Great Depression II

I don’t like to get much into world events here, but the current economic crisis in the United States is properly a world event, and should be viewed in that context. With this in mind, I read today a BBC News story regarding this week’s G-20 summit in London at which the group of twenty finance ministers and central bank governors agreed to a $1.1 trillion bailout of various world economies, along with further restrictions on the financial industry and large companies.

In addition, the story noted that member countries are already committing at least another $5 trillion to “bailing out” and giving “stimulus” to their respective economies. At least $1 trillion of that is here in the U.S., and probably much more by the time you read this.

To those of you who are facing layoffs, foreclosure, or worse, help can’t come fast enough. But so far all you’ve been offered is a measly $400 tax rebate and vague promises about how the bailouts and the stimulus package will create more jobs and get the economy moving again. And of course, you’re doubtful. You’re right to be.

After reading that story I noticed a page for leaving comments. I was about to leave one, when I noticed that hundreds of people had already done so, and said much the same things I would have said. It seems my fears about people not understanding the economic chicanery being pulled off with all this printing of money were largely unfounded.

Simon from somewhere in the UK writes: “Where is all this money going to come from? Are we going to find our taxes rise once again, is petrol going to go up even more, will my train fare cost another extra 50% more than it should do? All I know is that I feel betrayed by the people I vote into power to help run this country. They waste our money for their own deep pockets. Wait did I even vote Gordon Brown in? Wait did anyone?”

(Of course, some people don’t quite grasp all the nuances, such as “V Endetta,” who wrote: “The G20 meeting had one chance to show the world that it truly wanted to solve the current crisis. It could have abolished fractional reserve banking and ordered the arrest of the owners of the world’s privately-owned central banks. Instead these so-called ‘leaders’ demonstrated that either they are totally incompetent parasites or totally corrupt parasites. No-one can be THAT ignorant of economic basics, so I can only conclude they are totally corrupt. This is not rescue, it is ROBBERY!” V apparently doesn’t realize that the G-20 is comprised of the very people he or she wants arrested!)

Where does the money come from? The central banks print it from fresh paper and ink. In Federal Reserve speak it’s called “injecting liquidity,” and in normal English we would call it “inflation of the money supply.” This inflation is the root cause and reason why prices go up. (Price rises are not in themselves inflation, as the government would like to have you think, but merely one of its symptoms. So are mass layoffs and the general boom-bust cycle, for that matter.)

This is how the scam of fiat money works: Let’s say there is $10 trillion of central bank notes everywhere in the world. (Obviously this figure is wrong, but it makes the math easier to follow.) The central bank then prints $1 trillion more and gives it to whoever. Now there is $11 trillion. As that new money goes into circulation, the $10 in yesterday’s dollars is now worth about $8.89 in today’s dollars. Or, in reverse, what cost you $10 today will cost you $11 tomorrow, on average. You’ve just been ripped off, and the beneficiaries are whoever received that extra $1 trillion that the central bank just printed.

And many people are none the wiser. When the Federal Reserve says it’s “worried” about inflation, as it often does, what it really means is that they are inflating so much that too many people are beginning to notice. It stopped publishing numbers of how much money it has in circulation two years ago, apparently because it was beginning to show the true rate of inflation approaching double digits.

Some people instinctively understand this, even if they didn’t understand the mechanics, such as the commenter who wrote: “And where does all this money THEY have decided to spend come from? US!”

Commenter Josef Starling clearly understood it when he wrote: “Essentially the IMF will add a few zeros onto the balance sheet of the central banks of various countries, and those people will pay higher taxes in both visible taxation and hidden taxation (inflation). . . . The rich get richer.”

And the poor get poorer. Thank you, President Obama, for taking food from the mouths of hungry children to feed the rich. This worked so well in Zimbabwe that it was high time we did it here.

The most insidious part of inflation, and the bailout and stimulus packages in particular, is that whoever doesn’t get them suffers. (This is one example of what’s called moral hazard.) When the money supply increases, prices of everything must necessarily rise. This means that every manufacturer of everything must pay higher prices for the raw materials and components with which they make the goods you eventually buy in the stores. As a result, in order to remain in business at all, they must either raise their prices or cut their costs, or both. And as the 15.6% of you who are unemployed or underemployed know, the top cost-cutting measure is the layoff. Those companies that get bailed out can afford less of a price rise, or to lay off fewer people, than their competitors who don’t get bailed out.

The former chairman of AIG, testifying before Congress on Thursday, was blunt. He said the bailout had failed and we would have been better off to let AIG go bankrupt.

So the vicious cycle continues and the economy spirals ever downward into what I believe history will eventually call the second Great Depression. The various European stock markets rose slightly on Friday’s news of the G-20 agreement, but all it does, and all the stimulus and bailouts do, is to buy time for the political leaders, whoever they are, to get out of the way of the inevitable crash so that someone else can take the blame.

I would love to be wrong, and to see some sort of real economic recovery, but the actions being taken by the Obama administration and the G-20 are almost exactly the same as those taken by Herbert Hoover and Roosevelt after him, which deepened and prolonged that first Depression, making the prospects of such a recovery dim at best. Within a year I expect to see Obamavilles all over the country. Though I expect they’ll be erected in vacant parking lots as people take to sleeping in their cars.

Compounding the problem is this week’s news that Social Security will fail much sooner than expected. The Congressional Budget Office now expects Social Security to pay out more than it takes in before 2011. Its previous estimate was 2017. Normal people who run Ponzi schemes, like Bernie Madoff, go to prison. But when FDR gets Americans to depend on a Ponzi scheme for their retirement, he’s hailed as a hero. It’s a miracle the program survived this long. Of course, this problem has been well known for years; even Bill Clinton said that something must be done about it. Nothing has.

If the country — and the world — had listened to a man who predicted this crisis years in advance and showed the way to avert it, and truly recover the economy, we wouldn’t be having this conversation. The news media, who gave Dr. Ron Paul short shrift when he was saying the same things as the 2008 Republican presidential candidate, are certainly listening to him now, though the rest of Congress and President Obama clearly seem hell bent on ushering in a second Great Depression.

With the current direction of the country’s (and, it seems, the world’s) politicians, this just-begun depression can end in only one of two ways: total economic collapse, or total war. The question now is, will World War III happen before it’s too late to save the economy? I can’t decide which would be worse: a total economic collapse, or a world war. Perhaps I should ask the people of Zimbabwe, who suffered hyperinflation for years before gaining some measure of stability by implementing one of Ron Paul’s suggestions for the U.S.: allowing alternate currencies.

One thought on “Great Depression II

  • September 3, 2009 at 7:59 pm

    The Federal Reserve caused the Great Depression and the horrific suffering, deprivation and dislocation America and the world experienced in its wake. The worldwide economic downturn called the Great Depression, which persisted from 1929 until about 1939, was the longest and worst depression ever experienced by the industrialized Western world. While originating in the U.S., it ended up causing drastic declines in output, severe unemployment, and acute deflation in virtually every country on earth. According to the Encyclopedia Britannica, “the Great Depression ranks second only to the Civil War as the gravest crisis in American history.”

    Most Americans believe that the Federal Reserve is part of the government. They are wrong. It is a privately held corporation owned by stockholders. The Federal Reserve System is owned by the largest banks in the United States. There are Class A, B, and C shareholders. The owner banks and their shares in the Federal Reserve are a secret. Why is this a secret? It is likely that the biggest banks in the country are the major shareholders. Does this explain why Citicorp, Bank of America and JP Morgan, despite being insolvent, are being propped up by Ben Bernanke and Timothy Geithner? The Constitution of the United States unequivocally states that only Congress has the authority to coin money, not an independent bank owned by unknown bankers.

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