On May 6th the Federal Reserve Bank at the time of its
FOMC meeting did something it had not done in seventy years. It warned
against disinflation, i. e. deflation.
There is always discussion regarding the
rate of inflation, but we cannot recall hearing discussions concerning
the rate of deflation as that could ultimately lead to the use of the
word depression, a word that cannot be used in polite or, for that
matter, in impolite society.
With this in mind we thought it would be
interesting and worthwhile to have a look back to President Roosevelt’s
speech before Congress urging a balanced budget that was considered to
be the “first concern” of the nation. Broad powers were requested to,
among many other things, reduce veterans’ compensation and to cut civil
and military salaries. These were the days of the Great Depression.
On March 13th President Roosevelt would also submit a
bill to Congress for a $500,000,000 bond issue to provide employment for
250,000 men in reforestation work around the country. This was the birth
of the CCC – the Civilian Conservation Corps – reportedly the most
popular experiment of the New Deal. The proposal, surprisingly, was
opposed by organized labor but signed into law on March 31, 1933. Over
its lifespan of 8 years 2.5 million men went through the CCC camps.
On March 10th the Gold Embargo was extended.
Member banks of the Federal Reserve System were invited to reopen. “
Until further order no individual, partnership, or corporation,
including any banking institution, shall export or otherwise remove or
permit to be withdrawn from the United States or any place subject to
the jurisdiction thereof any gold coin, gold bullion or gold
certificates…”
70 YEARS AGO – Message From Roosevelt Stressing Economy Needs
These are Franklin Delano Roosevelt’s
comments concerning the federal deficit and the U.S. economy as they
appeared in the Pittsburgh Post-Gazette on March 11, 1933.
WASHINGTON: March 10. The text of President Roosevelt’s message to
Congress today on slashing Government costs follows:
To the Senate and House of Representatives:
The Nation is deeply gratified by the immediate response given
yesterday by the Congress to the necessity for drastic action to restore
and improve our banking system. A like necessity exists with respect to
the finances of the Government itself, which requires equally
courageous, frank and prompt action.
For three long years the Federal Government has been on the road to
bankruptcy.
For the fiscal year 1931 the deficit was $462,000,000.
For the fiscal year 1932 it was $2,472,000,000.
For the fiscal year 1933 it will probably exceed $1,200,000,000.
Need of Action Cited
For the fiscal year 1934, based on the appropriation bills passed by
the last Congress and the estimated revenues, the deficit will probably
exceed $1,000,000,000 unless immediate action is taken.
Thus we will have piled up an accumulated deficit of $5,000,000,000.
With the utmost seriousness, I point out to the Congress the profound
effect of this pact on our National economy. It has contributed to the
recent collapse of our banking structure. It has accentuated the
stagnation of the economic life of our people. It has added to the ranks
of the unemployed. Our Government’s house is not in order and for many
reasons no effective action has been taken to restore it to order.
Upon the unimpaired credit of the United States Government rest the
safety of deposits, the security of insurance policies, the activity of
industrial enterprises, the value of our agriculture products and the
availability of employment. The credit of the United States Government
definitely affects these fundamental human values. It therefore, becomes
our first concern to make secure the foundation. National recovery
depends upon it.
Must Avoid Danger
Too often in recent history liberal governments have been wrecked on
rocks of loose fiscal policy. We must avoid this danger.
It is too late for a leisurely approach to this problem. We must not
wait to act several months hence. The emergency is accentuated by the
necessity of meeting great refunding operations this spring.
We must move with a direct and resolute purpose now. The members of
the Congress and I are pledged to immediate economy. I am, therefore,
assuming that you and I are in complete agreement as to the urgent
necessity, and my constitutional duty is to advise you as to the methods
for obtaining drastic retrenchment at this time.
I am not speaking to you in general terms. I am pointing out a
definite road.
The last Congress enacted legislation relating to the reorganization
and elimination of executive agencies, but the economies thus to be
affected are small when viewed in the light of the great deficit for the
next fiscal year. They will not meet the pressing needs of our credit
situation. Provision for additional saving is essential, and therefore I
am asking the Congress for new legislation laying down broad principles
for the granting of pensions and other veteran benefits, and giving to
the executive the authority to prescribe the administrative details. We
are unanimous in upholding the duty of the Government to care for those
who suffer its defense and for their widows and orphans.
Great Complications
The application, however, of this great principle to large numbers of
people involves complications – so great that it is almost impossible to
draw legislation with sufficient flexibility to provide substantial
justice in varying situations. The proposed legislation states the
principles and, limited by them, permits the executive to draw the lines
of differentiation necessary to justice.
In accord with the same purpose of substantial justice I request also
the enactment of legislation relating to the salaries of civil and
military employees of the Government. This would repeal the existing
furlough plan, substituting therefore a general principle and
authorizing the executive to make application of this principle. The
proper legislative function is to fix the amount of expenditure, the
means by which it is to be raised and the general principles under which
the expenditures are to be made. The details of expenditure particularly
in view of the great present emergency can be more wisely and equitably
administered through the executive. The flexibility of the measures
which I am proposing is not only practical but proceeds along the road
of constitutional government.
Government Stability Conceived
Such economies which can be made will, it is true, affect some of our
citizens; but the failure to make them will affect all of our citizens.
The very stability of our Government itself is concerned and when that
is concerned the benefits of some must be subordinated to the needs of
all.
When a great danger threatens our basic security it is my duty to
advise the Congress of the way to preserve it. In so doing I must be
fair not only to the few but to the many. It is in this spirit that I
appeal to you. If the Congress chooses to vest me with this
responsibility it will be exercised in a spirit of justice to all, of
justice to all, of sympathy to those who are in need of maintaining
inviolate the basic welfare of the United States.
I ask that this legislation go into effect at once without even
waiting for the beginning of the next fiscal year. I give you assurance
that if this is done there is a reasonable prospect that within a year
the income of the Government will be sufficient to cover the
expenditures of the Government.
Franklin Delano Roosevelt
March 10, 1933 message to Congress
***********************************
The Great Depression, the years of the early
and mid 1930s, presented enormous challenges to all Americans. Oddly
enough, as a young man I knew many who looked back on a lot of those
days as being the best days of their lives. Activities and entertainment
were centered almost exclusively on family and friends. All were in the
same boat – nobody had any money.
Since September 11, 2001 Americans have
again been presented with enormous challenges, as this country has not
been able to fully recover from those attacks. This fact is reflected in
our economy and in stock and bond markets.
For the stock markets to have a sustainable recovery there are two
primary requisites:
