It became a depression and it lasted for 7 years. Nothing Hoover did, or FDR did, ended the depression.
Quite the contrary they made it severe. The misery was awful. People lost everything. The man who founded General Motors, while General Motors survived, he lost everything on the stock market. EVERYTHING! As did many others. One of the men who got out just in time was Joe Kennedy Sr, Ted Kennedy's father. Barnard Beruke was another. There were some who saw on the horizon the tightening of money in a recession, the tariffs going up and they said, No, I've got to get my money out of the stock market.
That's the history that most of you have not been taught. You're taught that it's a failure of the free market. Well you know the free market has ups and downs like everything else. Everybody can't be successful all the time. And that's how success develops. It's a dynamic system. The free market system. But when the government intervenes it becomes worse. And when those who intervene don't know what they're doing it becomes worse….
As transcribed from the November 17th episode of the Mark Levin Show.
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