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Bernanke knows booming & busting

I think Fed Chairman Ben Bernanke has the answer

From the dawn of time the business cycle has boomed and busted. For any product or service we humans endlessly seemed destined to repeat the same pattern. Be it a company or economy we cycled endlessly through extremes of expansion and contraction.

Consider the possibility that Ben Bernanke knows the way to smooth this cycle and put prospects of greater prosperity back on the table.

Good times roll

Imagine this. We begin producing a product or service. Assuming a receptive market, our enterprise grows. For the sake of our story, we have a great hit. We can’t make enough to meet demand, even at our high and very profitable prices.

The money pours in as we boom! Expansion follows expansion. With our success we keep growing and prosper more. Let the good times roll!

The bust happens

As always, things change. Either more suppliers come in to take market share, substitutions are found or consumption gets satisfied. We then have more product than the market needs. We can’t sell enough to pay our bills. Supply exceeds demand.

In response we, and our many competitors, cut prices to move the what is now surplus product. Prices plunge and so does our prosperity. Its a bust!

When that happens throughout an economy we enter a period of depression. Not only do we feel poor, we are poor!

Eventually we recover and do it all over again. Company after company, product after product, economy after economy the pattern repeats.

That pattern persisted century after century. The cause of each bust could be traced to something. Either it was scarcity, surplus, peace, war, famine, pestilence or disease; there was always something.

Change happens

Through time things have actually been changing. One after another, each recurring cause has have been addressed. Solutions to problems have been found. In progressive economies the causes of collapse have been reduced from many to a few.

Consider that populations in progressive economies do not starve or have plagues in either good or bad economic times. Still economic cycles remain.

Stimulus lessons from World Wars

One huge positive that came from the massive destruction of total war were valuable economic lessons. Although World War I and World War II cost many millions of lives they proved to be huge economic stimulators. They actually produced prosperity.

WWI was funded by massive government spending. That provided massive economic stimulus which was a major factor that directly produced the rapid expansion that lasted through the Roaring Twenties.

That economic expansion was real and broad but, as always, we humans found a way to overdo it. The stock market crash of 1929 popped that bubble of market excess.

The following financial collapse combined with bad government policy to produce the Depression. In fact, that Depression that gripped the entire world during the 1930’s. It only ended with the massive economic stimulation of WWII.

Massive spending by many governments again funded years of war in the most immense and destructive global conflict. Cities were leveled, nations destroyed and millions died. All bad but from that came good.

The positive and direct result of that destructive horror was the prosperity and economic expansion of the 1950’s and 1960’s. Prosperity that directly flowed from massive government stimulus. The stimulus continued with huge government spending to fund rebuilding projects.

Stimulus history sounds familiar

Ben Bernanke stimulates with the FED Reserve "Make Money" Button.

Ben Bernanke stimulates with the FED Reserve “Make Money” Button.

Could it be that we have the solution to our current sluggish economic situation? It seems the answer could be exactly what Fed Chairman Ben Bernanke is doing.

After all we have had this lesson twice before. Massive government spending served as a stimulus that produced years of prosperity. Although the spending focus was war, it worked to stimulate economic growth for decades. That produced the Baby Boom!

It seems to me it worked and will work again. It worked in the 1920s as well as the 1950s. It will work again.

The sad facts of WWII are well known to Ben Bernanke. He studied this history and was a leading expert on the Depression, its causes and the resolution. He was the perfect person to lead us from the edge of the abyss in Sept. 2008.

I think Ben Bernanke has it right and will continue to stay the course.

Previous White Top View posts discussed Ben Bernanke’s talk of tapering the U.S. Federal Reserve Bank stimulus program. We opened the discussion with Part 1, 5 to 10 years of Fed taper effect coming.

Part 2 discussed, A billion $ here a trillion $ there! What happens next? In Part 3, Bernanke bounces depression – helps stock markets and your pocketbook, we covered the very positive results of the stimulus program so far.

What do you think? Make a comment, ask a question, we can talk about it.

These bite sized lessons are intended to demystify investing. You can become a knowledgeable confident investor, one small step at a time. Please ask questions, I can help you better understand markets and investing. The White Top Views email list will not be shared or sold.

Have a great day!


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