By: Mary Mostert, Analyst, Original Sources
As I watched young financial experts and reporters watching the 512 point drop in the stock market yesterday, their eyes first were registering surprise, then confusion, and then an growing fear. Most of them had not experienced much of any direction in stock but up since graduating from college with pieces of paper that proclaimed them to be "experts" in business.
We are living in an age of incredible naivete about economic factors. Nothing better illustrates that naivete than the oft repeated declaration among many Americans during the past few years than, "I don't care about Bill Clinton lying or his private sex life, as long as the economy is good."
What does that mean? We have heard it repeated almost like a mantra for months now by media supporters of Bill Clinton. Did, somehow, the economy miraculously change overnight in November 1992 from the "worst recession since the 1930s" (Clinton's campaign notion) to his being the one responsible for a booming economy from 1993-1998? If so, how'd he do it?
And, if, as it appears, we are experiencing a dramatic drop in the stock market, what, exactly, did he do to cause the precipitous drop in the stock market in the past few days? And, just exactly how is the US Stock market being affected, by the Russian turmoil? It is obvious that nations throughout the world - Indonesia, Russia, Maylasia, Japan, nations in Africa, Latin America and Europe are all experiencing some real economic instability. Why?
While popular wisdom today says that it is impossible for America to go through another debilitating "Great Depression" obviously the editors of some of the national tabloids don't agree. This week the headlines are screaming about a coming "great depression." Perhaps we ought to look at some of the similarities between the 1920s and the 1990s.
In early Spring of 1998, Alan Greenspan's outlook for 1998 warned of "storm clouds ahead due to the Asian crisis. He warned that the outlook for 1998 in America was "uncertain." He warned of three danger areas (1) Banks making bad loans, because money was plentiful (2) possible problems in the USA role in "the new high-tech international financial system and (3) complacency about inflation.
All of the danger spots are exacerbated by speculation. And, speculation is exactly what we have been watching of late. As Pat Buchanan discussed last night, the IMF gave Russia $5 billion to prop up its ruble back in July and that money simply disappeared, half into highly speculative ventures headed by Yeltsin's friends with much of it ending up in Swiss bank accounts owned by Yeltsin friends. Should we now extend even more loans to Russia when it has shown it hasn't the government structure or the simple honest needed to use the loans properly?
What happened to the billions we poured into Indonesia, Japan and other Asian markets? In October 1997, the Malaysian government blamed currency speculation for the collapse of its currency.
It all remarkably reminds me of what happened in the early 1930s as the Great Depression got under way. And what caused that depression? Of course, Franklin Roosevelt and the Democrats claimed during the 1932 election campaign that it was caused by Herbert Hoover. So effective was that campaign slogan that to this day most Americans have the notion that somehow Herbert Hoover was the culprit. Using the same logic, undoubtedly now they will blame all of the stock market crashing around the world on Bill Clinton?
Not likely.
Oddly enough, Herbert Hoover believed, as does Alan Greenspan, that the main factor in stock market debacles is speculation - such as that of the 1920s. Hoover said about the worldwide depression that was settling in during his first year in office, "During the past 12 months we have suffered with other Nations from economic depression. The origins of this depression lie to some extent within our own borders through a speculative period which diverted capital and energy into speculation rather than constructive enterprise. Had over-speculation in securities been the only force operating, we should have seen recovery many months ago, as these particular dislocations have generally readjusted themselves.
"Other deep-seated causes have been in action, however, chiefly the world-wide overproduction beyond even the demand of prosperous times for such important basic commodities as wheat, rubber, coffee, sugar, copper, silver, zinc, to some extent cotton, and other raw materials."
Hoover went on to say, in 1930, something usually associated with FDR, "In the larger view the major forces of the depression now lie outside of the United States, and our recuperation has been retarded by the unwarranted degree of fear and apprehension created by these outside forces." Three years later FDR said something very similar, after creating absolute economic terror during the 1932 election campaign, by demonizing Herbert Hoover, "The only thing we have to fear, is fear itself."
In 1998, the forces of depression, which are already hitting nation after nation, are even more outside the United States. In Shanghai, for years the symbol of booming capitalism, 20% of the worlds construction cranes were kept busy building skyscrapers. Today 80% of the incredible amount of office space is empty. So-called "miracle economies" of Asia, have been propped up by over $100 billion in emergency bailout funds in the past year.
Over-building of office space as the world moves away from needing high rise office space probably wasn't a very smart move on the part of the investors involved. The rapid change in commerce as the information age becomes firmly establish will inevitably create economic glitches. And, quite probably we are going into a period of worldwide recession. But we can work harder and smarter, pare back our greed a little bit and eventually pull out of it. America's Savings and Loan crisis of the 1980s may become a global Banking Crisis in the late if the $100 billion in IMF loans to various foreign governments are not repaid.. It, too, can be solved.
However, if we repeat the worst mistakes of the past, we can and will lengthen and deepen the recession to a depression. Contrary to what is commonly believed, that is exactly what FDR and the Democrats did in the 1930s depression. In their exuberance to snatch the White House out of the hands of the Republicanis, who had surrendered the White House to only two Democrats in sixty eight years, FDR led a campaign that literally scared the daylights out of an entire generation of people. Then he tried to un-scare them by saying that the only thing they had to fear was fear itself.
The end result of deep-seated fear was a generation that, to this day, those that are left, are STILL waiting for the next depression and acting accordingly. It took twenty five years and World War II before the stock market recovered its 1929 level. Part of the slow recovery was caused by strangling business expansion, especially the new radio industry, by government anti-trust actions that eventually caused Radio Corporation of America (RCA) to lose 97% of its value and lay off thousands of workers.
Newt Gingrich is showing real leadership in his efforts to keep the Clinton Justice Department from harassing Microsoft and Bill Gates. If computer and internet technology is slowed or stopped by the same kind of ill-conceived anti-trust actions that nearly destroyed RCA, we will have a serious depression. Bill Gates has created hundreds of thousands, millions of jobs worldwide - including my own. If the information age is allowed to develop, it will lead the way out of the economic mud-puddle we seem to be moving into.
Hopefully Republicans will resist the temptation to use fear of an economic debacle for gaining votes and making a weak president even weaker. And, for their part, Democrats will need to stop the fear mongering they have used in recent years to frighten the seniors about Medicare and social security and whatever else they can think of.
What is needed are leaders who are honest - who do not lie about issues of the day in order to maintain control over groups of people. Unfortunately, the American people not only chose a leader in Clinton that they know is a liar, they still don't seem to think honesty in the president is important. They are tragically wrong about that.
To comment: mmostert@originalsources.com