Monday, April 23, 2012

Will We Stop 1929 from Repeating?

Here's a blog post from June 9. 2009. Things haven't changed much, or have they? The reference to clunkers had to to do with the cash for clunkers program. As for Potato Chips, they cost even more now.

The Great Depression was a financial event. There was no war, earthquake or hurricane. The financial system ruptured and just about died. People stood in line to withdraw their saving from the banks. Thousands of banks collapsed. People, worldwide, lost their life savings. It was contended that the runs on the banks are what brought the system down. Upon closer examination, it’s easy to extrapolate the banks eventual demise from the poor economic conditions. The money borrowed could not be paid back by the unemployed. Many people were forced to live off of their savings (if they had any left).

In order to stem bank runs, the government came up with FDIC insurance. The Glass Segal act put this into effect January 1, 1934. This was after the horses escaped and the barn door was locked. If your bank met muster, you qualified for insurance and if it didn’t, you were toast. It didn’t cost the government a dime.

Let’s bracket that date January 1, 1934; either 100% of the population had collectively lost 80 percent of their wealth, or 80 percent of the population lost everything and 20 percent lost nothing. Almost everyone fell somewhere in-between the two categories. There was an obvious destruction of savings that was catastrophic in nature. This money wasn’t destroyed; it had been spent very foolishly over the previous 10 years on consumption. If you paid one million dollars for a dog or a wedding, you got your money’s worth, although I would argue that.

Fast forward to today. Bank deposits worldwide are insured. No one has lost a dime. The last part of the Kondratieff wave has to do with the contraction of the money supply and the repudiation of debt. The US Treasury is expanding the money supply while debtors have no problem walking away from their obligations. The most important thing to realize about the last part Kondratieff cycle is the end result. It destroys the obscenely rich and returns financial systems to a more normal functioning state. Bernanke is trying to preserve the status quo. The Fed is going to print us into prosperity.

Food prices have double this year. It is a little hard to see in some cases, the giant size potato chips bags, now fit in a lunch box. And then there is the specter of deflation. Autos and homes are just not selling.

Even if you have a job, your wages are not increasing, but your cost of living is increasing. So you dip into your savings, which seem to have lost a lot of buying power. Maybe that’s what deflation is all about, you spend until you are broke and then do without.

In 1930 there was no money to short the dollar on a carry trade. Bernanke has fixed that (it’s a little like a bank selling hand guns in the main lobby). The World(and probably Goldman Sachs) has shorted the American dollar. After getting rid of our clunker, we can now drive to the poor house in style. It kind of sets your mind at ease, doesn't it?

Copyright 2012 by Jim Brubaker


Anonymous said...

My husband and I were traveling recently and stopped at a turnpike restaurant for an ice cream cone. It was priced at $4.50. We started reminiscing about the ten cents we paid for ice cream in the 1960s.

Jim in San Marcos said...

Hi Anon 5:02

I know what you mean.

Back then, I use to get 50 cents a week as an allowance and it went a lot further, than today. The only thing that hasn't change with ice cream over time is the taste, it's still yummy!

The thing that worries me, is that Congress can change that, look what they did to McDucks french fries.

Anonymous said...

I just hope the flavor of the ice cream isn't compromised when the government legislates that a special tranquilizer must be an ingredient in all snack foods in order to keep the masses from becoming too restive about the the increasing taxes and wars that the military industrial congressional complex have planned... the lack of jobs... the lack of social services... the lack of the USD's purchasing power... the lack of privacy (due to the Utah Data Center and all of the surveilling drones flying around recording and videoing all "suspicious" activity)... the lack of gasoline for their cars... the lack of money needed to have food, energy and shelter and medical services let alone to maintain their standard of living which is slowly dwindling down.

Anonymous said...

When I was a senior in high school and got my first car, my grandfather's Buick Special, it cost me $3.50 to fill up the 10 gallon tank (35 cents per gallon). That was 43 years ago.

I just filled up the 10 gallon tank of my Toyota pickup truck and it cost me $41.80 ($4.18 per gallon).

A 1200% increase. That is an average of a 35% increase per year over that 43 year period.

Can you imagine what the average annual increase percentage will be over the next 10 years?!

Bicycles and scooters might become a big "fad" over this next decade. As well as Rockport walking shoes.

Anonymous said...



Warren Buffet: "I could end the deficit in 5 minutes," he told CNBC.
Warren Buffett, in a recent interview with CNBC, offers one of the best quotes about the debt ceiling:

"I could end the deficit in 5 minutes," he told CNBC. "You just pass a law that says that anytime there is a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election.

The 26th amendment (granting the right to vote for 18 year-olds) took only 3 months & 8 days to be ratified! Why? Simple! The people demanded it. That was in 1971 - before computers, e-mail, cell phones, etc.

Of the 27 amendments to the Constitution, seven (7) took one (1) year or less to become the law of the land - all because of public pressure.

Warren Buffet is asking each addressee to forward this email to a minimum of twenty people on their address list; in turn ask each of those to do likewise.

In three days, most people in The United States of America will have the message. This is one idea that really should be passed around.

Congressional Reform Act of 2011--or 2012:

1. No Tenure / No Pension.

A Congressman/woman collects a salary while in office and receives no pay when they're out of office.

2. Congress (past, present & future) participates in Social Security.
All funds in the Congressional retirement fund move to the Social Security system immediately. All future funds flow into the Social Security system, and Congress participates with the American people. It may not be used for any other purpose.

3. Congress can purchase their own retirement plan, just as all Americans do.

4. Congress will no longer vote themselves a pay raise. Congressional pay will rise by the lower of CPI or 3%.

5. Congress loses their current health care system and participates in the same health care system as the American people.

6. Congress must equally abide by all laws they impose on the American people.

7. All contracts with past and present Congressmen/women are void effective 1/1/13. The American people did not make this contract with Congressmen/women.

Congress made all these contracts for themselves. Serving in Congress is an honor, not a career. The Founding Fathers envisioned citizen legislators, so ours should serve their term(s), then go home and back to work.

If each person contacts a minimum of twenty people then it will only take three days for most people (in the U.S.) to receive the message. Don't you think it's time?


If you agree, pass it on. If not, delete.
You are one of my 20+ - Please keep it going, and thanks

Anonymous said...

An amazing speech. How could anyone at the Federal Reserve return to work the next day after this speech? Easy to do if you have no conscience and a hidden agenda that you are either wittingly or unwittingly forwarding.

Anonymous said...

FDIC Insurance is no insurance at all. The 1930s depression did not happen from a lack of paper money, it happened from the inability of borrowers to deliver goods and services represented by the money they had originally borrowed and lost.

If the FDIC runs out of insurance funds, it will simply ask the Treasury for more cash. The Treasury will then issue and sell new bonds to the Fed in exchange for new cash. However, the new cash is not represented by any new ability to deliver goods and services.

The "wonderful" effects of the printing press is a fallacy that economists fail to recognize. In reality, money has a dual nature: it is an instrument of exchange for goods and services, and an instrument of savings of wealth. By printing more money, one is simply "cashing in" the savings of wealth value for the immediate exchange of goods and services value. Nothing is created.

Then the money turns to dust and everyone wonders what happened. No one could have seen it coming!

Jim in San Marcos said...

Hi Anon 12:47

Thanks for sharing the link. I don't think we can count on Congress to cut its own throat on this and vote for it. But if we had 2/3's of the states vote for a national convention something just might happen.

The big worry is, that too many cooks could screw up the Constitution Royally at a convention. For example, the right to bear arms came from an era when everyone had flintlock rifles and pistols. We might end up with more change than we wanted--just by accident.

Sending it to 20 people can't hurt, we need an alternative to what we presently have.

Jim in San Marcos said...

Hi Anon 1:39

Thank you for the link, I would have missed it without your post. It's a very good read.

Jim in San Marcos said...

Hi Anon 6:30

I agree completely. If you take a steak and put it on a photo copier, you don't get a second steak for the barbecue.

Printing money never made anything. Currency is a faith judgment, you lose faith, the currency becomes worthless. I kind of wonder how long we have got before this problem hits the fan! said...

Could it be we're actually experiencing our own "lost decade," just like Japan in the nineties (and "oughts" as some claim)?

Anonymous said...

Repeating 1929? I believe that we continue to repeat history and in some areas... we never learn. Fiscal and monetary problems (and social) occurred in the Roman Empire similar to what we have now. We didn't learn. The history we are taught in American schools has been white washed and much of the facts and reality has been extracted or altered. The result of government and corporate involvement in school systems. Historians have been handicapped by this problem.

I think history will always repeat, or at least rhyme, until Man makes major inroads into the human mind.

History needs to be recorded accurately or the future race can't benefit from it. You have to read people like Howard Zinn or Thomas Woods to get a more realistic view of American History.

The idea that Hoover did nothing and was laissez faire is totally false. That FDR was a great president is also false. These "leaders" turned a 2-3 year panic into a 15 year depression and socialized our country at the same time.

The American people have no understanding of the Federal Reserve, its history and its true statistics... and the untold damage they have done to our economy, country and currency. The American people don't know the difference between Keynesianism or central planning governments versus Classical or Austrian economics.

If the American people had a good historical education they would never have allowed things to deteriorate as much as they have or allowed our Presidents and Congresses to take us down the wrong paths.

The Constitution was created so that the States could give certain powers to the Federal Government yet prevent that government from growing out of proportion. Now the Federal Govmt controls ALL, the States are total shells, this has been a complete inversion of the government our forefathers created. Obama, like all other "leaders" before him, promised in his inauguration that he would uphold and defend the Constitution. He, like the rest of Congress, laughs as he wipes his ass with it.

The American people don't even realize this.

An educated body politic deserves and expects a sane government. We're not educated so we've got what we got. And we deserve it.

Anonymous said...

Anon 6:30

People in the 1930s woke up one day to find their bank closed and their life savings drained. People in the 2010s will wake up one day to find their accounts recapitalized by the FDIC and $50 per gal gas and $30 bread.

At least the FDIC can say, "Hey, we said it was insured and we fulfilled our part of the deal. You have the same number of dollars you used to have in your bank account." It's true that history doesn't repeat but it does rhyme. We will be able to boast that for a brief moment, we were all multi-billionaires, while we queued up for the soup lines.

Jim in San Marcos said...

Hi Anon 7:42

You raise an interesting point, humanity as a group never learns from history and I think I have figured out why. The average person in not interested in history, he is interested in making money and feeding his family. The drive to get rich leaves history in the back seat.

You're right about Presidents, they get the credit for what is actually done or not done in Congress.

As for our increasing bureaucracy, read "Democracy in America" by Alexis de Tocqueville. He was a Frenchman who toured the US in the 1800's. He reflected back on France's bureaucracy as the later model for the US. I believe it is kind of a progressive thing that as a country we will not escape. Even just skim reading his quotes shows an uncanny insight into the US as a country. And it was written 175 years ago.