After the 1929 stock market crash the Dow index took 25 years to hit a new high. This time, it got back there in five years. What's different? Policy.
That's the view of New Yorker writer John Cassidy, who cites Keynesian economics - massive government spending - as key to the Dow's finish last week above 14,000. Activist government policies are responsible for the turnaround.
"A combination of government bailouts (which originated in the Bush Administration), emergency-lending programs from the Fed, and bank stress tests organized by the Fed and the Treasury Department stabilized the financial system," Cassidy writes.
The "Obama Administration's stimulus program put a floor under the economy at large. And cheap money - a result of the Fed's ongoing efforts to flood the financial system with cash and keep interest rates ultra-low - eventually led to a recovery in stock prices and housing prices, which was what Ben Bernanke and his colleagues wanted to see."
Compare that pro-active response with the hands-off approach of President Herbert Hoover and Treasury Secretary Andrew Mellon in the early 1930s. "There were virtually no stimulus programs; meanwhile the Federal Reserve stood by and allowed many banks to collapse. As a result of this inaction, the economy spiraled downward until F.D.R. entered the White House."
Via The New Yorker.