GREAT SCOTT, ANOTHER GREAT DEPRESSION?

The comparisons with today and the Great Depression are painfully, painfully obvious.  So of course, the top writers for the top newspapers, the ones that still survive, that is, all want us to know, this isn’t a Great Depression, just a long, nasty recession.  Right.  Except, this is global and it is on the heels of the biggest and deepest-reaching lending bubble since…the Roaring Twenties. Also, Russia’s ruler is protecting Russia from desperate export powers that lost their American market.

Putin’s Tariffs Stall Russian Growth for Caterpillar (Update1) – Bloomberg.com

Prime MinisterVladimir Putin’s trade measures are starting to keep Deere & Co. combines andCaterpillar Inc. trucks out of Russian wheat fields and coal mines, dimming the companies’ prospects for expansion abroad.

The Great Depression didn’t have all its effects instantly in October, 1929.  It took several years to have all the elements show up.  Of course, the global drive for ‘free trade’ is completely dead.  But Russia seems to be the first to actively repudiate it and to begin the natural process of protecting its own industrial base and its trade balance of payments.

Deere and Caterpillar, reeling from the longest U.S. recession in a quarter century, were the companies most affected by loan restrictions and tariffs of as much as 25 percent that Putin imposed this year, according to a U.S. Chamber of Commerce survey of the top 50 American businesses operating in Russia.

For the last 15 years, Japan has tried to export its way out of its own depression.  This was mainly aimed at US markets.  Japan’s economy grew swiftly but only in the export sector.  Now, this has utterly collapsed as the US enters this Great Depression II.  

Putin is trying to boost Russian industries with tariffs on everything from drugs to farm equipment as declining oil revenue saps the nation’s economy. The policies are hurting sales by Caterpillar, Deere and Agco Corp. in a market where revenue was forecast to rise as much as sixfold in the next decade.

Back when Japan was very aggressively exporting to the US, we should have protected ourselves.  Instead, we let EVERYONE do this and our trade deficit became extremely immense, nearly a trillion a year.  Instead of freaking out and halting this, we thought this was a nifty free ride.  That is, we can destroy the money rapidly moving overseas via the bankruptcy trick.  This is definitely a one-trick pony.  We can do this exactly once.  Then, we are finished.  For good.

 

The mythology of the Great Depression is, the US was evil when it protected its own industrial base from being utterly overwhelmed by cheaper imports.  I contend, the only reason we won WWII was because of the tariffs and barriers we threw in the way of a flood of European exports seeking to take over our markets.  As we experiment with ‘free trade’, there had to be a guideline. It is very simple: the balance of trade had to be zero or better than zero.  Instead, as we passively watched it plunge deep into the negative numbers, not one major media or very few politicians even mentioned this, much less, yelled about it.

 

This still hasn’t changed, even slightly.  Obama’s role at the G20 meeting wasn’t to promise more ‘free trade’ but to read an ultimatum.  He should have noted that the US could no longer run trade deficits nor allow other nations to cheapen their yen so they could export.  As usual, the only countries chastised were the communist giants, not the capitalist bankrupts.  Here is a Washington Post economics writer who is incredibly typical:

 

Robert J. Samuelson – The Financial Crisis and the Great Depression – washingtonpost.com

The Great Depression of the 1930s was the most momentous economic event of the 20th century. It was a proximate cause of World War II, having fed the Nazis’ rise in Germany. It inspired a new American welfare system as a response to mass misery. Everywhere, it discredited unsupervised capitalism. Given today’s economic crisis, our renewed fascination with the Depression is natural. But we ought not stretch the parallels too far.

We are running down the exact same track. Including the stock markets having at least 7 major ‘dead cat bounces’. Every time the government comes up with a new rescue scheme or the Fed Reserve drops interest rates, the markets shoot upwards, very briefly. Then continue to fall on all the bankruptcies, bad deals and job losses. We are at the end of the first year of Great Depression II which means, this is the end of 1930.

  • 1930:  In February, the Federal Reserve cuts the prime interest rate from 6 to 4%. They expand the money supply with a large purchase of U. S. securities. The Smoot-Hawley Tariff passes June 17. One thing we chose not to do this time.  The Supreme Court decides that U. S. Steel’s monopoly doesn’t violate anti-trust laws because they do have competition, even if the competition is very small. The first bank panic occurs, resulting in many bankruptcies. The GNP drops 9.4% from the previous year. The unemployment rate climbs from 3.2 to 8.7%. Exactly where we are at, today.  By the end of the year, 1,350 banks have closed. Near this number of banks going under, now. Here is our future:
  • 1931:  No major legislation is passed addressing the Depression.
  • A second banking panic occurs in the spring.
  • The GNP falls another 8.5 percent; unemployment rises to 15.9 percent.

If there are differences compared to 1929-1931, they are incredibly small.  All commentators who pooh-pooh comparisons with the Great Depression don’t do a timeline, they always compare one year of the present depression with three or more years of the previous, nearly identical, depression.

The Depression was exceptional in its economic ferocity. As Liaquat Ahamed writes in his book “Lords of Finance”: “During a three-year period, real GDP [gross domestic product] in the major economies fell by over 25 percent, a quarter of the adult male population was thrown out of work. . . .

Two more years to go before we can tell if we, too, will drop by over 25%. Japan already is nearing that number, today.

The economic turmoil created hardships in every corner of the globe, from the prairies of Canada to the teeming cities of Asia.” Anyone who wants to know why should read this engrossing book. Ahamed, a professional money manager, attributes the Depression to two central causes: the misguided restoration of the gold standard in the 1920s and the massive inter-governmental debts, including German reparations, resulting from World War I.

As far as I can tell, all Great Depressions in the last 300 years have been global. This is due to European shipping which spanned the entire planet by 1650.

His title refers to four men deeply implicated in the era’s perverse policies: Montagu Norman, governor of the Bank of England; Benjamin Strong, head of the New York Federal Reserve Bank; Émile Moreau, head of the Banque de France; and Hjalmar Schacht, head of Germany’s Reichsbank. Their determination to reinstate the gold standard — seen as necessary for global prosperity — brought ruin.

HAHAHA.  Like the story about how protecting America from being destroyed by imports, this is the other story of the Great Depression that is deliberately used to show how much more superior, free trade and a floating fiat currency is!  Gold lovers know that there has been an insidious campaign to dethrone the fairest of the currency value determinants.  By telling everyone, gold created the Great Depression, the ability to use fiat currency debts to fund endless, expensive wars can continue!  

Gold had ABSOLUTELY NOTHING TO DO with the Great Depression.  It was a symptom of what ailed banking ever since the biggest empires on earth went into this massive global war called ‘WWI’.  Instead of giving up fighting, they all used DEBT to pay for this massive and useless war.  Only when everyone used up all possible future tax credits, did it finally, miserably peter out.  Then, Germany was to restore the finances of the winners which was physically impossible.  So they borrowed more money from the US.  And then went bankrupt.

Under the gold standard, paper money was backed by gold reserves. If gold flowed into a country (normally from a trade surplus or a foreign loan), its money and credit supply were supposed to expand. If gold flowed out, money and credit were supposed to contract. Thus acting like a steam release so a bubble couldn’t form. During World War I, Europe’s governments suspended the gold standard. They financed the war with paper money and loans from America. Note that he does mention WWI debts here! But doesn’t figure out, it, not the gold standard, was at fault. The appeal of restoring the gold standard was that it would instill confidence by making paper money trustworthy…No one trusted the value of paper IOUs when governments couldn’t collect taxes.

When countries left the gold standard — the United States effectively did so in 1933 — their economies began to recover. HAHAHA…oh, really? Recover means, everything goes back to where it was. This certainly did NOT happen. Some indicators now imply that the present decline is ebbing (“glimmers of hope,” says President Obama). China shows similar signs of improvement. All this diminishes the dreary comparisons with the Depression. But if these omens prove false, a more somber conclusion could emerge.

History is always studiously ignored.  Why?  Beats me.  Seems, we want to live in hope, not reality.  And reality always knocks us silly so I would think, we would at least be curious about reality.  China is pulling out of the collapse only because they have potential for market growth due to being a creditor nation.  This is where the US was back in 1933.  We had problems but they were not as systematic as Europe’s problems.  We were still rich in labor, resources, financial potential, all our systems were still there, even if they were running on half-steam.  

 

Back then, the Presidents had trouble spending over the budget, especially since we were struggling with the default of an immense pile of European IOUs that were now worthless and our own WWI debts.  The concept of spending money of the future to get out of this lending trap that our trade partners and allies dumped us in, was difficult for a nation that was always, except in 1800 and 1860, a creditor nation.  After WWII, we paid off those massive debts very, very fast.  We did this via high taxes.  We would have then gone onwards to peace and plenty except….we decided to teach the peasants of Vietnam a lesson or two.  They, in turn, destroyed our entire foreign economy, landing us deep in debt and with fiscal troubles that we only made worse, over time.

 

Now, on to Paul Krugman:

 

Op-Ed Columnist – PAUL KRUGMAN – Erin Go Broke – NYTimes.com

 

And the troubles of the banks are largely responsible for putting the Irish government in a policy straitjacket.  True.

On the eve of the crisis Ireland seemed to be in good shape, fiscally speaking, with a balanced budget and a low level of public debt. But the government’s revenue — which had become strongly dependent on the housing boom — collapsed along with the bubble.  True.

Even more important, the Irish government found itself having to take responsibility for the mistakes of private bankers. Last September Ireland moved to shore up confidence in its banks by offering a government guarantee on their liabilities — thereby putting taxpayers on the hook for potential losses of more than twice the country’s G.D.P., equivalent to $30 trillion for the United States.  True.

The combination of deficits and exposure to bank losses raised doubts about Ireland’s long-run solvency, reflected in a rising risk premium on Irish debt and warnings about possible downgrades from ratings agencies.  True, especially the IMF did this.

For now, the United States isn’t confined by an Irish-type fiscal straitjacket: the financial markets still consider U.S. government debt safer than anything else.  FALSE!!!! TOTALLY, DEAD WRONG!!!!  

Ah, here we are: one of the heroes of the liberal world, can’t see the obvious.  His pride and hubris prevents him from seeing us as a Strasbourg goose with our webby feet nailed to a board, being force-fed so we can become Pâté.

No country is buying our debt except for trade advantages.  No one is holding our debt except to use it as a sword over our silly heads.  No one trusts us at all.  But figure, if we drop our debts down the rabbit hole, it might as well destroy the entire G20 plus all the world’s economic base for the next 50 years.   

But we can’t assume that this will always be true.  HAHAHA.   Unfortunately, we didn’t save for a rainy day: thanks to tax cuts and the war in Iraq, America came out of the “Bush boom” with a higher ratio of government debt to G.D.P. than it had going in. And if we push that ratio another 30 or 40 points higher — not out of the question if economic policy is mishandled over the next few years — we might start facing our own problems with the bond market.

 

Earth to Krugman: we are already in trouble in the bond markets.  This has been covered up due to a G20 group decision to go ZIRP.  If the US had to borrow at say, 4%, we would not be able to take on $2 trillion in new debts in one year!  ZIRP coupled with the anticipation of making these debts PERPETUAL has allowed us to skate over things.  Ireland doesn’t get to do this for one reason only: their population base is too small to make any difference in world trade profits.

 

But the US is the golden goose who has nailed its webby feet to a board and is BEGGING our dire trade rivals to stuff our gullet.  This is another definition of suicide.

 

Volcker Says Fed’s Authority Probably to Be Reviewed (Update1) – Bloomberg.com

 

U.S. lawmakers from both political parties have expressed concern in recent months that the central bank has overstepped its authority by creating several emergency credit programs aimed at reviving lending and ending the recession.

“I think for better or for worse we are at a point where the Federal Reserve Act, after all that has been happening in the last year or more, is going to be reviewed,” Volcker said.

Under the act the central bank may in “unusual and exigent circumstances” lend to “any individual, partnership, or corporation” as long as the loans are secured “to the satisfaction” of the Fed.

Lawmakers including House Financial Services Committee Chairman Barney Frank have said Congress should consider revising the Depression-era emergency provision.

The central bank has been using such powers “with great abandon,” Frank, a Massachusetts Democrat, told reporters in January. “Ultimately we have to do something about this statute.”

 

Volcker has been reduced to the role of Diogenes of Sinope –

 

picture-110GreekΔιογένης ὁ Σινωπεύς Diogenes ho Sinopeus) “the Cynic“, Greek philosopher, was born in Sinope (modern day Sinop, Turkey) about 412 BC (according to other sources 404 BC),[1] and died in 323 BC,[2] at Corinth. Details of his life come in the form of anecdotes (chreia), especially fromDiogenes Laërtius, in his book Lives and Opinions of Eminent Philosophers.

Diogenes of Sinope was exiled from his native city and moved to Athens, where he is said to have become a disciple of Antisthenes, the former pupil ofSocrates. Diogenes, a beggar who made his home in the streets of Athens, made a virtue of extreme poverty. He is said to have lived in a large tub, rather than a house, and to have walked through the streets carrying a lamp in the daytime, claiming to be looking for an honest man. He eventually settled in Corinth where he continued to pursue the Cynic ideal of self-sufficiency: a life which was natural and not dependent upon the luxuries of civilization. Believing that virtue was better revealed in action and not theory, his life was a relentless campaign to debunk the social values and institutions of what he saw as a corrupt society.

 

 

Alexander the Great swept down from the North and took over Athens and democracy died for about…hmmm….2,500 years.  Kind of long time, no?  By the way, the magic number of the Skull and Bones which ran our country deep into debt, is 322, the ‘death of democracy’ date.  and one year after this man died.

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