Capitol Hill Blue Forums Political Issues Constitutional Issues The Self-Destructive Habits Of Politics

Phil, once again, you are making my point for me. As I have said, since the economy is self-regulating, dependent primarily upon Human Action, government intervention rarely, if ever, does any good and in most cases when the economy enters into a down-side cycle, the government intervenes in ways that not only don’t help, but hurt. We are about to see a perfect example of this fact in the coming months. For if these regulations and interventions actually worked then we would have seen a far different history than we have during the past Century. After all, the Federal Reserve/government intervention was touted to stabilize and strengthen the mechanics of the economy, but that is not the case, its track record sucks. Within 15 years of its formation, we entered into the worse depression this country had ever seen. As I said earlier, now even Bernake and Greenspan admit that the policies of the Federal Reserve caused the Great Depression.

My point is that there were numerous regulations in the 1800s that affected the economy; it was never my contention that we should return to the policies of that period because it was no better than the one we currently are subjected to in this country. My contention has been that the massive mounds of government regulations do not prevent economic distress, but many times precipitates and extenuates these periods. Once again, the economy is ruled by forces that are simply immune from what we are told that regulations and interventions are touted to protect us from. Human Action, psychological behaviors are not subject to the effects of such regulations and therefore neutralize any supposed effectiveness of those regulations and interventions, history has, time and time again, proved that fact, and it will be proven again.
Yet, we continue to put faith in both the FED and the government to make us safe economically, that faith is about to be tested in ways that few of us are prepared for.

In viewing government regulations on business and finance, it is physically impossible to enforce the mounds of regulations that apply to commerce in this country. In a multitude of cases, these very regulations conflict with each other. I am constantly amazed at our gullibility when it comes to government and the banking cartel that supports it.

Ah, the Tulip Bulb Bust, it was the perfect example of herd mentality and greed however, it was not without the influences of government intervention. If you merely view the events of the bust itself without understanding the economic conditions of Dutch Society of the 17th Century, then you will naturally not fully understand how the Mania began, what promoted it and what finally bust the bubble. Both the Dutch Oligarchy and its magistrates of the period were intervening in the economy to provide a balance between what they considered “safe” and “risky” investments. The very powerful Dutch East India Company supervised most government edicts and this company held sway over the economy in ways that we simply cannot understand in modern terms. I could easily go into the various edicts that began in 1610 and casts conflicting influences over the Dutch economy. The Dutch oligarchy sought to limit what we now would call “futures contracts”.

Both the Crown and the Bank of England influenced the South Seas scam; for one thing both the Crown and the Bank of England were beneficiaries of the speculation. The Mississippi Bubble and John Law benefited, for a time, the King of France.
My point throughout this entire thread however, has been the despite government intervention human action will continue to regulate the economy regardless of government intervention. Additionally, it is evident that government both promotes and aggravates conditions of economic distress, prolonging in many instances the natural cycles within the economy.


Now, the Panic of 1837 should be of particular interest because, as usual, we accept a general view without looking deeper into what actually caused the Panic. In the early 1830s, there was a huge influx of silver coming in from Mexico, which rapidly expanded the money supply during the 1830s contributing to natural inflationary pressures that contributed to the eventual Panic and the subsequent recession. There was also a very dramatic change in the China trade at the time, of which the British were the primary beneficiaries, but in order to promote this trade the British granted huge lines of credit to American importers, they also helped fund the American canal and railroad boom that was going on at the time. The result was a rapid increase in specie stock in the U.S., banks expanded their loans and discounts without proportionally decreasing their specie reserves. Also, there was a massive land boom happening at the same time. There were several factors that contributed to the Panic of 1837, the least of which was government policy and the contraction of bank credit when the British stopped exporting capital in the form of credit to the United States and demanded hard currency for all new imports. Then in 1837, something amazing happened that shocked the American economy and that was that the demand for American cotton dropped dramatically, American cotton prices sunk. The entire credit structure for cotton as collateral security totally collapsed. The banks no longer extended credit; hard money became king and prices collapsed. Prior to the period, of course, Jackson withdrew the government deposits from the federal Bank of the United States and from 1833 to 1837 bank reserve ratios fell from 15.2% to 13.7%, as with all fractional reserve systems, this would prove to help induce the Panic of 1837. Once again, this is hardly an example of non-intervention by government or banks into the economy. This Panic does however, point to the very real danger of the fractional reserve system, the very system that the government supports.

Once again, we rarely look, in depth; at the circumstances that surround economic events, primarily because few people are really interested in the subject…I happen to be one of those who enjoys the subject.

One of the largest failure in U>S. history was on a regulated banking system called the Savings and Loan; it appeared that all the regulations in the world are not effective. This debacle cost American taxpayers over $250 Billion Dollars. The problems that caused the S&L collapse remains a solidly embedded within government regulatory policy today. The regulations that were born out of that debacle have done nothing to prevent the same thing happening again, in fact a similar situation has just happened with the sub-prime mortgage market. The problems stem from markets that are directly distorted by government regulations that twist, turn and undulate throughout the banking systems of this country. Although it is not widely understood by most people, naturally expansions and contractions serve a very essential purpose to a healthy economy, the problem is that theses cycles are interrupted or averted by government intervention and the underlying boil just festers until it erupts in painful corruption.

Now, once again we rarely relate the Panic of 1857 with government regulations and interventions however, once again it is evident that not only were there such interventions and regulations, but that many of these, including the various tariffs on trade contributed, once again to a variety of economic ills. Between 1854 and 1857, there were several restrictions imposed on the banking industry. Most of the bank failures of the period were due to the use of the fractional reserve system, the same system that we use today with the exception that today our money that is held in reserve is total fiat.

Most of these banks were victims of government restrictions and falling asset values which then pressed against their fractional reserves. Nearly 55% of all banks that failed during that period were also subject to falling bond prices, particularly those banks in Illinois and Ohio. The best source for information on the subject of the Panic of 1857 can be found in the State’s Auditor’s reports of the period, additionally, you can find a listing of the various types of government interventions in the U.S. House Executive Documents and the reports of the U.S. Controller of the Currency. Banks and other financial institutions were subject to a particularly risky government regulation that no bank could use its assets in times of a banking emergency. In addition to the reserves of the banks, they held a very large portion of their assets in highly liquid instruments, such as loans, discounted bills of credit, all of which could be easily converted into specie in a very short period of time to cover an emergency situation, but the government and banking auditors prevented the use of such assets even though those assets could have saved the banks from failure.

Oh, a great book was written back in 1852, it presents a perfect example of Human Action and how it controls economic processes, the book is titled:
"Memoirs of Extraordinary Popular Delusions and the Madness of Crowds"