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« Later Is Now: Profiting from Rising Interest Rates | Main | Fifty Ways to Leave Your Lender »

Escaping the Great Depression - and Extending the Greater Depression

By Doug Casey,  The Casey Report

Here at Casey Research, our view of the Great Depression of the 1930s is a little different from that of most people. In our eyes, Franklin Roosevelt wasn’t a hero, he was a villain. Nearly everything he did served to extend and deepen the economic downturn.

With the exception of supporting the 21st Amendment for the repeal of Prohibition, Roosevelt’s involvement in the economy was an unmitigated disaster. But in popular memory, that failure is obscured by U.S. success in WW2, over which Roosevelt presided. 

Today, unfortunately, Obama and his minions are taking Roosevelt as a model and are straining to repeat his mistakes. Because the distortions in today’s economy are far greater than those in the 1920s and 1930s, and since the public now relies upon government far more than it did in those days, I don’t see any way around a more serious depression – the Greater Depression. It’s been going on since 2008, will get much worse, and has years left to run.

FDR himself was extraordinarily lucky. His performance looks successful because when he entered office, both the economy and the stock market were overdue for a cyclical recovery (nothing goes straight down forever). He was elected when the depression had already been going on for four years and the stock market had already fallen 90%. That fortunate timing was partly a gift from Hoover, whose large-scale interference in the economy had kept the depression going. (It’s odd how people believe Hoover was the free-marketeer and Roosevelt was the interventionist. Roosevelt really just continued and extended Hoover’s policies, but with more enthusiasm and far better PR.)

Roosevelt had more good luck (for him) with the arrival of WW2; the victories in Europe and the Pacific forever idealized every aspect of his administration. In many ways, the cult of FDR resembles that of Russia’s Joseph Stalin, who is still worshipped there as a demigod.

Although Obama seems bright enough, there’s little reason to believe he’s a student of history and no reason to believe he’s a student of economics. It’s more likely that he’s just a student of power politics, so he’s inclined to follow the conventional wisdom, which is that a combination of Roosevelt’s “bold action” in the New Deal plus World War 2 brought the country out of the Great Depression. What we hope to show here is that those notions are nonsense.   

The Last Depression

How, in fact, did America recover from the Great Depression? The stock answer is: “World War 2.” But a closer look at the data reveals a different answer.

Standard mythology claims that war production – beginning in 1939 – ended our economic troubles. But the American economy didn’t truly recover until two years after the fighting stopped in 1945. In point of fact, the last depression ran from 1929 to 1947, about 18 years.

And it wasn’t a single terrible decline. As the chart above shows, GDP growth was falling in 1930, recovered from 1932 to 1936, and then began a second collapse in 1937, a down-leg due mostly to Roosevelt’s policies. 

Then, in 1939, industrial production began a tremendous expansion. The unemployed were put to work either fighting or manufacturing armaments. But neither activity contributed to the general standard of living. And even if it had, the growth in production wasn’t and couldn’t have been self-sustaining, since it was in fact a growth in the squandering of resources.
The conventions for measuring GDP include government expenditures, so GDP is a poor measure of underlying economic health. The government might, for instance, hire 10 million people to dig ditches during the day, 10 million more to fill them in at night, and 5 million bureaucrats to monitor the work. That would pump up GDP and reduce unemployment, but it wouldn’t increase society’s wealth. It would decrease it.

In any event, as soon as the government’s large wartime expenditures started dropping in 1945, GDP resumed the shrinking that had begun in 1930. 

The GDP growth of the war years was a prosperity mirage that dissipated when government spending stopped, unlike the wealth-creating expansion from 1932 to 1936 that had been fueled by private investment. In 1936, GDP rose $10.5 billion while government spending rose just $2.2 billion. In 1942, GDP rose $35.2 billion while government spending rose $36.1 billion. The apparent growth during the war was all government spending.

Roosevelt’s Second Act

What caused the recovery to collapse in 1936?

One element was Roosevelt’s attack on the rich. In 1935, he launched a barrage of new taxes, including a corporate income tax of 15%, a dividend tax, higher estate and gift taxes, and additional taxes on those earning more than $50,000. The top rate on individual income taxes rose to 79% in 1936, a large jump from 63% just the previous year.

On top of this, Roosevelt’s rhetoric and actions turned increasingly anti-business. Roosevelt began to strongly support organized labor – which was nice for those who had union cards, but no help for those who didn’t have the connections or skin color to get one, and great harm for the economy as a whole. His support got results. In 1935, there were only 3.8 million union members in the U.S. By 1941, there were about 10 million, approximately a quarter of the workforce.

The 1936 elections gave the country de facto one-party rule – 76 Democrats in the Senate and 331 Democrats in the House of Representatives. Each new piece of legislation berated and punished business – such as the Wagner Act, the ever higher taxing Revenue Acts, and Undistributed Profits Tax. With the government growing larger while business lacked strong representation in the halls of power, it is no wonder that private investment stalled.

Government Versus Private Investment 

Government expenditure as a percentage of GDP drives the point home even more. Throughout World War 2, the private market remained in the dumps.


War spending added to the GDP numbers. And there was real progress in areas like aviation, electronics, and atomic energy – albeit at a gigantic cost. But none of this jump-started the private economy, which focuses on the products and services people really want.   

You don’t need a doctorate in economics to understand this chart. The only major peak during the war marks the end of hostilities – and FDR’s death. (We’ll get to that in a moment). Note that the 1932-1936 recovery was far more significant than the often-glorified war economy. 

Why didn’t FDR’s immense spending jolt the private market back to life? Remember that a wartime economy comes with strings attached; it’s not free money. Wartime regulations made operating any business almost impossible. Nearly everything required government permission. Taxes skyrocketed, leaving less capital for investment. Further, forget about competing for resources with the war industry; even if you had a good business idea, you wouldn’t be allowed to execute it. 

An economy can’t prosper when markets are being overruled by command-and-control rationing. During the war, companies found it easier and more profitable to produce for government than to produce for consumers. Even companies such as Eastman Kodak, the film and camera company, began manufacturing rifle scopes and hand grenades for the military. GM stopped making cars for civilians and made military vehicles instead. Tires, gasoline, shoes, beef, sugar, coffee and much else were rationed. The standard of living in the U.S. during the war collapsed; conditions for consumers were much worse than in the ‘30s. Remember that the best definition of a depression is: A period of time when most people’s standard of living falls significantly.

Without productive private investment, recovery is impossible. Near the end of the war, as government spending subsided, private investment did return to the U.S. But that never happened in the USSR, China, or Eastern Europe, which is why they never did recover. Lack of private investment is why Britain remained something of a dump right up to the election of Thatcher. Wartime spending didn’t help the recovery, it slowed it.

During the war, a majority of businessmen – typically over 75% – believed the U.S. would retain the fascist-style economic system that it had grown into during the ‘30s and that it seemed to be cemented into by the war. With that thought so widespread, the lack of private investment is no surprise. 

But with the closing of WWII, the fear of being locked into a command-and-control economy began to ease – an unintended consequence of FDR’s wiliness. FDR knew that the business world would cooperate in wartime production only if business leaders were running the show. He slowly began replacing New Dealers in his administration with the businessmen who had been squashed by New Deal policies. The new recruits worked behind the scenes in Washington to undo what the early New Dealers had accomplished. Necessity had overcome ideology.

On top of that, the Democrats were losing their grip on Congress. By 1944, they had only 56 senators and 242 representatives. In 1946, the Republicans regained both houses of Congress.  

And FDR himself died, which left businessmen feeling a lot safer. The long dark night of anti-business tirades and crusades had ended. The Dow made a significant jump, and so did the daily volume on his death.

Sure, Truman was still around, but he didn’t have Roosevelt’s dangerous popularity. As a result, private investment flooded the post-war market, and a boom followed. Where did the capital to fuel the post-war boom come from? In a way, it was an accident of wartime policies. 

During the war, the personal savings rate skyrocketed. There were plenty of reasons for that. For one, quality durable goods exempt from wartime rationing were difficult to find even if one wanted to buy them. Second, a big war creates uncertainty. If you’re not sure whether a husband or father will return alive, saving makes sense. The importance of savings in the 1940s is a reason for pessimism about our prospects today: unlike during WW2, today’s savings rate is still negligible. And the artificially low interest rates the government has engineered continue to discourage saving and to encourage consumption, debt, and speculation.


When the war ended, the accumulated savings supported both investing and consumer spending. It’s an experience that refutes the Keynesian notion that consumer spending stimulates the economy and saving suppresses it.

You can’t solve today’s problem of overconsumption and debt with more overconsumption and debt. The conditions that pulled America out of the Great Depression underscore that point. Once savings rates increased and made capital available for the economy, private investment soared, and shortly afterward, so did the rest of the economy.

Although history doesn’t repeat, this time it definitely rhymes. The Obama administration is trying to replay all of Roosevelt’s moves, and it’s making all of FDR’s mistakes in spades and more. The Obama bailouts of public companies are a new twist – even FDR didn’t go that far. The U.S. is already in a war economy. Will Obama ramp up the wars, thinking that what’s been done so far isn’t enough?

The bottom line is that, based on everything we know about the Great Depression, the Greater Depression, which is still in its early stages, is going to be nasty indeed.
[Learning from history is only one of the many ways the editors of The Casey Report use to glean what’s in store for the economy – and to discover the best profit opportunities for smart investors. Today is your last chance to get one full year of The Casey Report at our lowest price ever: Only $98… a 72% savings over the regular price. But hurry, this offer ends today at midnight. Details here.]


Over in the options trading pit we have just closed another winning trade, so we now have 63 winners out of 65 trades, or a 96.92% success rate.

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sk chart Jan 2011.JPG

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Stay on your toes and have a good one.

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Reader Comments (14)

Great post, but I disagree with one sentiment:

"When the war ended, the accumulated savings supported both investing and consumer spending. It’s an experience that refutes the Keynesian notion that consumer spending stimulates the economy and saving suppresses it."

Your logic is flawed.
If Keynes' position was that consumer spending stimulates an economy, then Keynes is supported by the post-war evidence.
Likewise, his position that saving suppreses an economy is also supported by the war-years evidence.
The economy did not flourish during the war years when people were saving, and it DID flourish when the war ended and people started spending (or investing) that money which they had saved.

February 10, 2011 | Unregistered Commenterbruce

I strongly disagree with the anti-FDR sentiment, attributing his finacial regulations, tax structure, etc. to the detriment of the economy and led to the current Great Depression II. This is hogwash! You see, what happened in the 20's leading up to the Great Depression I(criminal acitvities in the banking/finance industry, great social inequalities, etc.) are taking place right now in the current Great Depression II, because the latter less enlightened politicians(with this author's mentality/ideology) started to wither away FDR's financial regulations and tax structure. So to blame FDR is disingenuous! FDR's financial regulations worked fine for America's financial system for some 50-60 years; FDR's tax structure(anti-hoarding by the few elites) worked fine for general Americans(led to the largest middle class society in the world -- more wealth spread around to more people, not just the few!; social programs were put in place to provide some basic social safety nets(esp. for the elderly). So they worked very well for America as a whole, until some unelightened and evil clowns started to doing away all those FDR's financial regulations and tax structure(Anit-hoarding by the few elites;very high tax rate for the very rich); so now we're in similar conditions as in the 20's and the Great Depression -- financial criminals ran wild, great social inequalities, social hardship/miseries, etc. I hope this would enlight some people!

February 11, 2011 | Unregistered CommenterKJ

Economies flourish when money is put to work and flowing. Not in you mattress. Until something is done about the banks borrowing rates we will continue to stagnate. The banks are still hoarding there money and not lending, which is causing a huge problem. People in business cannot operate and grow if the banks are not lending...As long as the banks are hoarding their money and making 3 percent from the Fed....Nothing will change.

February 12, 2011 | Unregistered CommenterGary


And to the Roosevelt defenders, I say he was a criminal of the highest order. Gutter scum.

February 21, 2011 | Unregistered Commenterfallingman

@ fallingman

Your screen name is quite apt. Tell us more on reasons to support your name-calling! I bet you can't because you're an ill-informed and selfish and self-interested fallingman. #2 above is more believable and real. FDR put those regulations in after the Great Depression, and those regulations were gutted and done away -- you got your current financial crisis or Great Depression 2. And if without them FDR's social safety nets -- the hardships would have been much worse; in fact, we might have had riots in the streets by now.

February 22, 2011 | Unregistered CommenterPiggySue

Yeah, well, I'm sure I'm a lot of terrible things. One thing I'm not is ill-informed. You've drunk the kool-aid re: the Roosevelt myth. It's statist propaganda.

And anyway, I was being nice and diplomatic! I can't tell you what I really think.

I'll tell you one thing I am for sure, though, and that's uninterested in your opinion.

Doug Casey is dead on. Roosevelt was a villain. Let's call a spade a spade and quit lionizing the bum.

February 22, 2011 | Unregistered Commenterfallingman


I don't just listen and believe things, and you called people names but could not back up your reasoning or thinking. I don't worship and/or hate FDR for superflous and make-believe reasons. I just read what #2 above and others and happened to agree with #2's reasonings -- it's right and just made sense. That's all! And thus I believe Casey and you are very wrong and partisan. I'd would believe you and your Casey if you can somehow disprove #2 reasoning statement above!

February 23, 2011 | Unregistered CommenterPiggySue

Partisan in what way? Do you imagine that Doug Casey is a Republican? Ha. That's a good one. You obviously don't know much about him. Or me. We're both radical libertarians.

Personally, I revile Hoover just as much as I do FDR, but not for the reasons you would. Hoover wasn't the do-nothing, laissez-faire type he's popularly portrayed to be. He was an interventionist. The crowning irony here is that Roosevelt's running mate, John Nance Garner, accused Hoover of "leading the country down the path of socialism" in 1931. And he was dead on!

Did you know that? I'm guessing you didn't. Do you really know anything about Hoover, Roosevelt, the depression, and the Federal Reserve? If you don't understand the role of the Fed, you don't know nuthin'.

Do you know who the architect of the Social Security System was? Paul Douglas, a professor of economics at the time at the University of Chicago. My father put many pointed question to him at the time he was proposing the scheme...mostly around the Ponzi nature of the plan. Douglas couldn't answer any of them. So, I have a little more than casual knowledge of the inner workings of the Roosevelt regime and it's smoke and mirrors.

Look, I'm under no obligation to educate the ignorant and you clearly qualify, but if you're open minded, here are a few books to read that'll help you understand what actually happened. The cartoon version you learned in school is almost complete fantasy.

Start with Murray Rothbard's "America's Great Depression."

Read Griffin's "The Creature From Jekyll Island." Must read for everyone.

John Flynn's "The Roosevelt Myth." Don't read this if you don't want to be disabused of the idiotic notion that Roosevelt "saved us" from anything.

"FDR's Folly...How Roosevelt and His New Deal Prolonged The Great Depression" ... Jim Powell's book

Amity Shlaes..."The Forgotten Man" is good and reads more like a novel.

Burton Fulsom..."New Deal or Raw Deal. How FDR's Economic Legacy has damaged America."

I have some 20-25 other books that might be of interest, but you get started on those and get back to me.

Oh, one last thing.

Are you aware that Roosevelt's Secy. of the Treasury, Henry Morganthau (fascist insider), said the following after 2 terms serving the criminal FDR?

"We have tried spending money. We are spending more than we have ever spent before and it does not work ... After eight years of this Administration we have just as much unemployment as when we started ... And an enormous debt to boot!"

Roosevelt's administration was a disaster and his legacy will bury us.

For the record, I dislike the following other President's...Obama, Bush, Clinton, Bush, Reagan, Carter, Ford, Nixon,Johnson, Kennedy, and Truman. Any questions? They were/are all gutter scum.

You see politicians aren't regular people. They're sociopaths. They are the enemy of every decent, honest citizen. Trust them at your own peril. And you're a fool to exalt them. They can't give us what we need any more than the Wizard of Oz could. It's all one gigantic scam.

It's why I buy silver.

February 23, 2011 | Unregistered Commenterfallingman


I didn't you and Casey's political persuasion and I didn't need to -- just based on your and Casey's statement. Your types are not much different from the right wingers -- anti-govt. and anti-regulations. Again, I don't worship FDR or anybody else for that matter -- they're all mere humans! I don't think FDR was perfect or whatever. But I favored his financial regulations and some other social saftefy nets. He was from a rich family; he could have just neglected the common rest and favored his type( the rich elite banker and such what seems to be happening right now -- the crooks still run the show). But he did something for the common people, and the financial system worked well for some 50-60 years. So the policies he put in place were in response to the financial criminality that led to the great depression -- whether they all worked or not but that was the intention. At the minimum, he was not all bad like some of you and the right wingers accused him of. Anyway, they succedded in undoing most of policies, esp. financial regulations --- and you got what you and we deserved! That'e all!

February 26, 2011 | Unregistered CommenterPiggySue

Yeah, whatever.

A few quick things and then please go away.

1) When you write in sentence fragments and demonstrate an inability to spell, no one's gonna take you seriously. I understand how you could include a typo here and there. I did above. No one expects perfection, but your message is nearly unreadable.

2) I don't care what you think. Believe whatever malarkey you choose to. It doesn't matter to me. It scarcely matters to the world.

3) The right wing/left wing thing is nonsense. You're correct, I'm anti-government and anti-regulation in ALL spheres. That makes me a libertarian...not a "right-winger." I'm guessing that you're unable to make that distinction, so feel free to stick with your two-dimensional cartoon version of the world.

4) The financial criminality originates at the Federal Reserve. JP Morgan, Goldman, and the rest of the fascist military/industrial complex are the real powers in the world. They control the Fed. Morgan IS the Fed. They control the Treasury. Goldman IS the Treasury. They control every aspect of the government that matters to them. And guess what? They write the "regulations." Wink wink. Don't expect them to be all that constrained.

5) The person who led the way on financial deregulation in the 90's was Robert Rubin, Clinton's Treasury Secretary. I guess he must be a "right-winger." The government and the Fed (not a government agency) exist to do the bidding of the insider elite. To imagine that they do anything other than serve their masters is absurd. Party doesn't matter. Left/right doesn't matter. That's all for show. What matters is the end result. The banksters have managed a silent coup. Took 'em 100 years, but they're now effectively in complete control.

6) Roosevelt served the interests of the elite. He was indeed "all bad."

7) I didn't "deserve" anything, because I had nothing to do with either the implementation of regulations in the first place or the dismantling of same. I'm on the receiving end of the brilliant actions of the state. How's that workin' for me? As we say down south, "Not too good."

But I get to buy silver on the cheap. At least there's that.

February 28, 2011 | Unregistered Commenterfallingman

@fallingman I know where you're from the south -- thus rightly a nedneck! You are falling way, way behind the more you talk, fallingman. Anyway, I don't think you are literate and competent enough to call people names, especially me(an ignorant!). You seemed quite confused and lost. But I give you credit for one important thing: Buying silver! I did the same some time ago when silver was about $10 and change per ounce.

February 28, 2011 | Unregistered CommenterPiggySue

Ha. What a hoot.

I'm a New Yorker, from Long Island. My father was, by all accounts, the top management consultant in the country in his specialty, with offices in the Empire State Building. So, I was born and raised just outside of NYC. I, myself, am a retired management consultant / trainer, and university professor. I now live in the south. I currently do quite a bit of ghost writing and I trade option spreads, mostly on mining stocks. I make out alright for a lost and confused, illiterate incompetent.

You think all southerners are rednecks, do ya? Hmmm. Ah yes, the cartoon version of life. Good thing you aren't prone to calling people names.


I bought my first silver at $1.20 an ounce. Most of the rest at around $4.50. You're a wee bit slow on the uptake. I knew then that what Roosevelt and his ilk had done would eventually bankrupt the country and destroy the dollar. We've now reached that point. Roosevelt was a sociopath...and I'm still being polite. Wilson and the boyz at the Fed set into motion the destruction of the Republic. Roosevelt did the heavy lifting. Johnson and Nixon sealed the deal. The clownbuck is terminal. All that's left is to watch the drama play out.

Okay, so now you've got me curious...and mystified. Why would someone like you buy silver? What was your logic? What did you buy? Junk bags? Bars? Futures? An ETF? Do you trade the stocks? Options? If so, are you primarily a buyer of calls or a seller of premium? Do you do any spread trading?

How did you find this site?

This oughtta be interesting.

March 1, 2011 | Unregistered Commenterfallingman


Why you very wrongly blamed FDR for the current crisis? His policies, esp. financial regulations, kept the financial system stable for decades -- thus American economy grew tremendously with the largest middle clas in the world. Only the undoing of his policies and regulations that us this present crisis. Anyway, thew death of and dying dollar started with creation of the Federal Reserve; they've been printing money since then.

Okay, back to silver! I started to do some reading about investing and the overall economy in general; then I realized how we're drowning insurmountable debt(national); and I concluded that we as a nation are broke, declining, and dollarly dying. That's when I started to exchange some paper money for some silver money. I started later than you; my first small silver buy was around $8 per troy ounce and later at $10 per troy ounce(my main buy) -- all bullion as coins and bars(pure and sterling) and some sterling scaps). I also trade precious metals stocks/options on and off earlier, but not much lately. Finally, I don't remember how I got to this website(you asked); I probably visited/read some precious metals sites/articles and signed up for a free subcription for this site.

Well, enough for today...

March 1, 2011 | Unregistered CommenterPiggySue

Good for you. Smart moves.

Glad you understand the role of the Fed in the corruption of the currency...I think.

Enjoy your silver.

March 1, 2011 | Unregistered Commenterfallingman

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