Dubya: Herbert Hoover II?

by Joe Blow   

I noted with interest President George W. Bush’s recent call for affordable high-speed Internet access for all Americans by 2007. The resemblance to Herbert Hoover’s 1928 slogan of a “chicken in every pot” was simply too much to ignore. While these may seem to be unrelated issues, to those who know anything about American political history, this was a spooky pronouncement, with an ominous outlook for the future if you compare Hoover’s situation then to Bush’s predicament today.

Just like Hoover, Bush’s call was not original. Hoover paraphrased France’s King Henry IV who said that he hoped each peasant would have “a chicken in his pot every Sunday.” Bush’s remark merely reiterated Al Gore’s call for an “information superhighway” for all Americans.

Unlike Hoover, who was elected by one of the largest majorities in Republican Party history, Bush just barely squeaked into office, with an assist from the Supreme Court.

“When Hoover became president, there was a frenzy of activity on the stock market. People were buying stocks by borrowing money, or they were buying stocks on margin (buying with only a portion of the money down, and the rest out of profits). This had been going on since the early 1920s, and Herbert Hoover knew this gambling in the stock market was dangerous. Banks were also speculating in the stock market with their depositors' money, and there were no laws to stop them. Soon after Hoover's inauguration, the market went up and up. Most of the money for stock market gambling was being borrowed through the banks, and Hoover asked for an examination of the banking system along with laws to reform and strengthen the system.

“Hoover tried to stop the speculation, but no one listened. Privately, he tried to convince the more influential bankers to stop making loans to brokers who were recklessly encouraging speculation. His appeals to the Federal Reserve, Congress and Governor Roosevelt (to propose stiffer regulation of the New York stock exchange) went unheeded.”

The predicament in which Bush now finds himself is eerily similar, albeit self-imposed by his profligate federal spending, a massive $550 billion deficit, and a $7 trillion national debt accumulated from previous annual deficits. Hoover’s period of speculation was in the stock market using other people’s money. Bush’s period of speculation is in public debt, using largely foreign investor’s money, to be repaid with interest by future generations of American taxpayers not yet conceived. The situations are essentially the same, except that the debt load of the nation today is at an all-time high, unprecedented in the history of the world.

While many economists would have you believe that “all is well,” nothing could be further from the truth. These are the same pundits who subscribe to the pols’ theory that “we owe it to ourselves” so the massive debt is not really a problem. Anyone who actually believes such tripe probably graduated from a public school and never read any Heinlein, so they are blissfully ignorant that “there ain’t no such thing as a free lunch.” Here in the real world, the piper must be paid, and the music is about to cease.

“Seven months after Hoover was inaugurated, the stock market crashed. The president tried giving statements of confidence to the people. This would be a new kind of disaster that Hoover must pioneer. Hoover was blamed for much of what was going wrong, and people were losing confidence in him.”

Bush now finds himself in a similar predicament. The recession supposedly ended two years ago, but a jobless recovery doesn’t garner many votes in an election year. If you have been paying attention, you already know that the major players pulled out of the U.S. stock market months ago. The dollar is in freefall, the price of gold keeps rising against the dollar, and recently it also started to rise against other currencies as they were devalued. What does it all mean? The stock market is due for a major correction, at least a recession, some say a depression. If you follow the gold bugs, most expect gold to be at $500 an ounce by year’s end. The more optimistic are forecasting a top of $1,000 an ounce, sometime in the next several years, if the forecast bull market in gold pans out.

“By the spring of 1931, things were looking better with the depression and unemployment, but Europe exploded in an economic crisis. This of course affected the U.S. The American banking system was so involved with Europe through war debts, bonds, loans and bank deposits abroad and European deposits in America , that whatever happened on one side of the ocean affected the other as well.”

Historically, the U.S. dollar was considered a safe haven in times of trouble, but those days are over. Foreign investors are looking elsewhere today. The euro has come into its own as a world-class currency, albeit as fiat “money” like all the rest. As the dollar continues to fall, eventually the Treasury will run out of investors. When that happens it will be forced to raise interest rates to attract them, resulting in a tighter money supply and higher inflation. These are not things that may happen, they are inevitable.

“By the summer of 1932, the depression reached its lowest point. There were 12 million people unemployed and 18 million on relief. It was a Presidential election year. Without much enthusiasm, the Republicans nominated Herbert Hoover again, while the Democrats chose Franklin D. Roosevelt . . . . The American people tired of the depression and upset with the slowness of the recovery were charmed by the gaiety and confidence of FDR. They elected him President in 1932.”

All indications point toward a major stock market correction, maybe yet this year. If it comes before the election, Bush’s goose will be cooked and you can forget about a “chicken in every pot” and high-speed Internet access in every home. If it comes after he is reelected, Bush will still be replaced by a socialist Democrat, just like Hoover was.

In either case, Bush would be blamed for a stock market crash and the following debacle, but unlike Hoover, Bush would actually deserve it. Odds are good that history will record Bush as the man who finally broke the bank of the world’s richest nation.