Is History Ready To Repeat Itself?


October 2008

Vol 32 No 2


          In 1933 America was reeling from a stock market crash that had robbed speculators of their hopes and fortunes.  Banks were failing right and left.  The Wagner Act had been passed to give labor unions expanded powers.  The Smoot-Hawley Tariff had been passed to limit foreign import competition.  In the face of economic slow down, income tax rates had been doubled.  Against this backdrop of events, the country turned to a glib politician who promised a New Deal for everyone; at the expense of the money-grubbing rich.  Although the prior President, Hoover, who had presided over the stock market crash was blamed for the depression, Roosevelt’s socialist economic policies turned it into the “Great Depression”; which lasted up to the start of WWII.  At its height, unemployment reached 25% of American workers. 


          One of the first things Roosevelt did, ostensibly to prevent “runs on the banks”, was to close all the banks.  He only allowed those to reopen that agreed to accept Federal Reserve Notes in place of real money backed by gold and silver. We’re still using them today.  He recognized the validity of the struggling Communist Party.  This caused its membership to increase ten times during his tenure.  He was caught red-handed trying to “pack” the Supreme Court with his cronies by increasing the number of Justices.  He rewarded WWI veterans by dispersing them with Army tanks  when they demanded their promised bonuses.  His “deficit financing” increased the national debt to record highs.  His misguided foreign policies enabled right wing extremists in Germany and Japan to gain power; leading directly to WWII.       


                        Roosevelt’s Robin Hood policies robbed the rich with 92% income taxes.  He created Social Security, the Federal Housing Administration and an alphabet soup of federal agencies that provided government jobs to ease unemployment.  In the process, he turned America from being a nation of confident, self-reliant, can-do people into government wards by ushering in the era of “entitlements”.  It worked.  He was re-elected an unprecedented three times following his initial term.  This wasn’t lost on office holders; hence we’ve continued on down this path ever since.


          Truman, an untested, un-prepared, un-tried, machine politician, replaced Roosevelt.  His administration was riddled with “Red Liners” who allowed our super secret “A” and “H” bombs to be stolen.  Today we are threatened by the ability of third-world nations to use them against us.  He was the first elected President to start a war without the permission of Congress; and to place American troops under the control of foreign commanders.  He termed the “Korean Conflict” a “Police Action” rather than a “war” so as to deny those who fought in it veteran benefits.  He fired General McArther and replaced him with lesser talents; thus, the Korean War was the first war in our history that America lost.  One third of the POWs died, and another third were so bitter that they refused to return when released from prison.


          Kennedy, the first to use televised debates, was elected more for his charisma and youth than his accomplishments, ability, or experience.  His first act in his 1000-day reign, was to call off the Cuban invasion in the midst of it, allowing a communist empire just 90 miles off our coast to spread its poison throughout South and Central America.  He made a deal with the Russians to install missiles in Cuba, then was proclaimed a hero by resolving the “Cuban Missile Crisis” that he had caused.  He destabilized Viet Nam by assassinating its ruling Diem family. This tempted the North Vietnamese to invade, causing the loss of 55 thousand American lives.  After proclaiming “Ich Bin ein Berliner” to cheering throngs, he allowed communists to erect the Berlin Wall without any opposition.          


         We can’t overlook Jimmy Carter in the parade of political mistakes that American voters have made.  He left his government-subsidized Georgia peanut farm to come to Washington as an outsider who was going to clean everything up.  He stayed an outsider insofar as Congress was concerned.  About all he accomplished was to allow Americans to be held captive in Iran while he printed money to pay for his programs.  The result was the highest rate of inflation since Lincoln’s time, and the highest rates of interest.  This decimated business, but made fortunes for those who had leveraged real estate with fixed-rate, long-term, low-interest rate loans.


          These foregoing were all Democrats, but the Republicans have been as bad:   Nixon devalued the dollar 10% to create a run on the dollar.  Reagan set the stage for trillion-dollar deficits.  Half of the entire national debt since the founding of the nation has been incurred during the Reagan and Bush Administrations.  The Bush Administration exploited 9/11 by deliberately spreading fear among Americans.  The cowed Congress rubber-stamped legislation that resulted in loss of freedoms and rampant spending that will burden Americans far into this century.  During the past 8 years our economy and our institutions have fallen into decay.  Schools don’t prepare our kids to be productive adults.  Medicare is broke.  We’re being led by political Judas-goats down the path toward the destruction of our values, and of the American economy


          Over the past 8 years, our country has gone down hill.  Bush’s permissive ethical climate was reflected in the decay of principles and honesty in corporate-America.  Corruption in government make the Grant and Harding eras seem like Boy Scout picnics.  Not only has America become a “debtor nation”, beholden to others for debts we cannot pay; but, while he took no action against the countries from which the attackers came:  Saudi Arabia (15), Lebanon (1) Egypt (1), Emirates (2), Bush plunged us into a “no win” war against Iraq, which was innocent of the 9/11 attack, while at the same time abandoning any meaningful effort to find Osama Bin Laden.  In response to 9/11, I wrote the following special supplement that accompanied the first CommonWealth Letter sent after the World Trade Tower attack:




     “The above statement was made by President Franklin D. Roosevelt in the aftermath of the sneak attack on Pearl Harbor.  His words galvanized a sleeping giant, America, into action.  Within days, millions of volunteers from all walks of life had lined up to join the armed forces; and American industry had begun converting from civilian to wartime production.  Four months later, Jimmy Doolittle, using land-based airplanes in what was considered by his men to have been a suicide mission, rained death and destruction on the Japanese capital, Tokyo.  On the civilian front, financial and real estate markets crashed.  Californians were startled into a state of panic when a Japanese shell exploded near Pacific Palisades.


     Although the September 11th attack on New York and the Pentagon may seem similar, there is really no comparison to Pearl Harbor.  In the first place, Japan was a major modern industrial powerhouse whose empire stretched across the Western Pacific.  Its allies, our enemies, included well-equipped battle-tested German, and Italian forces.  The 19 terrorists who launched the September 11th attack represented only a fringe group comprised of outcasts whose major weapon was the ability to instill panic in our leaders and the general public; and who, although from the near East, represented no enemy country, no major economic interest, nor any organized religion.  Despite the outpouring of patriotic fervor, Americans are not lining up to join the Marines, and our factories are not being to converted to war-time production.


     Individually, and as a nation, we dare not capitulate to unwarranted fear that a few hundred terrorists are somehow more powerful than millions of war-time adversaries.  We should take our cue from the British, who endured almost two years of daily bomber attacks in 1940 and 1941 without cracking.  Despite the horrible loss of life in the World Trade Center attack, the continue threat to life, limb, and property, while serious, doesn’t warrant a nation of 300 millions people to suddenly be afraid to go to shopping centers, stadiums, Disneyland, or airports; especially when they expect their children to keep on going into schools, and Airline crews to continue to fly the mail.  In September’s financial panic, millions of investors lost their savings.  Panic could ultimately cost in the neighborhood of two trillion dollars once all the economic costs are factored in.  An American public paralyzed by fear is just what the terrorists wanted; don’t allow them to win.”


     An unprepared Bush Administration, with little sense of history, took a course of action that was totally ineffective.  Not only have we failed to find and punish Osama Bin Laden, we have destabilized a region upon which we depend for oil.  To stifle criticism of his poor performance, Bush has sown fear at every opportunity.  We’ve allowed our Constitution to be bent and twisted as never before; thus we’re all less free.  We executed WWII war-criminals who tortured American prisoners.  The Bush Administraion has condoned torturing prisoners without regard to how captured Americans might be tortured in reprisal.  Maybe, because I spent 20 years in service and have a grandson on active duty, I’m a little more sensitive to this than others.



          When running for President, Ronald Reagan used to ask, “Are you better off now than you were 8 years ago?”  Republicans don’t dare ask that question today. Instead they have nominated as President John McCain.  His main qualification boils down to having been a prisoner of war.  As a Senator he might charitably be ranked as mediocre.  He has never held a civilian job, nor been solely responsible for major decisions over anything in his entire working life.  He has a self-proclaimed ignorance of economics.  He is clearly as unprepared and unqualified as Truman and Bush were, and is capable of making just as serious mistakes.  He seems to have no political philosophy or much of a political agenda, having avoided presenting any feasible plan to resolve our current woes.  If his campaign organization and strategy are any indication, he could become one of our least effective Presidents.           


          The Democrat have dredged up Obama, a glib talker from nowhere, who not only managed to survive being raised by a poor single mom and grandparents, but still graduated from Harvard; which isn’t famous for producing great Presidents.  Obama’s a close competitor to McCain when it comes to being untested, untried, and unprepared to be our nation’s leader.  Like McCain, he doesn’t seem to have ever had to earn a profit or wages in the civilian economy; or meet a payroll, prepare budgets, or be responsible for major decisions, etc.  Hence, like Truman, Kennedy, and Carter; when it comes to international concerns, he is naïve, and is capable of being led astray.  Like Roosevelt and Johnson, he wants to make America even more socialistic by taxing the rich and spreading the largess among the new victim class he’d nurture by giving away free money that America doesn’t have


          Obama’s supporters see him as a cross between John F. Kennedy, Carter, and Roosevelt; but he’ll have to overcome problems they never experienced:  He’ll have to resolve the wars in Iraq and Afghanistan without leaving things in a state of chaos that would tempt Iran or threaten Israel.  He’ll have to find a way to reduce energy costs within a time frame that can’t be met by alternate energy sources, atomic power, or drilling of new wells.  He’ll have to figure out how to pay down trillions of dollars of debt to China and others without plunging the country into depression with higher taxes, or into run-away inflation with counterfeit dollars.  He’ll have to deal with Medicare fraud, rising health-care costs, immigration, a failing public education system, rising unemployment, failing infrastructure, etc.   


          If neither can do the job, why bother to vote at all?  Our next President is going to appoint Supreme Court Justices who are going to control how lower courts dispense justice, ignore or support property rights, allow or limit governmental power, and the extent to which the U.S. Constitution can be further distorted.  Bush, Kennedy, and Truman showed us that a President can start a war without  Congress.  Bush and Clinton showed us the power a President can wield with his Executive Orders without Congressional approval.  I think for all the above reasons, McCain will do less damage than Obama.  When you consider the potential for more erosion of our freedoms and a run-amok economy over the next term, the best bet for all voters is to try to elect an Administration from one party, and a Congress controlled by the other.  Sometimes, doing nothing beats doing the wrong thing.


          Republican control of Congress after 1994, was a counterbalance to Clinton.  Although the Clintons ran off with White House furniture and dinnerware, at least the budget got balanced for the first time since Eisenhower.  When Nancy Pelosi became speaker of the house with an aggressive left-wing agenda, the Senate acted like a sea-anchor to keep her from veering too far to the left.  For the good of the country, if Americans can avoid having three left-wing Supreme Court Justices appointed during the next four years, we have an outside chance of being able to restore the Constitutional freedoms and property rights that Bush took away. 


          The next election will be won or lost at the local Precinct level.  Rather than focusing on the Presidential scene, get to know your local candidates, who they are, what they stand for, the extent to which they respect personal property rights, and how well they have done their public service jobs in the past.  Elect the best.



          In just a few more weeks the election will have been decided.  Regardless how it all comes out, readers of this letter will do just fine.  Each local situation usually differs from that of another area, or of the country as a whole.  The Big Picture controls much of Johnny Lunchbucket’s life and that of his boss, but the house business exists in a micro-economy that is geographically and economically bounded by a small area, and is populated by creative entrepreneurs.  


          The things that will affect real estate people’s income and the ability to create wealth the most will be population and job growth, local housing demand, rents and Rent Controls, State and local taxes, recording fees, availability of Credit, and credit restrictions.  To the extent that governmental policies destroy jobs, or replace them with government jobs, there can be a temporary boost in real estate values and income, but the long-term prospects might be impaired.  You can see the results of these policies in Ohio, New York, and many farm States.  Conversely, when population is increasing along with incomes derived from non-governmental businesses that create better jobs, those who invest in single family houses will prosper; whether they are fixers, flippers, investors, or managers.


          It’s important not to be weighed down by those who seek out every little bit of bad news as an excuse as to why they, and you, won’t be able to succeed.  There’s a tendency among victims to drag successful people down to their level rather than to try to rise to a higher level.  That’s why many studies have shown that, over a lifetime, your five closest friends will be in about the same income bracket as you.  The lesson is pretty clear; choose your friends from among the winners rather than from among the victims in your society.  Look for optimism, energy, creativity, work ethic.  Avoid pessimism and the victim mentality, and those who whine for more government support; to be paid for by the most productive citizens.


         Dividing the citizenry through the use of envy is a fundamental tool of the trade for politicians, so it must be guarded against.  Envy is the most destructive of all negative traits.  It makes a person want to take away what another person has achieved, and failing in this, to destroy it.  In 1872, Mrs. O’Leary’s cow kicked over a lantern and started the great Chicago fire that destroyed 80% of all the buildings.  Over the next year, so many of the remaining buildings were destroyed by arson that it became a “shoot on sight” criminal offense.  Why, with so much damage, did this happen?  Envy!  Those who had lost their property were making certain that those whose houses had survived wouldn’t be any better off than they were; so they lit them on fire too.  In the 21st Century we don’t light fires, we sue; so beware.           


          In the next four years, there will be many changes.  Some of them will be beneficial, and some damaging.  Those who survive and prosper must be willing to learn new ways to do business under any scenario that emerges.  Finding bargain-priced houses, negotiating feasible terms that can lower the price and/or the costs of holding properties as rentals, and finally, protecting and conserving assets by investing money prudently to provide financial independence and security will be the critical.  Succeeding while others around you are failing can incite a lot of envy in others.  Try to avoid this.  If you find ways to survive and prosper, hold you cards close to your vest.  Don’t make a show of your success.  Find ways to help those who are struggling to survive until better times return.


          In an environment whose hallmark is mis-information from government, financial analysts, corporations and the media, we may discover that our greatest source of strength and stability lies in our selves and those we gather around us.  For several years I have held an Open House for subscribers to this letter almost every Friday in my home to provide a rallying point for a cohesive group of like-minded friends who could help each other.  You might do the same in your own area.    


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Quotation not permitted.  Material may not be reproduced in whole or part in any form whatsoever.

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