by Gary North

The recession that began in December 2007 produced a change in Americans' perception of their economic future. They moved from the tradition of hope to one of just barely hanging on. I have never seen this before. Only someone born around 1910 can recall anything like it, assuming that he recalls anything at all.

My parents were born in 1917. They were teenagers in the 1930s. The did not experience the euphoria of the roaring twenties, when the stock market soared after 1924, and there was tremendous optimism based on the new technologies or radio and air travel. The sky was literally the limit. People believed that Europe's war debts were irrelevant, that the recession of 1921 had ended recessions, that America was the wave of the future.

By 1932, that euphoria was a thing of the distant past. Unemployment was at 20%. Prices were down at least 25%. Over 6,000 banks had failed. There was no sector of the economy that was flourishing except gold mining, which had the benefit of a price floor set by law. Then things got worse. Another 3,000 banks failed. Prices continued to decline. Unemployment rose.

That was the world in which my parents went to high school. My mother still talks about it. She remembers men in Portland, Oregon, begging for food, willing to do odd jobs just to eat. Those years scarred her. They scarred her generation, who never fully bought into the idea that prosperity is created by personal debt. They did not fully participate in the debt-driven post–World War II boom, which relied on an extension of consumer credit. Credit worked because people saved. The end of the wartime price controls, coupled with the return of the troops to civilian life, extended the opportunities for capital. Money went into new industries. It went into housing, which was revolutionized by new techniques of mass production.

My generation knew nothing of hard times. Neither did the generation born in the late 1920s, which did not get shipped out to fight the war, and which came to adulthood in the postwar boom.

All of our lives, we have seen economic progress. Television replaced radio as the technology of the future in 1949–53. Energy was cheap. Cars were everywhere. Teenagers had their own used cars, their own records, their own subculture.

My generation was the first pre-adulthood generation that had enough discretionary income to finance its own subculture: movies, music, and used cars. We could go where we wanted to. We grew up without anything resembling economic hardship.

We stayed in school until we graduated from high school. That was something new. A lot of us went to college – also new. Education was seen as the ticket to success and middle-class comfort.

The oil spill that threatens Louisiana is symbolic of the end of an era. Government regulation was supposed to make this impossible. The public has put great faith in the ability of tenured bureaucrats to make things safe for Americans. The Federal Register publishes 70,000 pages of small-type regulations every year. This never ends.

Supposedly, this army of regulators and libraries of pulp-paper rules are supposed to let us preserve our way of life. Then, without warning, the platform blew up. The regulatory agency that supposedly monitored all this had rubber-stamped the authorization to skip the normal testing procedures.

The head of this obscure agency resigned her position. I suspect she was asked to resign. This sent a message to senior appointees in every agency: More paperwork! No latitude! This will no doubt lead to a new era of agencies that tie up progress in reams of red tape. And so it goes.

The mortgage market was unilaterally nationalized in September 2008 on the word of a lame-duck Secretary of the Treasury. The public accepted this without a protest. The Federal Reserve System doubled the monetary base over the next few weeks. Congress passed a $700 billion bailout over the protests of voters. Then a newly elected Congress passed $787 more soon after inauguration day.

The American stock market peaked in early 2000. It has taken constant intervention by the Federal Reserve to prop up the economy. It is becoming apparent to people on Main Street that the people on Wall Street have been able to survive only because of bailouts. The idea that the economy is in a recovery phase is accompanied by assurances from most economists and most Congressmen that the economy would slide back into depression were it not for the courageous intervention of the Treasury and the Federal Reserve System.

Every reform gives us more of the same. Every reform promises to save capitalism from itself. It then transfers more power to the Treasury Department, which in 2008 became widely known as a wholly owned subsidiary of Goldman Sachs.

The reforms transfer more power to government regulators, or in the case of the Federal Reserve, a consortium of privately owned banks under the titular authority of a government agency. But when in 2009, a Federal judge told the Federal Reserve Board to turn over information about which institutions in the camp of the moneychangers were loaned how much money and got sweetheart of Treasury debt swaps at face value for toxic assets, the FED appealed the case. As for any suggestion that the government has the right to audit the FED, Congress has watered down that bill, as I said it would from day one. It may not be clear who is in charge here, but it is not the voters.


The voting public is losing faith in political leadership. The voters do not know how to get positive change. They are not agreed on the nature of the required change. They got Clinton for two terms. All they got was entertainment: Hillary and Monica. They got Bush for two terms. They got Afghanistan, Iraq, Homeland Security (left over from Clinton's Administration), Hank Paulson, and the worst recession since 1933.

What are they getting from Obama? They don't know, but the majority do not like it.

Most of them know something is wrong with Social Security and Medicare. They smell a rat. There are too many politicians and economists telling them that a few minor alterations will make both programs fiscally sound. They have been told this ever since Nixon's era. If the system is easy to fix, why is it still broken?


If the banking system was fixed by Roosevelt, why is it broken?

If the economy is in the initial stages of a recovery, why aren't bankers lending?

If the worst of the financial crisis is over, why are short-term T-bills at less than two-tenths of a percent?

The average voter knows nothing about the details. He only knows that Main Street is not offering them the future they had expected. He has stopped saving much, yet he thought economic growth would come, no matter what. He sees that he is getting under 1% at his bank, and he concludes: "I cannot expect to save my way into a comfortable retirement."

Americans look at their struggling adult children or grandchildren, and they conclude, "They will not have it as good as we did." This is the first generation of Americans to conclude this. This is a change of monumental proportions.

Americans are beginning to think that their golden years will not be golden. They don't know what to do about it, other than keep working. They are correct.

They want change they can believe in. They are losing faith.