How we can prevent recessions and depressions.
In order to prevent something, it is helpful to know what causes that thing. If we wish to prevent recessions and depressions, we need to know what causes them. Then, if we can prevent the causes, we can prevent the effect.
The word “recession” is defined as two consecutive quarters of reduced economic growth. It’s an arbitrary definition, that could just as easily be “three or more” – or fewer – quarters of reduced growth.
“Depression” has an even less specific definition. Investopedia says, “A depression is a severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts two or more years.”
Ask any mainstream economist what causes recessions and depressions, and he’ll tell you pretty much what 24/7 Wall Street says in its 2010 article, “The 13 Worst Recessions, Depressions, and Panics In American History” by Michael B. Sauter, Douglas A. McIntyre, and Charles B. Stockdale.
They list as causes:
” . . . sharp rises in unemployment, disruption of the banking and financial system, steep fall-offs in business and consumer spending, stagflation, rising bankruptcies, and an increase in the number of companies which have to weather periods of financial distress, asset speculation bubbles (rapidly rising values of gold, land, real estate), trade restrictions, bank failures, unchecked lending,” and just about anything else you can imagine.
Thus, to the mainstream economists, preventing recessions and depressions merely requires preventing all of the above — in short, they have no idea what to do.
There is, however, one common denominator for the vast majority of recessions and for virtually all depressions, and if we prevent that one common denominator, we will prevent recessions and depressions.
Here is some data that illustrates the common denominator: 
1796-1799: U.S. Federal Debt reduced 6%. Depression began 1797
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
1796-1799: U.S. Federal Debt reduced 6%. Depression began 1797.
01/01/1799 78,408,669.77
01/01/1798 79,228,529.12
01/01/1797 82,064,479.33
01/01/1796 83,762,172.07
1804-1812: U. S. Federal Debt reduced 48%. Depression began 1807.
01/01/1812 45,209,737.90
01/01/1811 48,005,587.76
01/01/1810 53,173,217.52
01/01/1809 57,023,192.09
01/01/1808 65,196,317.97
01/01/1807 69,218,398.64
01/01/1806 75,723,270.66
01/01/1805 82,312,150.50
01/01/1804 86,427,120.88
1817-1821: U. S. Federal Debt reduced 29%. Depression began 1819.
01/01/1822 93,546,676.98
01/01/1821 89,987,427.66
01/01/1820 91,015,566.15
01/01/1819 95,529,648.28
01/01/1818 103,466,633.83
01/01/1817 123,491,965.16
01/01/1816 127,334,933.74
1823-1836: U. S. Federal Debt reduced 99%. Depression began 1837.
01/01/1836 37,513.05
01/01/1835 33,733.05
01/01/1834 4,760,082.08
01/01/1833 7,001,698.83
01/01/1832 24,322,235.18
01/01/1831 39,123,191.68
01/01/1830 48,565,406.50
01/01/1829 58,421,413.67
01/01/1828 67,475,043.87
01/01/1827 73,987,357.20
01/01/1826 81,054,059.99
01/01/1825 83,788,432.71
01/01/1824 90,269,777.77
01/01/1823 90,875,877.28
1852-1857: U. S. Federal Debt reduced 59%. Depression began 1857.
07/01/1858 44,911,881.03
07/01/1857 28,699,831.85
07/01/1856 31,972,537.90
07/01/1855 35,586,956.56
07/01/1854 42,242,222.42
07/01/1853 59,803,117.701
1867-1873: U. S. Federal Debt reduced 27%. Depression began 1873.
07/01/1873 2,234,482,993.20
07/01/1872 2,253,251,328.78
07/01/1871 2,353,211,332.32
07/01/1870 2,480,672,427.81
07/01/1869 2,588,452,213.94
07/01/1868 2,611,687,851.19
1880-1893: U. S. Federal Debt reduced 57%. Depression began 1893.
07/01/1893 1,545,985,686.13
07/01/1892 1,588,464,144.63
07/01/1891 1,545,996,591.61
07/01/1890 1,552,140,204.73
07/01/1889 1,619,052,922.23
07/01/1888 1,692,858,984.58
07/01/1887 1,657,602,592.63
07/01/1886 1,775,063,013.78
07/01/1885 1,863,964,873.14
07/01/1884 1,830,528,923.57
07/01/1883 1,884,171,728.07
07/01/1882 1,918,312,994.03
07/01/1881 2,069,013,569.58
07/01/1880 2,120,415,370.63
1920-1930: U. S. Federal Debt reduced 36%. Depression began 1929.
06/30/1930 16,185,309,831.43
06/29/1929 16,931,088,484.10
06/30/1928 17,604,293,201.43
06/30/1927 18,511,906,931.85
06/30/1926 19,643,216,315.19
06/30/1925 20,516,193,887.90
06/30/1924 21,250,812,989.49
06/30/1923 22,349,707,365.36
06/30/1922 22,963,381,708.31
06/30/1921 23,977,450,552.54
07/01/1920 25,952,456,406.16
It’s pretty clear isn’t it. The common denominator among all U.S. depressions is reduced federal deficit spending (reduced debt). A growing economy requires a growing supply of money, and federal deficit spending provides that money.
Ask anyone what caused the “Great Depression of 1929, and they will tell you exactly the same thing as Messrs. Sauter, McIntyre, and Stockdale:
“A period of rampant speculation in the 20’s led to a market crash of epic proportions. Over the course of two days, beginning with the infamous ‘Black Tuesday,’ the stock market lost more than a quarter of its value.”
Utter nonsense: The stock market IS rampant speculation. That’s all it is and all it ever has been. That’s its purpose. What do you think those guys behind computers, and those other guys on the floor waving their arms and screaming are doing: Rampantly speculating.
No, the Great Recession was due to lack of money.
And here is another hint:
Recessions (vertical gray bars) tend to begin following a period of reduced federal debt growth, and recessions and depressions are cured by increased federal debt growth.
Reduced growth in the money supply does tend to cause the ” . . . sharp rises in unemployment, disruption of the banking and financial system, steep fall-offs in business and consumer spending, stagflation, rising bankruptcies, and an increase in the number of companies which have to weather periods of financial distress, etc., etc. mentioned above, but they all are results, not the fundamental cause.
Economic growth requires money growth, which should be obvious, because the primary measure of the economy is GDP, which is a money measure.
GDP = Federal Spending + Non-federal Spending + Net Exports.
All three terms — Federal Spending, Non-federal Spending, and Net Exports — are associated with increased supplies of money.
Since the federal government cannot run short of its own sovereign currency, the U.S. dollar, and has the unlimited ability to prevent inflation (which, in any event, is not caused by federal deficit spending, but rather by shortages), what is the reason to reduce federal deficits and debt?
I can think of only one: Ignorance of facts.
The one good thing Donald Trump has done (though he is clueless about what it is) is to run a trillion-dollar deficit. That will grow the economy, further, just as Barack Obama’s deficits did.
Rodger Malcolm Mitchell
Monetary Sovereignty
Twitter: @rodgermitchell
Search #monetarysovereigntyFacebook: Rodger Malcolm Mitchell
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The most important problems in economics involve the excessive income/wealth/power Gaps between the richer and the poorer.
Wide Gaps negatively affect poverty, health and longevity, education, housing, law and crime, war, leadership, ownership, bigotry, supply and demand, taxation, GDP, international relations, scientific advancement, the environment, human motivation and well-being, and virtually every other issue in economics.
Implementation of The Ten Steps To Prosperity can narrow the Gaps:
Ten Steps To Prosperity:
2. Federally funded Medicare — parts a, b & d, plus long-term care — for everyone
3. Provide a monthly economic bonus to every man, woman and child in America (similar to social security for all)
4. Free education (including post-grad) for everyone
5. Salary for attending school
6. Eliminate federal taxes on business
7. Increase the standard income tax deduction, annually.
8. Tax the very rich (the “.1%”) more, with higher progressive tax rates on all forms of income.
9. Federal ownership of all banks
10. Increase federal spending on the myriad initiatives that benefit America’s 99.9%
The Ten Steps will grow the economy, and narrow the income/wealth/power Gap between the rich and you.
MONETARY SOVEREIGNTY
#Monetary Sovereignty - Mitchell 
The list of federal debt reductions and consequent recessions, I suggest ,should be your starting point in contacting economists and politicians, led by a question: What is your explanation for this? Does anyone listen to this? More proof is how in early USA counterfeiters produced massive amounts of money and this expanded the economy. And Lincoln funded the civil war by pumping federal money (printed, not borrowed) into the economy, causing a boom.
Looks like the problem is scarcity. Scarcity that enables the top ownership class to concentrate wealth in their hands.
Thanks for this,John McGrath
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John, I’ve been doing this for 25 years. The mainstream economists, politicians, and media folks, are immune to facts, I guess.
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Rodger, Have you ever attempted to do the sums for your 10 steps? Would the pluses and minuses largely cancel out each other? I’d be interested in say today’s position
Cheers
John
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No. Some would be straightforward, for instance “Eliminate FICA.” Some would depend on many variables, for instance, “Salary for attending school.”
I don’t know what you mean by, “pluses and minuses largely cancel out each other.”
If you’re referring to Bernie Sanders ludicrous attempt to show that Medicare for All would cost nothing extra, not only is it silly, but it’s counter-productive.
One of the many advantages of the “Ten Steps” is that they would force the federal government to run bigger deficits. The last thing this nation needs is a program that adds no dollars to the economy.
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Pluses and minuses meant some would save money and some would cost money. I was seeing if doing all those things didn’t add say 10% to the deficit or 20 % or whatever.[?} I think the aim today is only 2 -3% I’m sure there is plenty of fiscal space this side of runaway inflation. Just to avoid too much ammo for the doubters.
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The graph indicates that below 10% YTY leads to recessions, and above 20% cures recessions. As for “fiscal space this side of runaway inflation,” deficit spending does not cause inflation. Shortages of goods, usually of food, cause inflation.
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Which graph are you referring to? Deficit spending can cause runaway inflation if you run out of resources. The fiscal space is mighty large right now.It’s urgent we get the message through now that MMT is stirring the discourse, mostly due to there being a voice in Congress, AOC. Bless her!.I heard today that Jeremy Corbin met Bill Mitchell and is coming on board too. So the UK might see some improvements. It’s not happened here in Aus yet. It’s a disgrace, that we now rank as the richest country, but there are many sleeping rough, in the streets, homeless.
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There is only one graph in the post.
“Deficit spending can cause runaway inflation if you run out of resources.” It’s not the deficit spending; it’s the shortages of resources that cause inflation. Shortages always lead to price increase, whether or not there is deficit spending.
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Thanks for a great read
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