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When uncontrolled credit growth results in speculative bubbles,
capitalism's cycles of expansion and contraction end in catastrophic
deflationary depressions where large collapsing bubbles result in crippling
levels of defaulting debt.
In June-July 2015, the Shanghai stock market retraced the beginning of the
end of the historic 1920s US stock bubble whose collapse in 1929 ended in the
Great Depression of the 1930s; and while it may appear history is repeating
itself, it is not. This time, capital markets will not recover.
http://www.bloomberg.com/news/articles/2015-07-05/china-brokers-dust-off-wall-street-s-playbook-from-crash-of-1929
While the recent collapse of China's stock market is similar to the
collapse of the US stock market in 1929, China's economic problems are
reminiscent of events far older than the 1920s. One thousand years ago, China
began experimenting with paper money, an experiment that set in motion six
centuries of economic and political chaos.
Ralph T. Foster's seminal book, Fiat
Paper Money-the
History and Evolution of our Currency, describes China's long
experiment with paper money, a tempting but fatal two-edged sword:
Over the course of 600 years five dynasties had implemented
paper money and all five made frequent use of the printing press to solve
problems. Economic catastrophe and political chaos inevitably followed. Time
and again, officials looked to paper money for instant liquidity and the
immediate transfer of wealth. But its ostensible virtues could not withstand
its tragic legacy; those who held it as a store of value found in time all
they had were worthless pieces of paper
p. 29, Fiat Paper Money - The History and Evolution of Our Currency,
Ralph T Foster, 2nd ed. 2010
Paper money was banned by China in 1661; but like the proverbial bad
penny, it reappeared 33 years later in a far more dangerous guise-as
banknotes. In the West, paper money was created not by governments but by
money-lenders, i.e. bankers.
In 1694, the Bank of England began printing paper banknotes, a conveyance
of debt masquerading as money; the use of which would indebt governments,
businesses and society, allowing bankers to parasitically profit from the
productivity of others by charging interest on the issuance of money itself.
In keeping with Gresham's Law where bad money drives out good, paper
banknotes eventually supplanted gold, silver and copper coins as the world's
medium of exchange and today, paper banknotes with no intrinsic value are
universally accepted as money-and are the primary cause of today's economic
crisis.
Paper banknotes issued as loans tied to central bank interest rates
distort the supply and demand dynamics of free markets. Aggregate levels of
credit and debt exponentially increase upsetting the requisite balance
between supply and demand, causing capital markets to fail.
This is where we are today.
ZERO INTEREST RATES AND GREAT DEPRESSIONS
Zero interest rates appear in capitalist economies when growth can no
longer be revived.
Prior to the 1930s Great Depression, zero interested never existed.
 
Today, zero interest rates are back.
Another Great Depression is coming.
THE GREAT DEPRESSION AND GOLD
Today, the lessons of the Great Depression are almost forgotten (witness
the repeal of Glass-Steagall Act of 1933 by Congress in 1999); and those
remaining have been ideologically distorted by the supporters of John Maynard
Keynes on the left and Milton Friedman on the right.
To truly understand the Great Depression, Buckminster Fuller is without
peer. In my youtube video, The History of the US
and Buckminster Fuller, see https://youtu.be/Y3ys0DP6ig4
, Bucky's observations about bankers, financiers and lawyer-capitalism are as
relevant today as in the 1930s.
Gold played a secondary but important role during the Great Depression. In
a futile attempt to reflate the economy, the US devalued the dollar by
raising the price of gold from $20.67 per ounce to $35. Also, by outlawing
the private ownership of gold in 1933 bankers forced Americans to stay in
paper assets instead of gold, the monetary safe haven of choice throughout
history.
Gold also played a role in a short recovery in the Great Depression:
[The] Recovery began in March 1933 with Roosevelt's banking holiday,
ending the fourth banking panic. The nation's banks were closed for a week
during which an army of bank inspectors separated the insolvent banks from
the rest. Insolvent banks were closed ending the uncertainty driving the
panic. This action was quickly followed by FDR taking the U.S. off the gold
standard in April, Treasury gold (and silver) purchases designed to raise
gold prices and prices in general, and formal devaluation of the dollar by
close to 60% in January 1934. These policies produced a big reflationary
impulse from gold inflows which were unsterilized passing directly into the
money supply. They also helped convert deflationary expectations into
inflationary ones (Eggertsson 2008).
The recovery of 1933 to 1941 was largely driven by gold inflows
(initially reflecting Treasury policies and the devaluation, later reflecting
capital flight from Europe as war loomed. Expansionary fiscal policy played
only a minor role in the recovery of the 1930s.
Michael Bordo, Exits from Recessions: The US Experience 1920-2007
Today, gold will play no such role as America no longer possesses the
requisite amount of gold necessary to reflate the economy. America's once
historic hoard of gold-21,775 metric tonnes-was squandered after WWII on
maintaining a vast US military presence around the world.
Today, gold is not flowing into the US, it's flowing out.
CHINA AND THE CRACKUP BOOM
China and the world's economic powers have now entered capitalism's crackup
boom, the final stage of an unrestrained credit boom:
The credit boom is built on the sands of banknotes and deposits. It
must collapse. If the credit expansion is not stopped in time, the boom turns
into the crack-up boom; the flight into real values [gold and silver]
begins, and the whole monetary system founders.
Ludwig von Mises in Human Action, 1949
Capitalism's crackup boom has now peaked. After the 2008 economic
collapse, China along with other emerging markets, e.g. India, Brazil, etc.,
were recipients of capitalism's last credit boom; but, today, growth in
emerging markets has peaked and their economies are slowing, victims of
capitalism's last credit boom and bust cycle.
The plunge in China's containerized freight index indicates a global
deflationary collapse in demand is underway. The crackup boom is over.
A plunge in China's rail freight volumes indicates a fall in domestic
demand as well.
The future is certain. A global Great Depression is imminent.
The World Economic Order is
collapsing and this time there seems no way out
Will Hutton, The Guardian, October 12, 2015
WHAT'S NEXT: A DEFLATIONARY COLLAPSE OF MARKETS
There's a lack of faith in monetary policy -- you've thrown the kitchen
sink at it, you've cut rates to zero, you're printing money -- and still
inflation is [going] lower.
Lee Ferridge, head of macro strategy for North America at State Street
Corp., October 4, 2015
http://www.bloomberg.com/news/articles/2015-1...y-as-woes-mount
Today's levels of NYSE short interest-investors betting stocks will fall
on the New York Stock Exchange -is similar to levels just before the
catastrophic collapse of markets in 2008.
The handwriting's on the wall and it's in blood. Stock markets are about
to plunge.
The breaking point will be the
tipping point
In the second episode, target="_blank" Deconstructing
(1) Money and (2) Who We Are, in my new youtube series Moving
Through The Maelstrom, I deconstruct "money" and "who we
are", see target="_blank" https://youtu.be/FSTVhue-8i8
. "Money" isn't what it appears to be and neither are
"we".
These are extraordinary times. It is a period of historic importance. We
must do our best. Better times are coming.
Buy gold, buy silver, have faith.
Darryl Robert Schoon
www.drschoon.com
www.survivethecrisis.com
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