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The Second Leg of the Great Depression Was Caused by European Defaults
Many Americans know that the Great Depression was started by the
bursting of the giant Wall Street bubble of the 1920's (fueled by the
use of bank deposits on speculative gambling, which is why
Glass-Steagall was passed) , which in turn caused a run on American
banks.
But most Americans don't know that the second leg of the Depression was caused by European defaults.
As Yves Smith reminds us:
Recall that the Great Depression nadir was the sovereign debt default phase.
The second leg down of the Depression was larger than the first, as shown by this chart of the Dow:
[Click here for full chart]
The
second leg down was primarily initiated by the failure of the
Creditanstalt (also spelled Kreditanstalt) bank in Austria. Creditanstalt declared bankruptcy in May
1931.
As Time Magazine noted on November 2, 1931:
May
14 [1931]: First thunderclap of the present crisis: collapse in Vienna
of Kreditanstalt, colossal Rothschild bank, which is taken over by the
Austrian Government, shaking confidence in related German banks.
A book written by Aurel Schubert, published by Cambridge University Press, points out that:
Austria
played a prominent role in the worldwide events of 1931 as the largest
bank in Central and Eastern Europe, the Viennese Credit-Anstalt,
collapsed and led Europe into a financial panic that spread to other
parts of the world. The events in Austria were pivotal to the economic
developments of the 1930s ....
As Megan McArdle points out:
The
Great Depression was composed of two separate panics. As you can see
from contemporary accounts ... in 1930 people thought they'd seen the
worst of things.Unfortunately, the economic conditions created
by the first panic were now eating away at the foundations of financial
institutions and governments, notably the failure of Creditanstalt in
Austria. The Austrian government, mired in its own problems, couldn't
forestall bankruptcy; though the bank was ultimately bought by a
Norwegian bank, the contagion had already spread. To Germany. Which was
one of the reasons that the Nazis came to power. It's also, ultimately,
one of the reasons that we had our second banking crisis
, which pushed America to the bottom of the Great Depression, and brought FDR to power here.Not
that I think we're going to get another Third Reich out of this, or
even another Great Depression. But it means we should be wary of the
infamous "double dip" that a lot of economists have been expecting.
Way to go, guys ... you're re-creating history.
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Zimbabwe defaulted on foreign debts by printing money....they had two choices, IMF austerity for 30-40 years or print and suffer for a year or two using dollar as blackmarket currency, they would have been stupid, slaves not to print. They are a country without debt now....doing fine while the rest of us are floating around a debt balloon that is crazily deflating. What do countries with internal debt do, Japan being an extreme example. Their voters own the debt, not foreigners.
So what's the outcome when a loaf of bread costs:
$10 USD?
$100?
$1000?
$10000?
$100000?
At what price point will civil society cease and martial law begins?
At what point does the private sector stop conducting business in fiat?
Like, already. It's happening now. Some communities are issuing local scrip for labor/services. They are like barter notes. No "money" involved.
http://www.reuters.com/article/idUSN0530157720070619
http://globalguerrillas.typepad.com/globalguerrillas/2008/06/the-resilie...
http://peakenergy.blogspot.com/2008/10/locabucks-are-local-currencies-wa...
Martial law has already begun, they just need an excuse to implement it.
See any of the videos from Pittsburgh?
+1
the other thing to realize is that you are already in prison
if you misbehave they will take away priveledges or put you in a more solitary environment
Under constant survaillance [NSA - RSA]. Secret lists you don't know if you're on and can't get off - No fly. For freedom to reappear - it has to all come crashing down.
What does Larry Silverstein say? - "Pull it."
no more chemtrails, no more haarp, no more lies.
And if Prector is right, we're about 1 week into a 6-year long bear market, where chasmic new lows will eventually be seen.
Moving away from EWT for a moment, we still have some basic facts that need to be dealt with:
1) We have debt obligations that exceed the productive capacities of our economy to service.
2) Economic growth depends on productivity gains and more importantly, credit expansion.
3) The world's ability to absorb new debt is reaching an end without new breakthroughs in productive capacity.
4) Democracies don't deal with austerity well, and therefore always choose short-term solutions that result in protracted economic underperformance/long-term pain.
5) We've learned nothing, and are doomed to repeat the mistakes of the past with greater amplitude and shorter periodicity.
Basic question: can an economy grow (wealth, jobs, etc) if prices and wages remain stable? Put aside the question of productivity (because I think it inevitably leads to a discussion of employment and labor rights and the replacement of human labor with machine labor) for the moment and consider, that if there is no rising value of "things" how can an economy grow? Rising values (asset prices) support more credit which builds and buys more things so unless asset values inflate over time how can you have growth? Another way to ask it, I suppose, is whether you can have growth without debt?
It seems to me that the role of the FRB has been to create an environment where assets rise in value at a slightly faster rate than debt. To me that has been their sole purpose and if I were to grade them on it I would be hard pressed to give them more than a C-.
Funny but that guy Reinhardt was making the same claims on his site. That the pattern was repeating itself over and over again. That TPTB have always cooled things down after they became too "hot". According to him this has been happening for centuries.
"Funny but that guy Reinhardt was making the same claims on his site."
Cite, please?
tinfoil x 10
http://www.enterprisecorruption.com/
I lost a year of my life following this dude's work, :-)
did you subscribe?
No, I did not subscribe.
In 2008, I spent alot of time on the google finance forums. In July that year "reinhardt" started posting cryptic messages on that forum, and his blog (which was free then). In July 08, he made a prediction that "the crash would begin Sept. 15", which turned out to be Lehman, and then people started paying attention to him.
Take a look at his "Enron timelines", if you have some time. He reminds me alot of Mako.
I've cited Reinhardt's work here numerous times and tried to send people his way.
His work is a little "out there" but you realize why when you put the pieces together..this shit's been going on since the pyramids were put up. He has nailed it. Never before have the hens had the information at hand needed to beat the fox. Until now.
i do like how he shows this stuff going on back to the pyramids, but i'm not sure info is gonna save us. will be hard to log on with rolling power outages.
"What we learn from history is that we learn nothing from history." Hegel?, Marx?, Disraeli?, Helicopter Ben?
" In order to arrive at what you do not know, you must go by a way which is the way of ignorance ".
--T.S. Eliot
I think it was Jean Paul Sartre who said... Uhh, how do you spell Sartre?
"Money has no motherland; financiers are without patriotism and without decency; their sole object is gain."
-- Napolean Bonaparte
""Power has no motherland; politicians are without patriotism and without decency; their sole object is gain."
Which is why capital at 0% only gets sent abroad where it can find a gain (let's be honest here: there are/is no "real" gains or growth in the US), then it comes roaring home as the carry unwinds releasing Japanese deflationary winds.
Groucho Marx
Actually it was Geroge Bernard Shaw but Marx can be blamed for almost anything.
Groucho and Karl ... any relation?
How did gold perform during this?
Gold was fixed to the US dollar. As the US dollar appreciated during this deflationary period, gold appreciated with it.
Silver was floating freely. It spiked when everyone was afarid of inflation at that time, then crashed when it turned out the be very deflationary.
Expect a repeat here, this time also for gold since it is floating freely (more or less). All lemmings pile into gold now, but inflation is not in the cards despite the lemmings' thinking. Gold will plummet after the current mania.
By the way, the correct spelling is "Creditanstalt".
Wow, you said everything I believe so concisely.
These people think that we'll be Zimbabwe next week. I even heard one moron saying gold will be (LOL) 50000. Not 5000, 50000. Even 5000 will never happen.
They don't understand that gold will get neutered as soon as the economy improves, and all holding physical will do is make it harder to get out at that time.
Anyway, +1153
As soon as the economy improves... You're stating that as though it's a certainty, kind of of like flying cars...
Growth is dead. Deal with it.
I thought the economy was ALREADY improving? If that's the case, how come gold is now at record highs?
You're in the deflation camp? And if the dollar depreciates, so does gold?
If that is the case then gold has held value in relation to gold. Where is the downside in that?
Paper-bug. Blip-bug, as in floating electrons in some computer somewhere-bug, created ad infinitum at-will by the man behind the curtain-bug. Who can believe in that mumbo-jumbo majik show?
Not me dude. Good luck.
DJIA vs Homestake mining http://static.seekingalpha.com/uploads/2009/2/22/saupload_gold1.png
"How did gold perform during this?"
FDR Ordered the Confiscation of the US Public's Gold at $20.67 oz
The public was ordered to turn in their gold and receive Fed Bernank-ster bucks by May 1, 1933.
FDR Devalued the USD to $35 oz Jan. 30 1934
Steal the public's gold and then devalue the USD's they hold by some 70%... FDR, what a guy.
Devalued Bernank-ster Bucks, sound familiar?
The price was pegged until the great devaluation.
That is the big difference this time. There is no peg.
We will never see a market crash like in the 30s again, because the units of measure can be debased to no end.
This is what the dollar deflationists fail to understand.
That is a very important and significant comment.
Since there WAS a peg in the 30s, FDR had to confiscate the gold in order to inflate the currency -devalue the dollar.
Like you say, there is no reason to ever have deflation in our fiat-only currency, as Helicopter Ben Bernake so well undstands. Therefore while we had some debt deflation after the 2007 crash, hyperinflation of the unanchored money supply was the immediate response.
This hyperinflation of the money supply will soon translate into price hyperinflation.
Great comment, thanks
Ah true. There should be an alcohol lock on my keyboard...
That argument hinges on the ability for the units of measure can be debased, which is what I think causing some confusion between the debate. That being said, good comment.
The price of gold was FIXED. It was not allowed to decline as the US Govt bought all of it at an unvarying price. The price of silver declined just like every other commodity as it was not supported by govt. purchases.
It is fascinating to speculate about what will actually hold value. It is hard to imagine that the relative price of anything will actually rise. In this case of probably government defaults then even those treasury bonds will be discounted. In my opinion it will only be a few very useful things, and even then just those in fairly short supply. Note that during the Great Depression the price of all ag commodities fell to very low levels. No one had any money to buy them. But they may have held up relatively well compared to whatever an iPod was.
The relative value of useful things might have been "not enough" for people to let go of them...for instance the value of a herd of 10 cows would have much more value to a family (or a small community) than many ounces of gold, simply because you cannot eat (or breed) gold. Likewise, a 40 acre plot of wheat might be more valuable than silver, because you cannot grind the silver into an edible concoction. If the USA downsizes in terms of geographical community, the skills of agricultural production may be undervalued; there will be many commodities (especially agricultural ones) that are simply not for sale.
+1
When gold hyperinflates against food, the bugs will go apeshit. The 50 pound bags of grains I'm buying right now for a dollar a pound will be worth their weight in gold once Katla blows, the oil slick runs its course or the electrical grid melts down like the telegraph system did in the 1850's due to a Coronal Mass Ejection.
I'm not against picking up a little more gold in the 850's and if silver goes below ten I'll be buying hand over fist again.
The Dow crossed 10,000 in 1999. The dollar has lost approximately 35 percent of its value since 1999. The DOW closed today at 10,748. 10,748 x .65 = 6896.20. Seems like a pretty significant crash to me.
To further make both of your points, the Dow is down like 85% in terms of gold from its top.
http://www.thelastcanary.blogspot.com
Exactly. But in nominal terms, the market has been flat for 12 years.
There is that "nominal" again. Does that apply to the price of gold as well?
Inflationary factors should not be used in these calculations?
Sorry to be "slow" but I'm trying to stay up with the argument.
Seeing the post-2003 market adjusted for inflation for the first time was quite an eye-opener for me. I called it "hiding a crash in plain sight".
Hiding a crash in plain sight indeed. The beauty of having a pure fiat currency.
In other words, if we were still on the gold standard, we could see a 1930s style crash again. But we aren't, so we won't.
Ghostface - what if we're back on the gold standard and you don't know it yet?