The Confidence Game – The Next Crisis

The outcome always depends upon confidence. It is what you believe that counts rather than the facts. When Credit Anstalt went belly-up in 1931, why did an obscure bank in Austria set in motion the 1931 Panic and Sovereign Debt Defaults that made a recession into a Great Depression?

-----------------------------------------------------
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal

-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)

The answer was found in the name. One of the owners was the Rothschilds. When people heard the Rothschilds went bust, they began selling all the banks because if they went down, everyone else surely would. They were the Goldman Sachs of the day.

I suggest reading Herbet Hoover’s Memiors from 1931. This is a confidence game. Just because QE appeared to work before does not mean it will work a second time. The middle-class lost money and their living standards were sharply reduced. Retail investment in equities has not yet returned to even 50% of 2007 levels. Most people who lost their homes were those who could never have bought one before. Yes, the middle-class who borrowed more against their house were put under stress. Home equity loans dried up so industries like selling pianos dropped by more than 50% since people borrowed using home equity to fund expensive things like a piano.

The difference this time is the fiscal budget. Back in 2007, the Fed only had to worry about its policy and the contracting economy. The problem they created is that government just keeps going like the Energizer Pink Bunny – it never stops spending regardless of the level of interest rates.

The Fed cannot neutralize the Fiscal spending of government. This is deeply entrenched. Just look at the table below on the annual deficits since 2007. This has increased about 364% since the 2007 crisis began.

Government has become addicted to cheap interest rates. If rates go back just to 5%, we are looking at a fiscal deficit explosion the Fed cannot overcome.

The crisis has to hit before a politician would ever act. Once the crisis begins, you cannot restore confidence. The whole thing will have to play out. Moreover, the crisis in Europe helped to send capital to the USA easing the economic pressure here. This is why the USA is holding up the entire world economy right now and a stiff wind will blow over the European banking system. I seriously doubt that anyone can stop the next crisis and whatever they do will then be seen as a failure.

During the late 1970s, the IMF held gold auctions trying to stop its advance. The first auctions in 1975-1976 caused gold to drop by 50%. However, the continued auctions had no effect and they were seen as a validation of the bull market that could not be prevent. We are looking at the same type of collapse in confidence this time around. The same fundamental act can have different interpretations. It is the glass half full or half empty.