The Greater Depression

For the past several days, I have been talking with many friends who live in the Matrix (i.e. in the real world, but with no understanding whatsoever of economics, politics, financial markets, etc.) and they often ask me how I feel about the economy they don't understand and I have hard time explaining why:
  • A weak currency is a bad thing
  • Low interest rates are dangerous
  • Inflation is not an exogenous phenomenon, out of the government's control but a totally controlled one that is purposefully created by that same government (and more precisely, para-governmental/privately held central banks)
These misunderstanding or lack of understanding are very dangerous, but I cannot really blame them since the media is feeding its cattle with wrong definitions and the policy makers are using propaganda and false statements to manipulate public opinion and make them behave the way they want them.

The current fusion of Government/Media/Corporations in most countries lead to some sort of fascism state where it is hard to distinguish truth and lies. The government trying to prop up the stock market (the big corporations) and the media being so enthusiastic about the governments actions lead people to believe that everything is moving in the right direction and that the government is in control and will fix all the issues soon.

For example, Roosevelt is seen as a savior, and the zero interest rate policies of many central banks is seen as a blessing, and Keynes is dug out of the ground, and his policies are now applied all around the globe but maybe Germany.

Just watch at this 1933 pro-inflation propaganda to see how fallacies can be advocated by media and governments. They still want to make people believe that printing valueless pieces of paper can create wealth.

Watching this CNBC footage about inflation shows also clearly how the media misinforms the public, probably because having a 20-year-old inexperienced and uneducated bimbo presenting financial and economic news does not lead to the best results. She goes as far as stating that "fighting inflation is very difficult for the Fed". She somehow forgets that inflation is created intentionally by the Fed! The Fed's only purpose is to inflate!

I won't go through all the details of this madness, but rather point to these great posts from Mish, which I highly recommend reading:
Most importantly, when I hear people say that with Obama things are going to get better, it really drives me crazy. The problem with Obama is that he is just as well intentioned as any of his predecessors and has really no will to change anything, contrary to what he states publicly. He has chosen the very same people to lead with him than those who have brought the US where it is, and is likely to get things a lot worse than they currently are, by spending and inflation even more than Bush.

My bleak view is that things look far worse than even during the Great Depression, specially for the US and the UK. Let's have a quick look at the current situation in the US
  • The Federal State is broke and is printing like crazy, while its debt - already massive - is getting bigger and bigger
  • The individual states are about to fill for bankrupcy or request bailout from the Federal Government (see for example, Mish)
  • The municipalities are about the fill for bankrupcy
  • The US citizen is broke, is jobless and has a mortgage to pay back, a home equity loan, and credit card loans
  • There is a massive trade deficit running in the US
  • The amount of US dollars held by foreigner is about 7-8 trillion US, and Federal Notes (US Dollar notes) are nothing but liabilities against current assets in the US.
So, when I tell my friends that I wouldn't be surprised to see many revolutions in various countries, including the USA, I get a really weird reaction from them. But the first symptoms are already showing: riots and demonstration in Iceland, Greece, Italy, Spain are just the beginning.

I strongly believe that there will either be a revolution in the US because people will not be able to both sustain the current government spendings via taxes as well as their own expenditures, including massive inflation or why not, a Third World War, since the Second World War was the way the US got out of the Great Depression. Nobody knows if anybody on the planet would survive the 3rd World War, but I still cannot totally reject the idea that the US will initiate that. There is already a lot of geopolitical instability, for example Israel vs. Palestine, Russia vs Ukraine, etc.

The reaction of my friends really disturbed me as I was wondering if I was the only one with such scary forecasts, so digging a little bit, I found these great interviews of Doug Casey and Gerald Celente, which are both great minds and who basically also think that the current crisis is far worse than the Great Depression and that Obama's team is going to lead a disaster. I highly recommend listening to them:


pej said...

Typical example of Media misinformation:

The New York Times has published this article: Printing Money – and Its Price. You would think they are going to say something about the issues of printing money, and the risks for the whole economy to print trillions of US dollars? Think again!

Here's the last paragraph, basically the conclusion of the article:

“Those who claim that sharp increases in federal borrowing and the national debt would be ill advised at the present time, when the economy is weakening while deflation threatens, have failed to study Japan’s history,” declared the economist John H. Makin in a report published by the conservative American Enterprise Institute — ordinarily, a staunch advocate for lean government.

So back to the well Americans go, putting aside worries about debt, unleashing another wave of synthesized money in an effort to prevent deeper misery.

“Right now,” Mr. Setser says, “the risk is not doing enough.”

pej said...

Bob Moriarty (I don't really know how good/bad forecaster/analyst he is) on The Gold Report:
Bob Moriarty: What we have done is guaranteed hyperinflation in the United States. We have guaranteed the destruction of the United States. We will have riots starting in the first quarter of next year; we will default by the summer of 2009.
What George Bush and Dick Cheney have done is essentially destroyed the United States; they have bankrupted the country. We are going to end up having our troops march out of Iraq to the nearest border because we can no longer afford to pay for them. We're going to go into Zimbabwe-type inflation where they're printing off $200 million dollar bills to buy a loaf of bread.

pej said...

Protests in Iceland:

Iceland's coalition struggles to survive protests
• PM's car pelted with eggs as debt-hit economy sinks
• Demonstration estimated to be biggest since 1949