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Not Your Grandma's Depression, Ending the BRIC Story, World's Most Worthless Money

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July 07, 2008 – Comments (8) | RELATED TICKERS: FXP , EEV , GLD

Many Indian and Chinese economists studied at Western universities. They are taught the Keynesian model of economics which includes Central banking inflation to promote growth and employment. They believe there can be a permanent prosperity, growth and near full employment if interests rates and money supply are manipulated by Central bankers/planners to varying levels.

What the Chinese and Indians do not know is the Austrian theory of economics, which discusses the business cycle and the exacerbation of the business cycle and damage to the overall economy by Central bankers. They do not know what an economic recession or depressions are; they have not seen a Central bank created recession/depression, yet. The slow down in the US will affect a lot of people, but Americans will not be as severely impacted as the poorer high population Asian economies, where there are limited resources. Which may push many into severe poverty or/and starvation. In China and India, there will be civil unrest. China has instituted price controls, which will create more shortages. What will be the levels of civil unrest? It is playing out now....

In the US they do NOT discuss the US depression in Austrian economic terms. Austrian economists blame the FED inflation for the Great Depression. Austrian theorists who wrote about the Depression include Hayek and Murray Rothbard, who wrote "America's Great Depression" in 1963. In their view, the key cause of the Depression was the expansion of the money supply in the 1920s that led to an unsustainable credit driven boom. In their view, the Federal Reserve, which was created in 1913, shoulders much of the blame. (ref wikipedia The Great Depression)

In fact, Hayek, writing for the Austrian Institute of Economic Research Report in February 1929[16] predicted the economic downturn, stating that "the boom will collapse within the next few months."

Marc Faber here on Bloomberg (07 July 08), I agree with his ideas here: 

FYI - World's Most Worthless Money

http://www.portfolio.com/slideshows/2008/3/Worlds-Most-Worthless-Money?TID=advert/wired/worthless_money

There is a reason Vietnamese citizens prefer to own Gold to paper? Does not mean the Central Banks will allow it:

FYI - Vietnam Suspends Gold Imports 24 Jun 08 For those that think I am to bearish, or that cannot happen, lets watch Mother Nature at work here for a discussion and point:

Have you ever seen that? Would you believe, if I told you?

The goat never saw it coming. He never believe it could happen? No one ever told him? He was ignorant of the hawk as many are of the business cycle and the consequences. The US govenment could not stop the Great Depression. Even after Roosavelt confiscated all the citizen gold and instituted 66% monetary inflation. The US stock market/economy did not recover for 30 years. Today, most Americans have no gold and most banks just hold paper to back up the paper. 

I hope that I am really over doing it, here. But you had better understand what is going on, you should make an educated assessment of your financial health. You should realize that the amount of government support will be limited. The US government is borrowing $1-2 billion a day and the US economy is "strong". What happens when Asians will not loan the US more money? 

MY POINT

DO NOT BE A STUPID GOAT. Look around, make an accessment and make the correct LONG TERM plan for yourself and family. I am expecting deflation and a severe recession.

Worth a read and the comments are decent: Not Your Grandma's Depression

http://jameshowardkunstler.typepad.com/clusterfXck_nation/2008/06/not-your-grandmas-depression.html

You have to replace the X with a u do to a profanity filter. 

I know fear sells, that is not what I am trying to do/say. I do not fear, there will be money on the downside for those that make the right calls.

2And you will know the truth, and the truth will set you free.”

I was told in my youth, God hates a coward

Battle at Kruger

 

FYI - I have climbed to #8 points, which I am happy about. I recognize that may change.  

8 Comments – Post Your Own

#1) On July 07, 2008 at 6:47 PM, AnomaLee (28.69) wrote:

Deflation was only experienced during the Great Depression. It became a problem because it caused huge profit losses and economic theorists didn't realize it's near impossible to reduce wages. Because of Keynesian economics we have, and we probably won't experience that ever again, but I don't think you need a complete deflationary system to enter a depression. You only need to have disposable income slashed along with corporate margins to historical levels.

The problem is all the NEO-Keynesian economist who have since abused these theories to suit their own goals. I am one who believes we have been experiencing Bretton Woods II and  why there are so many parallels to the early 1970's.

Standards are used to gauge reasonability and honesty. This is why I don't care about a gold standard, because the neo-cons have managed to escape reason and honesty for an entire century, but you should always have real goods and not 100% of your wealth in paper money. 

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#2) On July 07, 2008 at 7:26 PM, abitare (52.23) wrote:

"Deflation was only experienced during the Great Depression."

No, Japan has had 18 years of deflation. 

Deflation in Hong KongDeflation in the United States

"There have been three significant periods of deflation in the United States.

The first was the recession of 1836, when the currency in the United States contracted by about 30%, a contraction which is only matched by the Great Depression.

The second was after the Civil War, sometimes called The Great Deflation.

The third was between 1930-1933 when the rate of deflation was approximately 10 percent/year."

"economic theorists didn't realize it's near impossible to reduce wages. "

Not sure what you are talking about. Have you read The World is Flat? Why are so many companies moving out of the US? Wages are definately going to come down. 

"Because of Keynesian economics we have, and we probably won't experience that ever again,"

Nope, we can and are experiencing deflation. Do you want me to show you real estate prices over the last year? A dollar chart? Global Stock Markets Etc.... India can build and sell a NEW car for $2500. Is that inflation or deflation? How does selling a NEW car for $2500 affect wages? I smell Deflation!

Mish Shedlock has a great write up here:

Deflation American Style 

 

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#3) On July 07, 2008 at 7:36 PM, alstry (35.64) wrote:

Now someone is thinking!!!!!!

Except we have deflation and price increases at the same time.....ooops.

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#4) On July 07, 2008 at 7:44 PM, abitare (52.23) wrote:

alstry,

Stagflation! Yes, that is change we can believe in.

Things you own are declining in value, things you have to buy are going up in costs.

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#5) On July 07, 2008 at 8:03 PM, AnomaLee (28.69) wrote:

When comparing the 'Lost Decade' to the 'Great Depression' there are huge differences - the value of currency and the resolution to credit contraction. That's why I think the Great Depression is an exclusive example of deflation.

People believed Stagflation to be impossible until it happened. I'd argue stagflation has more parallels to the 'Lost Decade' than the Great Depression and its lessons are more useful for manipulating fiat currency. It would be appropriate to call each period the 'Great Devaluation' because that is what truly happens.

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#6) On July 07, 2008 at 9:02 PM, lquadland10 (< 20) wrote:

If you go to the labor department web sight and go to their inflation caculator you will see that in 1970 your 100.00 dollars would need to be 558.33 to buy the same amount. Have our wages gone up by that amount? Hyper inflation is on the way.      Job loss now for the (how many months) while Bill Gates MSFT (CFR member) addresses congress because he and businesses need more visa's to bring more people to come to work in America and they get them. Unemployment Level:
  7,078,000 for 2007

NAFTA opponents - including labor, environmental, consumer and religious groups - argued that NAFTA would launch a race-to-the-bottom in wages, destroy hundreds of thousands of good U.S. jobs, undermine democratic control of domestic policy-making and threaten health, environmental and food safety standards.

NAFTA promoters - including many of the world’s largest corporations - promised it would create hundreds of thousands of new high-wage U.S. jobs, raise living standards in the U.S., Mexico and Canada, improve environmental conditions and transform Mexico from a poor developing country into a booming new market for U.S. exports.)Has Nafta and Cafta worked? Ten years of economic data belie the promises of broad economic benefits that NAFTA's promoters used to sell the
pact to a skeptical U.S. public. We were promised that
NAFTA would result in a growing U.S. trade surplus with
Mexico that would create new U.S. jobs. Instead NAFTA has
turned a modest U.S. trade surplus with Mexico into a huge
new NAFTA trade deficit and the U.S. trade deficit with
Canada has increased fivefold. We were promised 170,000
new U.S. jobs would be created annually by NAFTA.
When
unprecedented U.S. economic growth in the 1990s created
jobs at a fairly rapid rate, the hundreds of thousands of full-
time, high-wage, benefit-paying manufacturing jobs that
were being lost to NAFTA were masked. But the U.S. lost
three million manufacturing jobs -- 1 in 6 jobs in that
sector -- during NAFTA and some 525,000 U.S. workers

have been specifically certified as NAFTA job-loss victims
under just one narrow government retraining program. NAFTA's rules provided new incentives to relocate production:"foreign investors" -- meaning U.S. companies
relocating to Mexico -- received both special investor
protections and preferential access for finished products
shipped back to the U.S. Meanwhile, many workers who
have lost high-wage, benefits-paying manufacturing jobs
have only found new work in service sector positions that
typically pay 23-77 percent less than their previous wages
and offer few or no benefits. NAFTA's transformation of the
kinds of jobs available to the 75 percent of Americans who
do not have a college degree has contributed to stagnant
wage levels that have destroyed the economic security of
millions of American families
. From 1946-73, there was an
80% gain in median wages.Yet from 1973-2000, U.S. median
wages have been almost flat, even though trade now
represents two times the share of U.S. economic activity
than it did thirty years ago. The Great Depression is going to look like a tiny blip once we get through what we are going to go through this time. 1776 my friend 1776

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#7) On July 07, 2008 at 9:59 PM, russiangambit (29.42) wrote:

> They believe there can be a permanent prosperity, growth and near full employment if interests rates and money supply are manipulated by Central bankers/planners to varying levels.

There is little belief in anything permanent in BRIC's countries, I assure you. Their growth didn't start that long ago, so they don't take it for granted. This is why they put all their money into things, instead of bank accounts.

As far as official statements go, politicans always present the glass as half full. Even more so in the US, you'll never get a straight answer from a politician.

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#8) On July 07, 2008 at 10:11 PM, abitare (52.23) wrote:

russiangambit,

Good reply. I should specify there are different issues among the BRIC countries.  But it is the BRIC "growth story" as a investment driver that is ending with inflation, price controls, export restrictions and rising rates. Russia and Brazil should do well with there natural resources. Many nations are having inflation problems, but I expect civil unrest in India and China.  

I think America is different in that many Americans still trust their government. That may change.

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