jackson paying off the national debt

[sickmint79]

guy on fbk posted this in regards to someone's comment on jackson ending the 2nd central bank and paying off our debt.

"Jackson was a fool whose actions disbanding the central bank and paying off the debt caused the deepest recession ever and the debt increased ten times what it was before he paid it off. You seem to have a very limited knowledge of economic history, my friend."

on wikipedia:

1833–34 recession 1833–1834 ~1 year ~4 years The United States' economy declined moderately in 1833–34. News accounts of the time confirm the slowdown. The subsequent expansion was driven by land speculation.

1836–1838 recession — ~2 years ~2 years —32.8% — A sharp downturn in the American economy was caused by bank failures and lack of confidence in the paper currency. Speculation markets were greatly affected when American banks stopped payment in specie (gold and silver coinage).[3][14] Over 600 banks failed in this period. In the South, the cotton market completely collapsed.

late 1839–late 1843 recession — ~4 years ~1 year -34.3% — This was one of the longest and deepest depressions. It was a period of pronounced deflation and massive default on debt. The Cleveland Trust Company Index showed the economy spent 68 months below its trend and only 9 months above it. The Index declined 34.3% during this depression.

also the debt: http://en.wikipedia.org/wiki/File:Publicly_Held_Federal_Debt_1790-2009.png

he seems to be incorrect on the debt, although arguably right on the recession, although i expect people here to fault fractional banking for that. thoughts/comments?

 

[The Goat]

How about Jackson's own words pertaining to the subject.

"You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin!"

It would appear he was no fool at all, he fully knew what he was doing and their would be a downturn as a result, but he was doing it to rescue the US from the banks policies.

full quote
"Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the bank. You tell me that if I take the deposits from the bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin! You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out!"

 

[The Gold Standard]

The guy is an idiot. First of all, the Wikipedia page counts any period of price deflation as a recession, so it is worthless as a reference, but you can look at those and see your classic Austrian business cycle.

Closing down the national bank eliminates the base of the inflationary pyramid, so the bubble bursts. Instead of a true correction, the individual banks begin flooding the land with their notes without enough gold and silver to back them, driving down interest rates and creating a real estate bubble. When that bursts, the government bails out the banks (by allow them to refuse to redeem customer deposits, and they wonder why people lost confidence in paper money and the banking system). There were rough economic times back then, but eliminating the national bank had nothing to do with it. It was government sponsored fractional reserve banking and the subsequent bail outs that caused the booms and busts.

 

[Zippyjuan]

The US has always had a recession every few years or so- reguardless of budget deficits, surpluses or gold standards or not. Just a normal business cycle. Some are longer and some shorter, some deeper and some shallower but we have never gone ten years between them (except for 1991- 2001).

One problem we had in the 1830's was too many varieties of currency- over 30,000 at one point.
That led to rampant counterfiting and confusion and many bank closures.
http://www.factmonster.com/ipka/A0774856.html

1836: State Bank Notes

With minimum regulation, a proliferation of 1,600 state-chartered, private banks issued paper money. State bank notes, with over 30,000 varieties of color and design, were easily counterfeited, which combined with bank failures to cause confusion and circulation problems.

 

[The Gold Standard]

The problem had nothing to do with the varieties of bank notes. The problem was they printed too many of them without the specie in reserve. They did this because they knew the government would allow them to suspend specie payment without closing their doors, as they had done several times before. Textbook state imposed moral hazard and inflationary boom-bust cycles.

 

[flynn]

when history of the banking sector experienced a coordinated investment in a huge scale that led to excessive credits/mass speculation usually in the same direction, same industry, it has always, I mean always had ties with the government, regardless of period.

 

[Zippyjuan]

I thought of something recently. In the 1920's there was a series of banking dereculation going on. Then came the Great Depression. In the 1980's the Savings and Loans were deregulated. Another big recession with over 1,000 S&Ls going bust and the government helping to bail them out. Then another wave of deregulation which allowed banks and financial institutions to get larger and take on more risk and combine types of operations and we get the Great Recession. The deregulation led to massive speculation followed by collapse. Makes one wonder.

 

[Paul Or Nothing II]

The guy is an idiot. First of all, the Wikipedia page counts any period of price deflation as a recession, so it is worthless as a reference, but you can look at those and see your classic Austrian business cycle.

Closing down the national bank eliminates the base of the inflationary pyramid, so the bubble bursts. Instead of a true correction, the individual banks begin flooding the land with their notes without enough gold and silver to back them, driving down interest rates and creating a real estate bubble. When that bursts, the government bails out the banks (by allow them to refuse to redeem customer deposits, and they wonder why people lost confidence in paper money and the banking system). There were rough economic times back then, but eliminating the national bank had nothing to do with it. It was government sponsored fractional reserve banking and the subsequent bail outs that caused the booms and busts.

The problem had nothing to do with the varieties of bank notes. The problem was they printed too many of them without the specie in reserve. They did this because they knew the government would allow them to suspend specie payment without closing their doors, as they had done several times before. Textbook state imposed moral hazard and inflationary boom-bust cycles.

when history of the banking sector experienced a coordinated investment in a huge scale that led to excessive credits/mass speculation usually in the same direction, same industry, it has always, I mean always had ties with the government, regardless of period.

+1

 

[The Gold Standard]

I thought of something recently. In the 1920's there was a series of banking dereculation going on. Then came the Great Depression. In the 1980's the Savings and Loans were deregulated. Another big recession with over 1,000 S&Ls going bust and the government helping to bail them out. Then another wave of deregulation which allowed banks and financial institutions to get larger and take on more risk and combine types of operations and we get the Great Recession. The deregulation led to massive speculation followed by collapse. Makes one wonder.

It isn't a wonder. It's really quite simple. Say you are filling a bucket with water. Say the bucket has a plug in the bottom. If you pull the plug, the water flows through the drain and on to the floor. No shit. Now you are only looking at part of the question though. Where is the water coming from? If the water continues to flow, does that mean your floor will not get wet if you don't pull the plug?

 

[Paul Or Nothing II]

I thought of something recently. In the 1920's there was a series of banking dereculation going on. Then came the Great Depression. In the 1980's the Savings and Loans were deregulated. Another big recession with over 1,000 S&Ls going bust and the government helping to bail them out. Then another wave of deregulation which allowed banks and financial institutions to get larger and take on more risk and combine types of operations and we get the Great Recession. The deregulation led to massive speculation followed by collapse. Makes one wonder.

Oh yeah, & neither had anything to do with Fed centrally manipulating supply of money & fractional reserve banking

Issue of fractional-reserve-banking & its problems have been talked about here in detail many a times; if $10 are expanded into $100 & all deposits & loans are chained to the reserve then all you need is enough defaults &/or withdrawls & the pyramid crashes
The rising prices & profits during the inflationary expansion & boom, signal "scarcity" to the market & overproduction & overexpansion occurs, for which there's no ACTUAL demand but rather an illusion of higher demand caused by overexpansion of fictional credit

Again, prices are products of the market, just like communist States try to dictate supply & prices of things top-down through central-planning & it fails, same holds for controlling price of money (interest) & supply; central-planning = fail
Fractional-reserve-banking needs to be abolished under this unified currency regime (free-banking is a different issue); borrowing short & lending long is a disaster waiting to happen, that's why recessions have occurred for a long time, even before Fed, because fractional-reserve-banking & its overexpansion of credit has been occurring for a long time

 

[sickmint79]

The guy is an idiot. First of all, the Wikipedia page counts any period of price deflation as a recession, so it is worthless as a reference, but you can look at those and see your classic Austrian business cycle.

Closing down the national bank eliminates the base of the inflationary pyramid, so the bubble bursts. Instead of a true correction, the individual banks begin flooding the land with their notes without enough gold and silver to back them, driving down interest rates and creating a real estate bubble. When that bursts, the government bails out the banks (by allow them to refuse to redeem customer deposits, and they wonder why people lost confidence in paper money and the banking system). There were rough economic times back then, but eliminating the national bank had nothing to do with it. It was government sponsored fractional reserve banking and the subsequent bail outs that caused the booms and busts.

i don't know what inflation/deflation looked like in those periods, this is not a simple read of below or above the x-axis on a chart. it doesn't seem like there were a lot of bailouts of any kind back then?

here is the page i plucked the recessions from, you can explore more at the footnotes:
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

 

[Paul Or Nothing II]

i don't know what inflation/deflation looked like in those periods, this is not a simple read of below or above the x-axis on a chart. it doesn't seem like there were a lot of bailouts of any kind back then?

here is the page i plucked the recessions from, you can explore more at the footnotes:
http://en.wikipedia.org/wiki/List_of_recessions_in_the_United_States

Please reconsider what he has said; he's talking about what is known as "suspension of specie"

the government bails out the banks (by allow them to refuse to redeem customer deposits, and they wonder why people lost confidence in paper money and the banking system). There were rough economic times back then, but eliminating the national bank had nothing to do with it. It was government sponsored fractional reserve banking and the subsequent bail outs that caused the booms and busts.

What he is referring to is the fact that government allowed fractional-reserve-banking to go on, whereby banks often end up lending much more money (gold in the current context) than they have, which means that if enough depositors demand their money back then bank wouldn't be able to redeem them; this is where government often came in, in those days, & allowed for "suspension of specie", which means that politically connected banks were able to refuse their depositors from cashing in their gold (which was "money" then) while notes merely acted as "checks" used by people to pay each other for things because it was more convenient than carrying gold everywhere & obviously, depositing gold with banks earned interest too

So "bailout", in this context, is merely the government disallowing people from claiming their gold back from the banks, obviously, government couldn't create gold out of thin air like they can paper & electronic money today so "suspension of specie" was in effect a government "bailout" for the banks incapable of paying up their obligations





Austrian business cycle theory





More technical details of the theory

 

[Travlyr]

The US has always had a recession every few years or so- reguardless of budget deficits, surpluses or gold standards or not. Just a normal business cycle. Some are longer and some shorter, some deeper and some shallower but we have never gone ten years between them (except for 1991- 2001).

One problem we had in the 1830's was too many varieties of currency- over 30,000 at one point.
That led to rampant counterfiting and confusion and many bank closures.
http://www.factmonster.com/ipka/A0774856.html

It is time to let the banks fail and let the people prosper. Bankers do not own the world. They just think they do.

Honest sound money for liberty, peace, and prosperity!