Title: Dr. Irving Fisher was the Great Guru of 1920s Stock Market Buying, what can We Learn from Him Today?
Author: Andrew M Molchan
Date: Sat April 28th, 2012
4/28/2012. ANDY'S INSIGHTS. Dr. Bernanke bills himself as the Great Expert on the 1930s Depression. Let's look at another Expert who Lived Through the 1920-1930s, Dr. Irving Fisher.
Dr. Irving Fisher (1867-1947) was Professor of Economics at Yale University. Dr. Milton Friedman said that Fisher was, "The greatest Economist the United States has ever produced."
Dr. Fish was the great 1920s Guru of stock buying, and was nationally famous. Kind of like today's Jim Cramer, but with a Ph.D and several published papers in Economics. Dr. Fisher made a great fortune in the stock market during the 20s, and many interests.
However, history has time and again shown that yesterday's brilliant expert can be totally wrong tomorrow. This is why when you're doing analysis, and listening to somebody who has been Proven Right, you still have to be extremely careful because Night Now they could be totally wrong.
Three days before the 1929 crash, Dr. Fisher said, "The American stock market has reached a permanently high plateau."
The stock market crashed, Dr. Fisher lost all of his fortune, and was discredited. John Maynard Keynes became the new god.
However, Dr. Fisher worked all thought the 1930s and WWII, and analyzed the Great Depression. He produced his "Debt Deflation Analysis" of the Great Depression.
I'll try and summarize Dr. Fisher's idea: if there's too much Debt, and something starts the Debt to deflate in value. Then the deflation of debt becomes a self-generating spiral downwards. The more assets you sell to pay down debt, the more the price of the asses goes down, and your debt level relative to your asset level does NOT improve.
American Economics since the 1930s has all been Keynesian Economics (i.e. the more you spend the richer you become).
However, Fisher's 1930s analysis has a lot of truth. A big factor is the AMOUNT of debt. If you have ZERO debt you cannot have debt inflation. However, if you have over 50 Trillion dollars of total debt, like all of the USA's total debt right now, even a little debt inflation becomes very serious.
GOING TO THE BOTTOM LINE. My view for the last four years is that Dr. Bernanke has America on a NO WIN road. If the FED keeps pumping out Trillions of Queer Dollars, it's a mathematical truth that we will soon arrive at the point where 100% of the Federal Income tax will be needed to pay interest on the debt. It's also a mathematical truth that the WORLD can only buy so many Government Bonds, and "Rolling Bond Debt Over" at some point also becomes mathematically impossible.
On the other hand, when we STOP making Queer Dollars, then we'll have Dr. Fisher's "Debt Deflation" of the 1930s.
The Queer Trillions of new debt would have been justified if the time it bought was used for REAL CHANGE. Like a totally new tax system, tort law reform, business regulation reform, labor reform, and the cutting of destructive Government expenses like the bloated military budgets. BUT President Obama has done NOTHING. So we have the worst of all worlds. A massive increase in DEBTS so the White House can do NOTHING, and Washington DC can Queer Money finance stupid wars in stupid places.
The Grand Strategy of Washington DC politics. The current Oct 2011 - Oct 2012 Federal Budget is 42% Borrowed and/or Queer Money. That's a DISASTER in the making. If Obama wins he won't care because he'll never have to run again. It's also another reason to, "tax the rich." If Romney wins he's screwed, and the Democrats will win big in the 2014 Congressional elections. And while all of the Washington DC/FED games are going on, the living standards of average American workers will be going down the toilet.