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Remembering The Currency Wars Of The 1920s & 1930s (And Central Banks' "Overused Bag Of Tricks")
Via Hoisington Investment Management,
Deflation
“No stock-market crash announced bad times. The depression rather made its presence felt with the serial crashes of dozens of commodity markets. To the affected producers and consumers, the declines were immediate and newsworthy, but they failed to seize the national attention. Certainly, they made no deep impression at the Federal Reserve.”
Thus wrote author James Grant in his latest thoroughly researched and well-penned book, The Forgotten Depression (1921: The Crash That Cured Itself).
Commodity price declines were the symptom of sharply deteriorating economic conditions prior to the 1920-21 depression. To be sure, today’s economic environment is different. The world economies are not emerging from a destructive war, nor are we on the gold standard, and U.S. employment is no longer centered in agriculture and factories (over 50% in the U.S. in 1920). The fact remains, however, that global commodity prices are in noticeable retreat. Since the commodity index peak in 2011, prices have plummeted. The Reuters/Jefferies/CRB Future Price Index has dropped 39%. The GSCI Nearby Commodity Index is down 48% (Chart 1), with energy (-56%), metals (-36%), copper (-40%), cotton (-73%), WTI crude (-57%), rubber (-72%), and the list goes on. In some cases this broad-based retreat reflects increased supply, but more clearly it indicates weakening global demand.
The proximate cause for the current economic maladies and continuing downshift of economic activity has been the over-accumulation of debt. In many cases debt funded the purchase of consumable and non-productive assets, which failed to create a future stream of revenue to repay the debt. This circumstance means that existing and future income has to cover, not only current outlays, but also past expenditures in the form of interest and repayment of debt. Efforts to spur spending through relaxed credit standards, i.e. lower interest rates, minimal down payments, etc., to boost current consumption, merely adds to the total indebtedness. According to Deleveraging? What Deleveraging? (Geneva Report on the World Economy, Report 16) total debt to GDP ratios are 35% higher today than at the initiation of the 2008 crisis. The increase since 2008 has been primarily in emerging economies.
Since debt is the acceleration of current spending in lieu of future spending, the falling commodity prices (similar to 1920) may be the key leading indicator of more difficult economic times ahead for world economic growth as the current overspending is reversed.
Currency Manipulation
Recognizing the economic malaise, various economies, including that of the U.S., have instituted policies to take an increasing “market share” from the world’s competitive, slow growing marketplace. The U.S. fired an early shot in this economic war instituting the Federal Reserve’s policy of quantitative easing. The Fed’s balance sheet expansion placed downward pressure on the dollar thereby improving the terms of trade the U.S. had with its international partners (Chart 2).
Subsequently, however, Japan and Europe joined the competitive currency devaluation race and have managed to devalue their currencies by 61% and 21%, respectively, relative to the dollar. Last year the dollar appreciated against all 31 of the next largest economies. Since 2011 the dollar has advanced 19%, 15% and 62%, respectively, against the Mexican Peso, the Canadian Dollar and the Brazilian Real. Latin America’s third largest economy, Argentina, and the 15th largest nation in the world, Russia, have depreciated by 115% and 85%, respectively, since 2011.
The competitive export advantages gained by these and other countries will have adverse repercussions for the U.S. economy in 2015 and beyond. Historical experience in the period from 1926 to the start of World War II (WWII) indicates this process of competitive devaluations impairs global activity, spurs disinflationary or deflationary trends and engenders instability in world financial markets. As a reminder of the pernicious impact of unilateral currency manipulation on global growth, a brief review of the last episode is enlightening.
The Currency Wars of the 1920s and 1930s
The return of the French franc to the gold standard at a considerably depreciated level in 1926 was a seminal event in the process of actual and de facto currency devaluations, which lasted from that time until World War II. Legally, the franc’s value was not set until 1928, but effectively the franc was stabilized in 1926.
France had never been able to resolve the debt overhang accumulated during World War I and, as a result, had been beset by a series of serious economic problems. The devalued franc allowed economic conditions in France to improve as a result of a rising trade surplus. This resulted in a considerable gold inflow from other countries into France. Moreover, the French central bank did not allow the gold to boost the money supply, contrary to the rules of the game of the old gold standard. A debate has ensued as to whether this policy was accidental or intentional, but it misses the point. France wanted and needed the trade account to continue to boost its domestic economy, and this served to adversely affect economic growth in the UK and Germany. The world was lenient to a degree toward the French, whose economic problems were well known at the time.
In the aftermath of the French devaluation, between late 1927 and mid-1929, economic conditions began to deteriorate in other countries.
Australia, which had become extremely indebted during the 1920s, exhibited increasingly serious economic problems by late 1927. Similar signs of economic distress shortly appeared in the Dutch East Indies (now Indonesia), Finland, Brazil, Poland, Canada and Argentina. By the fall of 1929, economic conditions had begun to erode in the United States, and the stock market crashed in late October.
Additionally, in 1929 Uruguay, Argentina and Brazil devalued their currencies and left the gold standard. Australia, New Zealand and Venezuela followed in 1930. Throughout the turmoil of the late 1920s and early 1930s, the U.S. stayed on the gold standard. As a result, the dollar’s value was rising, and the trade account was serving to depress economic activity and transmit deflationary forces from the global economy into the United States.
By 1930 the pain in the U.S. had become so great that a de facto devaluation of the dollar occurred in the form of the Smoot-Hawley Tariff of 1930, even as the United States remained on the gold standard. By shrinking imports to the U.S., this tariff had the same effect as the earlier currency devaluations. Over this period, other countries raised tariffs and/or imposed import quotas. This is effectively equivalent to currency depreciation. These events had consequences.
In 1931, 17 countries left the gold standard and/or substantially devalued their currencies. The most important of these was the United Kingdom (September 19, 1931). Germany did not devalue, but they did default on their debt and they imposed severe currency controls, both of which served to contract imports while impairing the finances of other countries. The German action was undeniably more harmful than if they had devalued significantly. In 1932 and early 1933, eleven more countries followed. From April 1933 to January 1934, the U.S. finally devalued the dollar by 59%. This, along with a reversal of the inventory cycle, led to a recovery of the U.S. economy but at the expense of trade losses and less economic growth for others.
One of the first casualties of this action was China. China, on a silver standard, was forced to exit that link in September 1934, which resulted in a sharp depreciation of the Yuan. Then in March 1935, Belgium, a member of the gold bloc countries, devalued. In 1936, France, due to massive trade deficits and a large gold outflow, was forced to once again devalue the franc. This was a tough blow for the French because of the draconian anti-growth measures they had taken to support their currency. Later that year, Italy, another gold bloc member, devalued the gold content of the lira by the identical amount of the U.S. devaluation. Benito Mussolini’s long forgotten finance minister said that the U.S. devaluation was economic warfare. This was a highly accurate statement. By late 1936, Holland and Switzerland, also members of the gold bloc, had devalued. Those were just as bitter since the Dutch and Swiss used strong antigrowth measures to try to reverse trade deficits and the resultant gold outflow. The process came to an end, when Germany invaded Poland in September 1939, as WWII began.
It is interesting to ponder the ultimate outcome of this process, which ended with World War II. The extreme over-indebtedness, which precipitated the process, had not been reversed. Thus, without WWII, this so-called “race to the bottom” could have continued on for years.
In the United States, the war permitted the debt overhang of the 1920s to be corrected. Unlike the 1930s, the U.S. could now export whatever it was able to produce to its war torn allies. The income gains from these huge net trade surpluses were not spent as a result of mandatory rationing, which the public tolerated because of almost universal support for the war effort. The personal saving rate rose as high as 28%, and by the end of the war U.S. households and businesses had a clean balance sheet that propelled the postwar economic boom.
The U.S., in turn, served as the engine of growth for the global economy and gradually countries began to recover from the effects of the Great Depression and World War II. During the late 1950s and 1960s, recessions did occur but they were of the simple garden-variety kind, mainly inventory corrections, and they did not sidetrack a steady advance of global standards of living.
2015
As noted above, economic conditions, framework and circumstances are different today. The gold standard in place in the 1920s has been replaced by the fiat currency regime of today. Additionally, imbalances from World War I that were present in the 1920s are not present today, and the composition of the economy is different.
Unfortunately, there are parallels to that earlier period. First, there is a global problem with debt and slow growth, and no country is immune. Second, the economic problems now, like then, are more serious and are more apparent outside the United States. However, due to negative income and price effects on our trade balance, foreign problems are transmitting into the U.S. and interacting with underlying structural problems. Third, overindebtedness is rampant today as it was in the 1920s and 1930s. Fourth, competitive currency devaluations are taking place today as they did in the earlier period. These are a combination of monetary and/or fiscal policy actions and also, with floating exchange rates, a consequence of shifting assessments of private participants in the markets.
Clearly the policies of yesteryear and the present are forms of “beggar-my-neighbor” policies, which The MIT Dictionary of Modern Economics explains as follows: “Economic measures taken by one country to improve its domestic economic conditions … have adverse effects on other economies. A country may increase domestic employment by increasing exports or reducing imports by … devaluing its currency or applying tariffs, quotas, or export subsidies. The benefit which it attains is at the expense of some other country which experiences lower exports or increased imports... Such a country may then be forced to retaliate by a similar type of measure.” The existence of over-indebtedness, and its resulting restraint on growth and inflation, has forced governments today, as in the past, to attempt to escape these poor economic conditions by spurring their exports or taking market share from other economies. As shown above, it is a fruitless exercise with harmful side effects.
Interest Rates
The downward pressure on global economic growth rates will remain in place in 2015. Therefore record low inflation and interest rates will continue to be made around the world in the new year, as governments utilize policies to spur growth at the expense of other regions. The U.S. will not escape these forces of deflationary commodity prices, a worsening trade balance and other foreign government actions.
U.S. nominal GDP in this economic expansion since 2008 has experienced the longest period of slow growth of any recovery since WWII (Chart 3).
Typical of the disappointing expansion, the fourth quarter to fourth quarter growth rate slowed from 4.6% in 2013 to 3.8% in 2014. A further slowing of nominal economic growth to around 3% will occur over the four quarters of 2015. The CPI will subside from the 0.8% level for the period December 2013 to December 2014 (Chart 4), registering only a minimal positive change for 2015.
Conditions will be sufficiently lackluster that the Federal Reserve will have little choice in their overused bag of tricks but to stand pat and watch their previous mistakes filter through to worsening economic conditions. Interest rates will of course be volatile during the year as expectations shift, yet the low inflationary environment will bring about new lows in yields in 2015 in the intermediate- and long-term maturities of U.S. Treasury securities.
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If you believe that the US is de-linked and isolated from the rest of the world, then the statement: "To be sure, today’s economic environment is different. The world economies are not emerging from a destructive war, nor are we on the gold standard, and U.S. employment is no longer centered in agriculture and factories (over 50% in the U.S. in 1920)" is correct.
However.... we coexist alongside everybody else standing amongst an electronic waterfall of interconnectedness of information, payments, prices and so on, globally.
And we are worldwide, engaged in a massive global war. It just never really went away.
And globally, you can betchur sweet ass that over 50% of the population is still employed in manufacturing and agriculture.
Hence, it is not different this time, for the shores now extend to the ionosphere.
Grab yer asses, because this might just be the harbinger of a worldwide, globally shared depression, assuming the other premises are correct.
Grab your Epson printer toners, this baby is going into over drive...
We're screwed...
Thanks eff'n leftist politicians.
So WW2 allowed the US to boost exports, and its economy, but the cost was terrible to Europe.
Is this what Obama is doing? He isn't seeking a war in Europe as the Europeans won't allow it. Russia and China have nuclear weapons, so he can't pursue a war with them. A war in South America won't boost his exports to the level he needs, and Africa is already a bloody mess. So he starts wars in the Middle East, in countries oil-rich enough they can afford to purchase American goods in sufficient quantities to boost the American economy out of deflation.
But war in the Middle East has enraged the hornet's nest known as Islamic extremism. Obama is not guaranteed to gain his inflated economy, but could gain the war and misery currently inflicted in the Middle East?
Forgive me if I'm not making sense; I've been drinking tonight.
WW2 allowed U.S govt. to borrow from bankers at 3/8 of 1%.
This public debt that formed new credit, was then spent by government into industry. Industry was directed with this money to make war material. Money is a pricing and distribution scheme, and money in this case organized labor and set prices.
This public credit spent into war channels and industry, mobilized labor and goods production. Labor then got paid salaries, and that former public credit landed in their wallet.
From wallet, the former public credit when on to pay down private debts.
The ratio of public debt increased, but private debts decreased. The great depression was primarily a private debt phenomena, where people gambled in the stock market by taking out loans. During 20's private banking credit fueled a stock market boom, but when it went bust, private people were left holding debts that could not be paid, as money supply did not have enough money.
Public credit in money supply often disappeared into banker's ledger to wipe out former debts, hence inflation was kept at bay. WW2 and the directed geyser of public credit wiped out private debts and gave labor jobs, thus producing wealth.
Those that made interest usury on public debts did not fight in the war. Those that gained usury from private debts being paid down, did not fight in the war. Those that started the war were the "international." Henry Ford identified them after meeting with them on a Ship crossing the Atlantic.
Note that most of production of WW2 was blown up and destroyed, yet American population emerged with low or no private debts. This then allowed them to go into a consumption binge, especially as now modern factories went into domestic goods production.
This was excellent! More please!
We can have that economy again if you are willing to give up beef, gasoline, tires, nylons, and a lot of other stuff for 5 years.
LOL.....5 days and mass riots.....
unplug the grid for any reeason ,and i give you 3 days.
Note in the 40s public credit was applied to expansion of productive capacity utilised to meet offshore (and later domestic) demand for goods.
This time round we have increased public credit channeled into the support of financial asset valuations, with little change in productive capacity or goods demand.
There is constant ongoing war, but that is low-intensity and sapping US treasure without creating the regenerative demand that followed WWII.
So, a war as Toronto mentions, or, what? A long, long period of low growth (at best), or "wealth" is destroyed and another depression period occurs to purge debt?
My (hypothetical) moneys on a new depression, same with most folk here. Triggered by? Something small, hard to spot except in hindsight. With public & private credit so high, and derivatives at $?00T, the systems so fragile now it wont take much to tip the sandpile. Maybe its already started.
The U.S. isn't in the driver's seat for the global economy this time, popeye. In 1928 it was. The U.S had more gold than any other nation on earth during the depression. It was just way too tight with financing meaningful investment and too lose with useless investment. When did the U.S. come out of the depression? When it engaged in massive deficit spending for meaningful capital and human investment and all but eliminated more worthless uses of money. We reaped the benefit of that 'good' over-investment for decades after the war.
Leaving the gold standard and deficit spending did not cure the depression - forcing new capital to good investments (innovation, efficiency, productive capacity and empolyees) 'cured' the depression. Could we have done that without defecit spending? Theoretically, yes. As a practical matter (due to political will), no way in hell. It took a world war to bitch-slap banks and businesses to stop acting like idiots.
Would returning to the gold standard today cure the accelerating spiral into another depression? Hell no - for the exact same reasons it didn't help leading up to the Great Depression. Reinstating the gold standard puts central bankers on a shorter leash, but does absolutely nothing to encourage good investment and discourage bad investment. It makes it incrementally harder to get money, but it doesn't stop idiots from using money for bad investments. Government, corporate or individuals - bad investment is bad investment.
The only bullet the U.S. had left today was printing money. They spent it without making damn sure evey last dime was going into good investments and none into bad investments. As we all can see, 100% was put into useless, non-productive, wasteful or worthless uses. No more bullets. Even war won't work this time - our credit line is tapped out a hair short of hyper-inflation without an inch more of room to stop deflation.
China is actually our only hope today, but they have squandered their investments as well. They don't have the political will to put their accumulated capital into good investments. If the Chinese did get their house in order and managed to expand their middle class, then that alone would pull the world out of depression. War won't even do it today for the Chinese. India has the same potential, but is decades away of any meaningful reform. Someday - but not in my lifetime.
We are on the same page Paveway.
Unfortunately for the US, China wont be a solution without a major devaluation of the USD, and though I believe that is on the cards in the future, it is probably not imminent (it isn't to anyones benefit for the USD to crash, despite some urging China to dump Treasuries).
John Mauldin (& others) has been predicting currency wars for some time, and thats what we now have. Did you notice Jack Lew is now complaining about EUR depreciation? So we have low activity all round, everyone seeking exports to jump start growth, and using exchange rates to stimulate exports. Currency pegs wobbling & failing. Followed next by import substitution reinforced with new trade barriers. Look at Russia for typical policy moves in such a scenario.
Theres a storm coming, and the wind's already rising.
PS: I'm not American, so don't consider the US the centre of the world, but its a damn big economy and a (the?) major player on the chessboard.
Wait... you mean everyone isn't American? [facepalm] When did THAT happen?
I'm trying to reconcile this with the few scraps of memory I have from some otherwise lethally-boring college class.
One that always struck me (when I was sober) was that during the Great Depression, the U.S. and FRANCE had 60% of all the gold in the world. The U.S. had about a third and wasn't making any particular effort to acquire more - we were just adding whatever was required as a normal course of business and sitting on the pile. France, on the other hand, was aggressively buying gold at reached an amount of something like a quarter of all the world's gold during the same time. I could never tell if it helped or hurt them - it didn't seem to make any difference but WWII obviously confounded the results.
The other interesting scrap is that every country ON the gold standard didn't end their depression until they abandon it, and every country NOT on the gold standard didn't end their depression until they got ON the gold standard. I don't know if the same scheme would work today since nobody is on the gold standard. There should be better ways to beat the stupid out of bankers than that.
I do not disagree I just think that you left out a few things...
"Would returning to the gold standard today cure the accelerating spiral into another depression? Hell no - for the exact same reasons it didn't help leading up to the Great Depression. Reinstating the gold standard puts central bankers on a shorter leash, but does absolutely nothing to encourage good investment and discourage bad investment. It makes it incrementally harder to get money, but it doesn't stop idiots from using money for bad investments. Government, corporate or individuals - bad investment is bad investment."
Under a gold standard ( a modified gold standard - just to keeo the Keynesians ay bay)
Think man...think.
You may be right, but we'll just have to disagree on this one, Clowns on Acid. In theory, yes. Does it make common sense? Absolutely. In a rational environment with rational actors, scarcity generally means and end to squandering and more carefully thought-out investment.
In the U.S., the president or congress can always foist an absurd social or fiscal policy on the people and create torrents of mal-investment at all levels - government, corporate, individual. Scarcity doesn't seem to factor in their equations much, nowadays.
Scarcity shrinks the pool for both good and bad investment, but does not shrink the stupid out of my government.
The forced investment of war did not rescue us from the Great Depression. Did it rescue Great Britain? Japan? Germany? Russia? France? Is your argument that these countries somehow did not embark on the same forced wartime investment that we did?
Faulty logic. What rescued us is what we won with the war -- global reserve currency and only advanced manufacturing economy left standing. Wars are always profitable if you destroy the enemy with little loss to your own infrastructure. But, that is a tricky proposition. What enabled us to emerge nearly unscathed aside for losses of replaceable population was our geographic isolation and an inexhaustible supply of domestic oil. With weapons advancements, the first is gone, and the second is as well. There will not be a repeat of WWII for us.
Sort of. Reading your comment, one might be tempted to conclude that World War II was the best thing that could have happened to the American people. The truth is, war gave us a reason to accept austerity that we wouldn't revolt over. And yes, it did flip the debt from the private to public balance sheet. But, the whole point of the article was that war time is not the bad time economically, right? It's the hangover, after the war is done, when wartime trading restrictions are relaxed, and people no longer have their collective teeth clenched and are expecting a better life, and people expect public war bonds to start paying back, meaning that wealth now starts to flow back from the central govenrment to the people -- that's when the governmental loan defaults happen, right? Because truth is, government can't afford unaffordable debt any more than private individuals can afford unaffordable debt. So flipping the debt to the public balance sheet is a non-fix. Hence our current economic dire straits. Because it's all our debt, both public and private. There is really no distinction betweent the two, just like shifting debt from one subsidiary company to another doesn't get rid of company debt, any more than bailing water from the engine compartment to the hold removes water from a ship. It's an optical change only.
But governments can cheat by printing money. And they reliably do so in order to pay off their unaffordable debts. Which is what happened after World War I -- governments couldn't afford to pay back their wartime debts without admitting that they had already diluted their currency or needed to dilute their currency further in order to make payments, but the public simultaneously expected them to once again embrace handing control of the money supply back to reality in the form of the gold standard that had provided the stability of the era before World War I. Pinched between a rock and a hard place, governments either defaulted on the debt or devalued their currencies. Which created immense financial turmoil, part of which appeared in the guise of a global financial depression that we in the US believe only happened to us, that we call the Great Depression.
So you have to ask yourself, if World War I was so bad for global economies, then why is the general impression today that World War II rescued us from the Great Depression? The answer is that the spoils of war that America walked away from WWII from were twofold -- we owned the global reserve currency, and all other advanced economies but us were destroyed. Thus our government was able to print money like mad without us experiencing the consequences because the money steadily flowed out from our countries to others, and we were finally able to capitalize on our wartime infrastructure/factory investments by making stuff for the rest of the world while they rebuilt. The war didn't save us -- we had another recession as soon as the soldiers came home. What we purchased with the war is what saved us.
Belief that WWII saved us has made our politiicans very bold at home and internationally, because they believe that it doesn't matter how much they stink up the joint economically at home, they can always turn on the fan of another war to clear the smoke from the room. This will not work twice -- just ask Germany or Japan or England how much misery they went through with WWI and II -- those were both losing propositions for them, as it will be for us if we try to launch WWIII as a means of rescuing ourselves from bad economic choices.
Yes You do.....make sence. Now drink and forget, unless the Americans revolt themselves there is little you can do except vote for the energy east pipeline where Canadians can move and refine/use oil from Alberta saving a lot of money for tax payers. Also we can sell our oil to other Countries.....As obama said "we don't have freinds , only opportunitys and Harper, whom Obama hates will not bend over to take it up the A$$ which caused Obama made some rude remarks about Harper for not towing the American Agenda. Well, not on everything......
We need to protect our own....(CANADIANS) we now are in a fight for American faults, done mostly for profits, their loss of freedoms and the "Buy America"............I would like to sell and send our sewage south so flush twice......they need the water.
So your solution is to vote for the energy east pipeline huh? This problem is SOOOOO much bigger than that, but thanks for playing.
Here is where your logic is flawed. Outsiders will never be told this by the propaganda machines, but we in the US who care about our country and the rule of law know full well that obama hates the US and is doing everything in his power to distribute our wealth around the world. Like it or not, our wealth has been created by hard work and ingenuity. Not just war and taking from other countries as most claim. The combustion engine, the auto, the lightbulb, electricity, telephone, television, radio, and on and on none have anything to do with war. It is the entrepreneurial heart and freedoms this country once provided us that made us who we are and once were. Now, the europeans have brought this keynesian socialist communist cra to the US and have destroyed our wealth and our moral character via hijacking our universities, banking and media complexes. Laws are being enacted to punish the hard working entrepreneurial class in this country, most of whom have nothing to do with wall street. The cronyism and printing of money is killing our freedoms. Taxes are no longer used to fund the govt. they are used to steal from the prudent, ethical hard working folks. At some point we will revolt and the French Revolution will look like a Disney movie. We are 300 million people carrying nearly 200 million weapons. We are the largest weaponized civillian force on the planet and you can bet your ass, politial class or no politial class on board, we will fight to defend our country and way of life. We are waking slowly but surely. The first casualty will be the resolution and convictions of many in ou political and banking class. I am convinced this is just starting to warm up here in the US. So, sit back and enjoy the fireworks. We are fixing bayonets.
Here is where your logic is flawed. Outsiders will never be told this by the propaganda machines, but we in the US who care about our country and the rule of law know full well that obama hates the US and is doing everything in his power to distribute our wealth around the world. Like it or not, our wealth has been created by hard work and ingenuity. Not just war and taking from other countries as most claim. The combustion engine, the auto, the lightbulb, electricity, telephone, television, radio, and on and on none have anything to do with war. It is the entrepreneurial heart and freedoms this country once provided us that made us who we are and once were. Now, the europeans have brought this keynesian socialist communist cra to the US and have destroyed our wealth and our moral character via hijacking our universities, banking and media complexes. Laws are being enacted to punish the hard working entrepreneurial class in this country, most of whom have nothing to do with wall street. The cronyism and printing of money is killing our freedoms. Taxes are no longer used to fund the govt. they are used to steal from the prudent, ethical hard working folks. At some point we will revolt and the French Revolution will look like a Disney movie. We are 300 million people carrying nearly 200 million weapons. We are the largest weaponized civillian force on the planet and you can bet your ass, politial class or no politial class on board, we will fight to defend our country and way of life. We are waking slowly but surely. The first casualty will be the resolution and convictions of many in ou political and banking class. I am convinced this is just starting to warm up here in the US. So, sit back and enjoy the fireworks. We are fixing bayonets.
I don't have any problem with your position. But to succeed you must be fully aware of the enemy's position.
Otto. Diesel. Wankel. Heisenberg. The combustion engine and astrophysics. The French delivered chemistry and first representative government. The Italians, first electricity and first medicine. The British mechanical physics and everything about seafaring. America literacy, flight, telephony, second representative government, second medicine, second electricity, second combustion and Chinese cuisine.
Other branches of our family tree have legitimate claims to their heritage. We are 300 million people dumped here, gotten rid of, by the status quo of those places. Our ancestors so succeeded in the wilderness they were dumped in, that their sons - our fathers - lay claim to the world today.
We will lead by example, or we will follow the examples of others.
"we coexist alongside everybody else standing amongst an electronic waterfall of interconnectedness of information"
Nice one, that one
Yep, knukles, we are in for the ride of our life. Reminds me of a song you might just like,,, https://www.youtube.com/watch?v=bb3WK8rvqIM
The most important concept in the entire article is that the commodity crash IS THE CRASH. The economy is real, the stock market is fake, so which one is a reliable signal of a crash?
Even ZH'ers, for all they know still don't get this and keep waiting for it to happen. All you're waiting for is the rest of the sheep to figure it out because it's on CNN or FOX. It's here and it's now, and it will get worse and worse until even the fraud market can't be held up any longer.
Grand slam in the first at bat. Milestones
"Currency wars, trade wars, world wars."
-Gerald Celente.
In 1930 the greatest oil discovery in human history was made in East Texas causing the greatest collapse in oil prices ever seen...from one dollar a barrel to ten cents a barrel.
Combined with the build out of a "National Grid" and a "Hoover Dam" along with the mass production of an "internal combustion engine" caused an unprecedented jump in both the scope and scale of production inside a place called "North America."
The hunt was on for the next "Big Black" and it was not very long before it was found.
In the Great Depression the US was the worlds biggest oil exporter and remained a net exporter until 1949. That boost to get the US out of GD1 doesn't exist anymore and the US has gone from the worlds biggest creditor nation to the worlds biggest debtor nation.
So what solutions (Buckleys or none) will save the US from collapse in this ongoing GD2?
Nothing. Nothing will save you from collapse.
But you have people and knowledge and resources. You are well placed to recover faster than many, provided you have good leadership (think back 200+ yrs).
Problem is, the present power structure wont let go without a fight, and they're pretty well tooled up.
Good post. The current economic and political structure does seem to have reached the limit of its growth. Happens from time to time and nations survive. Cover your ass is all you can do really.
I see a future with a lot of jumpy bankers ...
this article is depressing. sounds like we are not even close to the end of this cycle. thinks are hard and finding a job sucks. I've quite two jobs this week because of the lack of any real money. employers make it sound like you found the promise land but crooked business is what I saw. the job market SUCKS. I am a salesman 29 years i Oklahoma and I pray this cycle was at an end.
It's not.... it is just beginning. It should have started 7 years ago, but the Inv banking manageents (including the Fed) were caught with their pants around their ankles. The "system" was was supposed to account for this by bankrupting those individuals managing the Inv banks.
The Fed bailed them out pure and simple. Now those Inv Bnak management are still making their $ 5 to 20MM / year. However they are now prepared for the Reset. They have their bunkers, cash stashes, and pm's ready. They are now just riding along ... letting thr air out of the balloon slowly. What actually occurs as the3 economy sinks into depression, they do not care.
It's going to be a long time before there is any new growth, unless the Reset comes sooner than they expect... e.g. war with Russia, Iran ...etc... The criminals have escaped unscathed, and hats all they are concerned about now ... how to stay out of the line of fire.
So let me get this straight. Low interest rates fuck the retirement class. Their savings are sitting idle so they work part time to make up the difference. Maybe even throw some cash into the "market" to get some returns or dividend stocks. Forget about the retirement in Florida because they aren't making shit on whatever they saved. So they're done.
New "workers" have a shit ton of debt with credit cards and student loans that will likely never be paid. They aren't saving like their daddy did. Why would they? Their paycheck goes to paying off the debt they incurred.
So no new "money" is going into the system except for bank cash advances courtesy of the central banks to keep things semi-afloat.
Sounds like to me we need to give a heads up to people who are listening (which isn't that many) that we are going to reset everything back to mark-to-market and it's going to be painful for a short while. Wipe out debt, allow banktruptcy for corporations and governments, and start all over again. Then, we can truly, and I mean TRULY, have the utopia we are all hoping for. /sarc
I think the notion of retirement will prove out to be a short term phenomenon. It is very recent, and I think unsustainable.
Play music, grow a garden, build a bomb shelter.
They love to call it deflation. But if your buying power shrinks it's not. You can't save or spend more. You can't borrow more. And you don't expect next year to be better. Demand will be in full retrenchment in 2015. No "cheap oil tax cut". Instead people will feel even poorer. International trade will sag even more. Home sales will also sag. But we won't get a crash or a re-set. Just more money printing. That's BIflation at work.
We depopulated some folks
Reverting now to past gold standard world system:
Gold pays Credit but not vice versa. Banker Credit rides on top of Gold in a 10:1 ratio, hence fractional reserve. Domestic banks are linked up via reserve channels, and tend to use Treasuries instead of Gold to settle their imbalance. International trade imbalance is consumated in Gold.
The first statement will not be discussed by money powers. Shhhhh. During depressions, in order to cancel debts, gold and other real physical assets transfer to pay the former credit. Yet, the credit was issued from nothing upon debtors signature. This is why credit power is so important to money powers. Shhh. Credit is supposed to be redeemed with Gold, but that was always a lie. Con men lie, and con is short for confidence game. Con men assume fiat, or faith powers, and said faith really belongs to common law.
The credit is out of alignment at 10:1. Gold recently mined or loose in money supply soon finds its way to "paying for former credit" during depression harvest phases.
How are depressions created? Usury on credit insures that loans created must be paid back with more than principle. This "more" must be exogenous to banking system, and usually comes through Keynsian deficit spending, thus putting public on the debt hook. Without deficit spending, somebody has to cancel private debts e.g. go bust in order to leave their former credit in the supply.
Mercantilism was excess exports in order to grab other countries gold. That gold then paid "credit" needs of private banking, which made public feel secure, because public was trained and hypnotized to think shiny metal was money. This hypnotic suggestion exists to today.
Lots of problems with old gold systems, which also included exchange rate differences between silver/gold. These problems cycled man into poverty, war, booms and busts.
The highest form of money is a division of the law. Even the old credit riding on Gold fractional reserve system assumed law and force; but assuming this law/force power was part of the con.
Today's system is also a con, just a different form of same money power game. That is, to own oligarchial control and rents on society.
A very, very concise summary, MEFO. Well done.
BTW: "principle" is not the noun you are looking for. However, a truly excellent summary!
Plus, you should add the fact that "paper" gold is leveraged about 100:1 to the physical stuff. So the 10:1 leverage you correctly cite can turn into 1,000:1 when you consider "paper" gold obligations.
Food for thought.
This is a really crappy revisionist history. This fellow ought to read Fekete to get it straight.
I'm so old I remember the 20s and 30s. This is crap.
The real powers were always out there screwing with the small investors and producers, right?
Even the Story of the Wizard of Oz is supposed to be about Gold Certificates and Silver Certificates that effected farmers in the USA, bankers wanted tight money to control the profits and wealth.
Probably the Bankers of the world we so few that they screwed everybody, trying to install slave wages every where.
Even in 1870 We had Off Shore Produce, a commodity, which we depended on, and used our military to enforce capitalist systems.
The Idea of the Money Trust came out of this time, maybe. Anti-Trust Policy came up in this period.
The author seems not to be aware that he only has one side of the story... like he thinks prices happen without power players.
if u remember them then u are younger than the new king of Saud.
He can't even remember what his brother said yesterday.
As for Jamie Dimon and the Squid they can't remember what their left hand did as they raise their right hands to swear on the constitution that they never sold their grandmother's panties to save the debts on their books by taking bad bets concerning the future of the daughter's generation.
"i never evah had sex with that Cayman bank account, Mr Senator".
--Now go puff on you cigarrr you crook who can't tell a toxic debt from a butcher's slab of fresh red meat that he bought with the sweat of his brow-- you Glass Steagall revoked bastardised banksta rogue.
First chart look like Bitcoin chart :(
Where do the problems start?
A de-regulated Wall Street leads to Wall Street crashes (1929/2008).
Then you get a global recession.
Same old same old .....
Yes. Agree. I have a list of Deregulation action in the USA that I've been posting around. Even the US Constitution has been deregulated. My sense is that we exponentially increase tax regulations & Federal Regulations... while we deregulate the important things... and move from standardized finance & Accounting.
But was just thinking we also
- Whussify the USA, US K-12 to make people expect fairness
- Try to teach that negative human motivations & behavior is disappearing
- Teach that World Government is Possible with World Peace since people all want to behave
- other Utopian Ideas that dumb us down about Business, Domination of Men & Women in Real Life, Competition in all our social groups
Currency crashes all over the world and nothing is breaking in stocks? Really?.... Wake me up on the first day the Dow is down 500, until then everything is fine and dandy, unless you are a blown up currency trader.
History is one thing but how could it have been made different?
The gold standard in place in the 1920s has been replaced by the fiat currency regime of today. This was the introoduction of Keynsian style economics. Reckon most would have heard of the 2% YOY you never pay the debt only the interest. If the bankster fools had only run this same mechanism at 0.5% YOY or less then the rate of growth sovereigns can increase the debt would have been limited and forced to live even better within their means.
THAT EASY MONEY SHOULD NOT HAVE BEEN ALLOWED IT ALLOWED THE ECONOMIC & POLITICAL SYSTEM TO EVOLVE INTO WHAT IT HAS.
The politicans used this easy money to bribe populations and the system was not forced to correct itself like purging all those things it could not support.
NO MORE EASY MONEY OKAY (QE) DOES EXACTLY THE SAME BECAUSE THOSE USING THE MECHANISM ARE ONCE MORE ARE REFUSING TO ADDRESS THE ISSUE THE CURRENT ECONOMIC SYSTEM CAN NEVER ADD UP EVER.
"Since debt is the acceleration of current spending in lieu of future spending, the falling commodity prices (similar to 1920) may be the key leading indicator of more difficult economic times ahead for world economic growth as the current overspending is reversed."
As there is no source for something to replace the future spending that has already occurred today, we will see the corresponding drop in consumption.
It strikes me to comment, on the 1929 crash versus today's 2008: "Whatever happened to the Good ole Days, when men jumped from buildings?"
The mess we are in now is in no way comparable. First, we have a COMPLETED PLUTOCRACY in total control or the Ad-Men we call Congressmen/women. Back then, there were still 40-50 year olds who were born in the 1800's. There was a different tone to these people. MY grandpa was one of those, who worked in his line of business free of influence-mongering.
After that, my Generation was born of his kids. HIS kids are the incompetents that led to the allowance of "well, a white lie is not such a bad thing." THEN, we are finally allowing BLATANT lying, supported by a Propaganda MAH-CHEEN like nothing we have seen before. NOW, they just LIE and then got on with it....BUSH/CHENEY TRIED THEIR BEST TO SUPPORT LIES with more time but in the end, there is no material difference.
I am, as you suspected, pointing towards a total lack of moral character in the men that run this mess we call the USA. JUST LOOK a the CHURNING of news stories, week to week: it is a ROTATION to keep up the NARRATIVE. ISIS/ISIL/IS, to PUTIN, to IRAN, to No. Korea, TO the Ukraine, to "PRESIDENTIAL MANDATES" never argued before, with the BUSH DOCTRINE (look it up, now we have Obama Doctrine happening). YES, the entire mess is a backdrop to the stealing and cheating and now they just do it and no one does a thing. We are like a country with its head it the sand, in a HOPE and PRAYER consciousness - - I am guilty. I wonder when the real shoe will drop and we are F****CKED.