What if I asked you to forget everything you ever learned about the Great Depression?
You'd say I was crazy.
But hold on for a moment and consider a slightly different perspective. A perspective that you won't find in too many history books. And, quite frankly, a perspective that could allow your portfolio to be much better positioned for the years ahead.
After all, with everything going on the world and the repeated references to the worst downturn since the Great Depression, learning the lessons of history is probably more crucial to your investment success than ever before.
Nobel Laureate Peal S. Buck probably put it best, If you want to understand today, you have to search yesterday.
That's why I'm eager to share with you a different perspective on the Great Depression today from Dr. Robert Murphy - a politically incorrect one.
Dr. Murphy is a former economics professor and author of The Politically Incorrect Guide to the Great Depression and the New Deal.
In an exclusive interview with Andrew Mickey, Q1's Chief Investment Strategist and Editor of the Prosperity Dispatch, Dr. Murphy reveals:
- The single biggest thing that made the 1930's so awful
- The true cost of the $787 billion stimulus program
- Why unemployment is on the verge of going higher than anyone expects
- How some investors were able to profit handsomely during the Great Depression
- The real impact of a 200% increase in taxes and why it could be coming again
All that and more is discussed below in this irreverent and thoughtful look at the Great Depression.
Andrew Mickey: The biggest concern on everyone's mind, despite the anticipated recovery, is that we're headed for a long recession or even a depression.
So what do you see? Depression or recession? Do you see any similarities to what's going on now and the Great Depression?
Robert Murphy: I think a lot of it is similar of course. For example, you had the depression set in under Herbert Hoover who was Republican. And the charismatic Franklin D. Roosevelt (FDR) came in promising to fix things.
So naturally, you have that similarity where people think that George Bush's policies caused all of the problems and Barack Obama is coming in to rescue us.
But ironically, another similarity is that actually what FDR did in the New Deal was not a dramatic shift from Hoover's policy, they were just an extension of what Hoover had done.
So it's a complete myth that people said Herbert Hoover did nothing and that's why the depression got so bad. Actually Hoover engaged in unprecedented deficit spending for peacetime. The Federal Reserve under Hoover cut rates down to record low interest rates and they pumped in all sorts of money. Hoover established the Reconstruction Finance Corporation which tried to prop up banks that had made unsound loans, and he engaged in public works spending.
What Hoover did under his administration, the Hoover Dam for example, was just like our so-called stimulus projects.
Andrew Mickey: That sounds very familiar...
Robert Murphy: Right, it is.
You see all types of things that they are doing now which is exactly what Hoover did and then FDR just amplified it.
So in terms of avoiding the mistakes of the Great Depression, what the government is doing right now is what the government did back then, when we got a decade of depression.
Andrew Mickey: Do you see that most historians and economists believe the government didn't do enough in the Great Depression and that's why we will take even bigger action this time around?
Robert Murphy: That's certainly what the conventional wisdom is. And that's what Obama's economic advisors are presently telling him and telling the press. They're saying the reason Great Depression lingered for so long was that they weren't aggressive enough.
So that's their story...
But as I pointed out in my book, it doesn't really make that much sense. Because by everyone's account, presidents before Herbert Hoover had really done very little. When recessions or depressions hit while on their watch, they let the healing occur naturally.
So it's ironic that the one time that the presidents in office really rolled up their sleeves and tried to use the power of the federal government to fight the downturn, is the same time when we had the worst depression in history.
Fast forwarding to today, whether or not you think it's enough or too little, what President Bush and President Obama have done has been to use unprecedented amounts of federal intervention to try to help the economy. Still though, everyone keeps telling us this is the worst economy since World War II.
So it just seems to be a big coincidence that the more money the government spends and tries to take over the private sector that's when we get a worse and a worse economy. And yet they keep saying the remedy is to do more.
Andrew Mickey: Still though, the market continues to rally. It's up 50% from the lows and everyone - from politicians to Main Street - is watching the market very closely.
Do you see a potential impact of a strong stock market rally and the fact about 70% of Americans hold stocks and mutual funds now and in the 30's it was closer to 3%?
Robert Murphy: It's certainly true that more people are involved in the stock market now, whether directly trading or because of the exposure they have in mutual funds and things like that.
So I think more Americans now are directly exposed to the stock market than was the case in the '30s.
Andrew Mickey: Do you see this as helpful or could it make the situation even worse, or just as bad, as the Great Depression?
lf it were a 1931 kind of situation where all looks well, there are plenty of green shoots, and rising unemployment, then it would be a great time to get out of stocks pretty soon...
Robert Murphy: Well, it's true that if you look at