Gold and Silver Lifeboats for Sinking Titanic U.S. EconomySubmitted by soule on Wed, 01/28/2009 - 12:59
Jan 28, 2009 - 04:04 AM
My uncle, Bobby Schoon, grew up during the Great Depression. Born in the 1920s, the 1930s were to be far different than the previous decade. My uncle came of age when the US led the world into an economic abyss where human desperation and misery were to become commonplace, an abyss that is now about to be revisited.
For most born after the 1960s, the Great Depression was an event that had happened to a previous generation. They have no idea how an economic collapse could affect them; that no matter how much they had saved, that their savings could instantly disappear and that no matter how willing they were to work, that no work could be found.
The same conditions that led to the Great Depression in the 1930s have led us to today; and the one safeguard that was put in place in 1933 to prevent another depression, the Glass-Steagall Act, was repealed in 1999; and, with the guard rail now removed, we are again headed over another cliff into another economic abyss.
HOW FAR IS DOWN
I saw my uncle last week. Now, in his late 80s, his mind is still sharp and his observations always of interest. Our conversation moved to the current state of affairs and my belief that another Great Depression was underway.
My uncle then said: The difference between the Depression and today is now how much people owe. Instead of owing $15 they owe $15,000; and, because they owe so much more, this time the fall is going to be greater.
And, so it is.
THEN AND NOW
The collapse of the 1920s stock market bubble in 1929 signaled the beginning of the Great Depression. The actual descent was to take four years as the depth of the depression did not begin until 1933. The same might be true today, or it might not.
This time, the beginning of the current deflationary collapse was marked not by a stock market collapse. This time, the event that signaled the current crisis was when global credit markets suddenly and unexpectedly contracted in August 2007.
The contraction of global credit markets is a far more serious event than even a stock market collapse. This is because in capitalist credit-based economies, the flow of credit is absolutely essential to all commercial activity.
In today's fiat credit-based economies, credit markets are the heart of the artificial system created by bankers. From credit markets flow the credit needed to support commerce and entrepreneurial activity now addicted to the bankers' credit. Today, credit markets are barely functioning and remain frozen.
The contraction of global credit markets was then in a very real sense, a heart attack, a heart attack from which the markets have not yet recovered; and, as with humans, the longer the recovery takes, the greater the damage and the greater the possibility of death, in this case, parcus ne x, economic death.
What central bankers have been doing is credit-based CPR in an attempt to revive an increasingly moribund patient. To date, irrespective of the trillions of dollars committed and spent, their efforts have been futile. This is because even before the current heart attack, the health of the patient had been deteriorating for years.
IN THE ECONOMIC EMERGENCY ROOM
In March 2000, the stock market collapse popped a speculative bubble larger than any previous bubble. The dot.com bubble, fed by central bank credit, had taken on a life of its own in the late 1990s and by so doing threatened to take the life of the very system that had created it, the fiat credit-based system of capital (credit) markets called capitalism.
The central bankers knew the danger the system was in. They were well aware of the severe deflationary collapse of Japanese markets in 1990 and their previously smug feeling that they had relegated systemic collapse onto the scrap heap of history along with gold and the gold standard had become increasingly less certain.
The events of the next decade, the 2000s, were to demonstrate how wrong the central bankers had been and how impotent they were in battling forces they themselves had set in motion with their artificial system of credit stimulation and “control” of markets, a “control” that was to prove increasingly illusory as the decade progressed.
The strategy of central bankers was lifted from Ben Bernanke's playbook, a strategy that was based on the theory that systemic deflationary collapse could be averted by the quick availability of unlimited credit to capital markets.
Bernanke's theory was just that, a theory whose sole positive attribute was that it had not been tried during the Great Depression. The fact that it hadn't been tried, however, did not mean it would work.
That fact that nothing had worked during the Great Depression, however, left Bernanke's theory the only response central bankers had in an otherwise empty tool kit; and when the dot.com bubble collapsed, Bernanke's theory was trotted out to be tried in the marketplace.
The central bankers led by Alan Greenspan knowing of the danger the patient was in decided on a highly unusual response based on Bernanke's theory, to wit , although the economy was suffering from the after effects of an enormous overdose of credit; in accordance with Bernanke's theory, they decided to give the economy a dose of even more credit.
At first, the central bankers' strategy worked, but only temporarily. Because of the low US 1 % interest rates, flows of cheap central bank credit flooded the markets and reversed the downward trend of the stock markets but they also set in motion something far more dangerous.
The low 1 % central bank rates created another bubble, a bubble more dangerous than the 2000 dot.com bubble. The bankers' cheap credit created the 2002-2006 US real estate bubble; and the collapse of that bubble was to result in the severe credit contraction of August 2007 and the return of the patient to the central bank emergency room just five years after his previous visit.
This time, the patient was in far worse shape than in 2000/2001. This time, heavily sedated, breathing only in short gasps, the economy has been kept alive only by constant and artificial infusions of even more credit in the attempt to keep systems functioning until a solution can be found.
However, the central bankers have no more solutions. Bernanke's theory didn't work, proving to be no solution to the systemic deflationary collapse brought on by years of credit abuse administered by previous doctors, primarily Dr. Alan Greenspan.
FROM THE HOSPITAL TO HOSPICE TO THE GRAVE
After the central bank emergency room, hospice is next. The current frantic attempts of central banks and governments to reverse what they set in motion is analogous to the application of pain medication given in the hopes of calming those whose lives they have destroyed.
Governments have extended bankers the public purse in the hopes the bankers will be able to rescue them from the coming anger of those whose lives, savings and livelihoods they were elected to protect but instead plundered by taxation and inflating the money supply.
Capitalism, a credit-based economy based on debt-based money issued by central banks is now claiming its victims, the bankers and governments who benefited from the system, and producers and savers who were used by bankers and government as bankers pursued private profit and politicians pursued public power.
Politicians with notably few exceptions, e.g. America 's Ron Paul, have been willing co-conspirators with the bankers who plundered the savings and productivity of society for personal gain.
By indebting society beyond its ability to ever repay, government and bankers have destroyed the base of their own profit and own power. The credit contraction of 2007 is in the process of destroying the banks that created the crisis and has already virtually destroyed the Republican Party who abetted them.
Next the Democrats will suffer as they did little to prevent what is now in motion and now bear the burden of reversing the damage of what previous generations of bankers and politicians have done.
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