Authored by Jeff Thomas via InternationalMan.com,
A crash is coming, and it may be terrific… The vicious circle will get in full swing and the result will be a serious business depression. There may be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed…Wise are those investors who now get out of debt.
— Roger Babson, September, 1929
In the run-up to the 1929 crash, which heralded in the Great Depression, many pundits claimed that the new highs in the market signified that the business cycle had been “repealed.”
Stocks had never enjoyed such a bull market before, and this led many to believe that “the sky’s the limit.” All over the US, people put all the money they could find into stocks. Then, wanting to buy more, they bought on margin. Then, wanting still more, they borrowed privately to buy on margin – a double-dip into debt.
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In essence, this meant that a large portion of the extreme bull market was the result of stock investments that were made with money that didn’t exist – a mere “promise” to somehow pay, with nothing to back that promise up.
This, of course, is the very essence of a bubble. And, sooner or later, bubbles pop.
After the crash, the pundits that had driven the market ever-upward were all but speechless, saying only, “No one could have predicted this.”
However, it was predicted by those who understood market bubbles. Roger Babson, in particular, made the statement above to the Annual Business Conference in Massachusetts on 5th September, 1929. At that time, he was vilified by Wall Street for making such an obviously false proclamation, yet, after the crash, he was again vilified for having brought on the crash with his statement.
Neither was true and no lesson was learned by those who created the crash. Yet, it was the logical conclusion to the buildup of events. In fact, there could have been no other outcome… and the same is true today.
The $20 trillion debt that the US government has created is far beyond anything the world has ever seen and, in fact, it exceeds the total of all other countries combined.
To add insult to injury, the unfunded liabilities of Medicare, Medicaid, Social Security, etc., bring the total real debt to over one hundred trillion—an amount so large that not even the interest can be repaid.
Although Republicans have traditionally railed against debt, they’ve recently voted in a dramatic tax cut, with no corresponding cut in federal spending. This is akin to an addict giving himself a shot of heroin. A brief period of investment in business will occur, but, within a year, will be followed by a deeper tightening.
In addition, dramatically increased spending has been approved. Republicans have joined Democrats in the elimination of budget caps on defense (read: foreign invasions) and domestic spending. Entitlement spending is higher than at any time in history, yet that, too, will be expanded.
(Even the poor understand that expenditure cannot be increased if income has been curtailed, yet this basic arithmetic has been overlooked by legislators.)
Hence, both Democrats and Republicans are on board for dead-ended economic policies that will lead to a depression.
The present economic condition is riper for a crash than ever before in history. In 1929, it was triggered by the central bank raising the interest rate, assuring that those who were up to their chins in debt were now underwater, as the cost of borrowed money had just risen.
And of course, the Fed has raised rates repeatedly in the last year and has announced that it will raise them five times more over the next two years. Which rise will prove to be the trigger this time around?
All right, so a crash appears inevitable, but surely, a crash does not ensure a depression.
So, let’s have a look at the events that took place after Black Friday in 1929 that sent much of the world into a prolonged economic collapse.
Decreased International Trade
The Smoot Hawley Tariff of 1930 introduced “protective” tariffs that instead sparked a trade war with other countries. Today, there’s a slight difference. Rather than wait for a crash, the US government has created major tariffs prior to the crash, speeding the process up. Announcements have been made that more may be on the way.
Demand for Goods
Throughout the “roaring 20s,” the demand for goods rose at an unprecedented rate. This has been blamed on greed by some economists, but, in truth, it was fueled by a loose-money policy by banks, willing to offer loans to all and sundry. Today, the level of money-lending is far beyond that of 1929. Never before in history has the private sector debt level been so high. Its total now exceeds the total of private sector assets.
Bank Failures
By 1929, the amount of money that had been loaned far exceeded the amount of money that banks held on deposit. A crash assured that the non-existence of the money was revealed. Credit crashed and thousands of banks went under, taking people’s savings with them. In 1933, the FDIC (Federal Deposit Insurance Corporation) was created to assure that this could never happen again. Yet today, the FDIC is underfunded to the point that it cannot bail out even one major bank. (This time around, bail-in laws will allow the banks to simply absorb deposits legally.)
Unemployment
The banks had provided the loans that created the spending spree. When they went into liquidation, the demand for goods dropped off dramatically. As sales dried up, countless people lost their jobs. And many of those jobs never came back, assuring that the Great Depression would far outlast any previous depression.
All of the conditions that were present in 1929 are once again in place today. Although we can’t project a precise trigger date for the bubble to burst, it most certainly will – as do all bubbles.
But, what we can do is anticipate that, historically, the crash and its subsequent damage are invariably equal to the level of indebtedness. As the present level so far exceeds what existed in 1929, we can presume that the crash itself will be far more devastating, as will the subsequent damage.
The Depression Playbook has been faithfully followed. However, the reader need not choose to play. If he sees fit, he can opt out. Although time may now be rather short, he may choose to do all he can to remove himself from the system, so that his own economic life is impacted as minimally as possible.
20 Trillion in debt; add another 100 Trillion for unfunded liabilities. Hoo-Rah
The Climateers say the US is the richest country on the planet and the so-called poor countries want their share of Climate Dollars.
That there is some pretty powerful weed the politicians are smoking.
The hydrogen bomb is the $1.4 Quadrillion in derivatives. Once something really big like a Spanish default or Illinois or California or Deutsche Bank blowing up, all the bets, hedges, CDS and all other derivatives will set off a daisy chain of unprecedented magnitude.
I ain’t buying what the Jews are selling.
A couple years ago someone on here suggested the best way to withdraw cash was to spread it around in multiple banks and then withdraw it in small increments of a couple thousand dollars to then be sealed and stored.
I thought it kind of a nutty drawn-out way to do it but if you are that person I want to thank you. Mission accomplished.
Too bad about the boating accident.
The BDI is way down, rail freight No.Americia is up, demand for truck drivers is way up. What the hell is going on here? retailers dying like flys. I don’t get it. Need help here.
The retail model of business is undergoing a change. A new one is emerging.
The BDI is sitting above but very close to its 5 year weekly moving average. It doesnt mean much if it rises or falls 15% in a week.
The bulk of goods in this country move by truck. Demand for truck drivers is up because demand for goods is up, which is one of the symptoms of the coming crash the author is talking about. Retailers are dying because more and more goods are being purchased online and on credit.
The productive portion of the population is on a credit fueled spending spree because they think the party will never end. The welfare portion of the population keeps on suckling at the government teat because they think the party will never end. The government behemoth we have created just keeps piling on the debt because…you guessed it…they think the party will never end.
What we are seeing is the economic last call of the United States. The party is raging, but at some point the lights will come on and everyone will be told “Get the fuck out, the party is over!”
When that happens, you don’t want to be the guy sitting shitfaced at the bar, alone, and with no one to drive you home.”
Get out of debt and stay out of debt. Pay off your house if you can. Learn some basic skills. Do some basic prepping. Own some gold and silver. No need to go bat shit crazy, but do some common sense re-ordering of your financial and personal situation. Do it now because whether the shit goes down a day, a month, a year, or ten years from now, you will at least insulate you and yours somewhat from the utter shitstorm that is headed our way.
The trucking angle is a perfect storm, with the most recent being the bullshit ELD requirement, when combined with truly retarded rules of ‘hours of service’ mandated by the D.O.T. through their CSA program mean that you simply cannot run your high fixed cost business enough without a shit ton more drivers who have left because the job sucks ass.
This is a direct result of the big carriers pushing for this nonsense – because they have the size to grab share here, and they are. This is all on purpose with the standard ‘it’s for safety’ waved like a flag for justification.
So, now you have drivers with little time to driver daily – and no, you cannot ‘log off duty’ or ‘sleeper berth’ anymore….and yes, it applies to your weekly but wtf does it matter when you’ve to live day by day? Meaning friends, watch out…..less time means they HAVE TO hammer down to get what they can, and they will. However, with fuel rising and truck speeds rising, you can surely see a problem in a razor thin industry, which leads me back to my ‘by design’ theory as the big boys can make it in that world until the pests are gone. Then what do you suppose happens?
Lot of apples and oranges in this article, and no follow through on ways to “opt out” that have historical success. Incomplete at best.
The are pumping helium into the balloon as quickly as possible. while everyone expresses concern about tiny Fed tightening, the government deficit is exploding higher, to pump the money in through fiscal spending.
USA is a a runaway freight train, recklessness careening down the tracks,threatening taking aim at any country in its way. Out of control, and fighting for control. Running out of gas….
The biggest fallacy I see right now is that the Fed itself controls interest rates. The Fed just gives the illusion that it controls rates. The bond market controls rates. If you look at any chart, where the Fed begins tightening monetary policy, you will notice that the bond market starts first.
The Fed, as all other central banks, if giving the choice would keep the party going forever. No, the reality is, in order to maintain the illusion of control, they have to “announce” rate hikes.
Why? Well, very simply the world is over debt saturated, and now they have to decide whom they will blow up – The fixed income markets, OR the stock markets. You can’t have both. The bond markets are saturated, and the stock markets are saturated. Pick one. The central banks would rather lose a market, than lose control. Considering the bond market is much much larger than the stock markets, and the governments of the west basically are propped up by the bond markets, the Fed does not give a damn about the stock markets now. All that matters is government control and “stabilization” of the market that continues to let the government spending continue.