I was trying to boycott this thread but the video is just too silly and full of clueless statements. For people who really want to know what is one of the major causes of economic turmoil I recommend the Robert Reich essay on Marriner Eccles (excerpt and link here):
http://ideas.economist.com/blog/earthquake-economy
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The Federal Reserve Board, arguably the most powerful group of economic decision-makers in the world, is housed in the Eccles Building on Constitution Avenue in Washington, D.C. A long, white, mausoleum-like structure, the building is named after Marriner Eccles, who chaired the Board from November 1934 until April 1948. These were crucial years in the history of the American economy, and the world’s. While Eccles is largely forgotten today he offered critical insight into the great pendulum of American capitalism. His analysis of the underlying economic stresses of the Great Depression is extraordinarily, even eerily, relevant to the crash of 2008. It also offers, if not a blueprint for the future, at least a suggestion of what to expect in the coming years.
A small, slender man with dark eyes and a pale, sharp face, Eccles was born in Logan, Utah, in 1890. His father, David Eccles, a poor Mormon immigrant from Glasgow, Scotland, had come to Utah, married two wives, became a businessman, and made a fortune. Young Marriner, one of David’s twenty-one children, trudged off to Scotland in 1910 as a Mormon missionary but returned home two years later to become a bank president. By age twenty-four he was a millionaire; by forty he was a tycoon – director of railroad, hotel, and insurance companies; head of a bank holding company controlling twenty-six banks; and president of lumber, milk, sugar, and construction companies spanning the Rockies to the Sierra Nevadas.
In the Crash of 1929, his businesses were sufficiently diverse and his banks adequately capitalized that he stayed afloat financially. But Eccles was deeply shaken when his assumption that the economy would quickly return to normal was, as we know, proved incorrect. In mid-December 1933, Eccles was asked to join the Treasury Department, and the following summer, to become chairman of the Federal Reserve Board. For the next fourteen years, with great vigor and continuing vigilance for the welfare of average people, Eccles helped steer the economy through the remainder of the Depression and World War II. He would also become one of the architects of the Great Prosperity that the nation and much of the rest of the world enjoyed after the war.
Eccles is best remembered, though, for his insight about the major cause of the Great Depression. It was, he thought, the vast accumulation of wealth and income in the hands of the wealthiest people in the nation, which siphoned purchasing power away from most of the rest of the nation. In Eccles’s words: As mass production has to be accompanied by mass consumption, mass consumption, in turn, implies a distribution of wealth – not of existing wealth, but of wealth as it is currently produced – to provide men with buying power equal to the amount of goods and services offered by the nation’s economic machinery. Instead of achieving that kind of distribution, a giant suction pump had by 1929-1930 drawn into a few hands an increasing portion of currently produced wealth. This served them as capital accumulations. But by taking purchasing power out of the hands of mass consumers, the savers denied to themselves the kind of effective demand for their products that would justify a reinvestment of their capital accumulations in new plants.
In consequence, as in a poker game where the chips were concentrated in fewer and fewer hands, the other fellows could stay in the game only by borrowing. When their credit ran out, the game stopped. The borrowing had taken the form of mortgage debt on homes and commercial buildings, consumer installment debt, and foreign debt. Eccles understood that this debt bubble was bound to burst. And when it did, consumer spending would shrink. And so it did. When there were no more poker chips to be loaned on credit, consumers had no more money to spend. This naturally reduced the demand for goods of all kinds, which in turn caused an increase in unemployment. Unemployment further decreased consumption which further increased unemployment.
If Eccles’s insight into the cause of the Great Depression sounds familiar to you that’s no coincidence. Although the Depression was far more severe than the Great Recession that officially began in December 2007, the two episodes are closely related. As Mark Twain
once observed, history does not repeat itself but it sometimes rhymes. Had America not experienced the Great Depression, policymakers eighty years later would not have learned how to use fiscal and monetary policies to contain the immediate economic threat posed by the Great Recession. But we did not learn the larger lesson of the 1930s: that when the distribution of income gets too far out of whack, the economy needs to be reorganized so the broad middle class has enough buying power to rejuvenate the economy over the longer term.
Until we take this lesson to heart, we will be living for many years with the Great Recession’s aftershock of high unemployment and low wages, and an increasingly angry middle class. The wages of the typical American hardly increased in the three decades leading up to the crash of 2008, considering inflation. In the 2000s, they actually dropped. According to the Census Bureau, in 2007 the male worker earning the median male wage (that is, smack in the middle, with as many men earning more than him as earning less) took home just over $45,000. Considering inflation, this was less than the typical male worker earned thirty years before. Middle-class family incomes 1 were only slightly higher. But the American economy was much larger in 2007 than it was thirty years before. If those gains had been divided equally among Americans, the typical person would be more than 60 percent better off than he actually was by 2007. Where did the gains go? As in the years preceding the Great Depression, a growing share went to the top. It was just like Eccles’s “giant suction pump,” drawing “into a few hands an increasing portion” of the nation’s total earnings.
rolleyes
