Tag Archives: Great Depression

In Dangerous Times

Most of you (not too busy watching “Dance Your Ass Off” every night) has probably picked up on the notion among more and more experts that the financial crisis, currently residential of Europe, may result in  something far more serious than a long-time recession. At the moment some of us are sitting back  while we are watching the scenarios we have predicted for a long time unfolding before our eyes like a day-time soap opera. And we wonder…

“If we know anything from history, it is that long periods of economic crisis tend to lead not to more progressive politics but rather to its opposite; the right-wing politics of xenophobia.”

George Irvin

The most obvious parallel is the Great Depression of the 30’s and the run-up to World War II. Logical thinking tells us, however, that this is a so well-known story that our political leaders will simply not allow something similar to happen again. But does logic even matter in times like this? Well, that’s not the only  fundamental question that arise from this insecure  situation. Professor George Irvin points points out a few more.

Like: Is the financial market about to kill democracy? Or is it the other way around?

Honorary professor George Irvin at the Univerity of London argues that – for time being – it is the politicians who have failed, not the financial system. And he fear they will make even more and bigger mistakes.

This article was posted last month on professor Irvin’s blog at the EUobserver.com:

Politics and the EU financial crisis

The other day, I was asked in an interview whether finance was killing democracy. Judged over the post-war period, the answer must be a qualified “no”. But things at present are not looking good.

Finance has not killed politics – if anything, the ongoing financial crisis is lading to a reawakening of politics on a scale we have not seen in many years, particularly a re-awakening amongst young people. If the young are out on the streets demonstrating, it is for quite understandable reasons.

Most obviously, the crisis has illuminated the weaknesses of neo-liberal capitalism in a way many though inconceivable a decade ago.

Not only is neo-liberal ideology deeply misleading – the idea that ‘free markets are infallible and don’t require regulation—but the economics it has produced is disastrous.

Inequality is growing everywhere, particularly in the main Anglo-Saxon countries where it is higher today than in the 1930’s.Youth unemployment in the most of Europe ranges between 20- 40%, and we are at risk of producing an entire generation which is locked out of decent work and income.

European “austerity” is destroying the cornerstone of the post-war social settlement; ie, our welfare state.

As for democracy, we have recently witnessed the toppling of two governments by the bond markets, and doubtless there will be more. This is largely the fault of a political elite dominated by bankers which designed a Eurozone where each member- state’s borrowing was vulnerable to attack.

This “fragility” of the Euro zone – the lack of a common fiscal policy and a genuine Central Bank able to act as lender of the last resort – is leading to growing national antagonisms, the most obvious being between Greeks and Germans (a proxy for north v south Europe).

What is truly dangerous is that the financial markets’ notion of ‘common governance’ is all about “greater fiscal discipline,” by which is meant stringent enforcement of the 3% budget deficit limit, the 60% indebtedness rule and, most recently, the notion that all Eurozone countries should follow Germany in adopting a constitutionally binding ‘balanced budget’ (debt brake) provision.

Such views are based on the simple-minded premise that a national economy can be run like a corner shop, the ‘handbag economics’ preached by Maggie Thatcher and more recently by the Schwabian housewife, Angela Merkel.

Not only are such views wrong (they ignore basic national accounting definitions), but they can lead Europe into even deeper economic gloom.

As credit dries up, Europe is on the verge of a new financial crisis which will almost certainly lead to renewed economic depression.

Moreover, the costs of all this is being borne once more by ordinary workers, and increasingly by the middle class. Like markets in the general, the financial market can be a good servant… but it is proving to be a very poor master.

If we know anything from history, it is that long periods of economic crisis tend to lead not to more progressive politics but rather to its opposite; the right-wing politics of xenophobia.

Witness the German depression of 1932 under Chancellor Brüning which saw the extreme right rise from virtually nothing in 1929 to assume power in 1933. I am hardly the first to say it, but we are living in dangerous times.

By George Irvin

George Irvin is a retired professor of economics and for many years was at ISS in The Hague. He is now (honorary) Professorial Research Fellow in Development Studies at the University of London, SOAS.

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Want to Smack Down the Criminal Global Banking Cartel?

Yeah, I believe there’s quite a few investors who would like to smack a couple of bankers after being deceived about their financial situation and the state of the economy in general. I do not encourage violence in any way, but would really like to see someone pull the pants of those big shots who think they’re just doing God’s work while the common tax payers are financing their private jets, limousines, 7 apartments and 14 beach houses. And the more sophisticated, the better. JS Kim at SmartKnowledgeU appears to have a plan.

“Sell the likely fraudulent SLV and GLD ETFs, cease participating in the fraudulent gold/silver futures markets, buy physical gold and silver, and buy gold/silver mining stocks.”  

JS Kim

In 1966, Alan Greenspan wrote an essay more than two decades before his sold his soul to bankers, that indicted the US Federal Reserve in as clear language as possible for the Great Depression that afflicted the world economies at the end of the 1920’s and through the 1930’s. Greenspan wrote that by bailing out the Bank of England‘s drastic devaluation of the pound, the US Federal Reserve “nearly destroyed the economies of the world,” JS Kim writes.

And he continues:

Though Greenspan’s words served as a strong indictment as possible of Central Bank failures to serve humanity and to only serve the greedy private interests that backed them, the whole world seemed to forget Greenspan’s words for the next 46-years.

Only today are people finally realizing the truth about Central Banks and the behemoth commercial banks that serve under them – that they have no interest in promoting price stability or full employment but only in transferring wealth from every single citizen of the world to themselves and the crony politicians that serve their interests.

Gold Related Assets (Source: World Gold Council)

Want to participate in smacking down the criminal global banking cartel? Here’s how to do it:

Sell the likely fraudulent SLV and GLD ETFs, cease participating in the fraudulent gold/silver futures markets, buy physical gold and silver, and buy gold/silver mining stocks.

The good news is(1) This is a simple strategy; and (2) Buy wisely, and you will likely build significant wealth while participating in this strategy.

The fraudulent immoral monetary system that bankers have imposed upon the world that steals money from savers and creditors and transfers wealth to governments, debtors and bankers can only be perpetuated by the price control mechanisms bankers have instituted for gold and silver.

Destroy these price control mechanisms and the fiat currency system will fail.And what happens if the fiat currency system fails?

We all have a chance to institute an honest and equitable monetary system that promotes price stability and sustainable growth instead of struggling under a dishonest one that destroys these desirable socio-economic qualities.

The ability of bankers to suppress the price of gold and silver (yes, even the price of $1,800 gold and $40 silver is severely suppressed) is based upon their ability to sell the perception that a much greater supply of silver and gold exists than actually does.

In fact, in this very newsletter, on April 27, despite all the PM media “experts” that tried to scare investors out of silver by claiming a silver bubble back then, we sent out an issue of this free newsletter titled “Silver is NOT a bubble” and then nearly called the exact bottom range of this silver correction for our paying members a couple of months ago.

Over the past six years, I have publicly blogged dozens of times regarding the mechanisms bankers use to accomplish the suppression of gold and silver prices, including most recently in my article, “Why Gold and Silver Prices Will More than Double Again Even from Current Prices.”

Smack That!

Current data provided by the CME regarding gold and silver futures contracts that trade on the COMEX reveal that about 100 times more paper gold ounces trade on this exchange every year than all the physical gold that exists in the world and some where around 160 times paper silver ounces trade every year than all the physical silver that exists in this world.

By expanding the supply of paper ounces of gold and paper ounces of silver at the same time that real physical supply of gold and silver are shrinking, the bankers have been able to suppress the price of gold and silver from reaching its true free market prices for decades.

The GLD and SLV very likely participate in this fraudulent scheme in helping to creating massive illusory supply of gold and silver that simply does not exist.

Thus if gold and silver are freed from the criminal global banking cartel’s scheme to suppress their prices, this will help all people in the world, even the Doubting Thomases, to recognize the fraud of our current fiat currency system.

Under our current monetary system, a businessman will never be able to receive the same value for the money he receives for any goods and services rendered unless he immediately spends all of said money.

The fact is,it is impossible for a businessman that holds fiat currency for services rendered for a duration of time any longer than a few months to then receive the equivalent value of that fiat currency when it was first received.

This fact about our current monetary system is a massive disincentive for any businessman anywhere in the world to work harder as the reward of additional nominal amounts of money can never be equivalent to the effort put forth.

Thus, our “modern” fiat currency system literally destroys any chance to achieve sustainable economic efficiency.

If a businessman works harder to earn 17.65%more money than last year, but that 17.65% boost in the nominal amount of money only enables him to purchase the exact same goods and services as last year due to an annual 15% inflation rate ($117,647 * 85% = $100,000), at some point and time, the destruction of efficiency that our fiat currency system imposes upon all businesses will inevitably lead to business contraction instead of sustainable business growth.

So how do we fight back against this unjust and immoral fiat monetary system created by Central Bankers?

Below are three simple steps we all can take. (1) Stop enabling banker fraud and realign your interests with the interests of humanity. Yes that means if you are long the GLD and SLV,or rollover long gold and silver futures contracts without ever takingphysical delivery, you are silently facilitating the banker war against humanity as you aid and a bet them in creating an illusory supply of gold and silver that simply does not exist. (2) Sell GLD and SLV shares and re-invest the proceeds of these sales into physical gold and physical silver and/or gold and silver miningshares. (3) Settle all long gold/silver futures contracts with physical delivery only and not in cash.

Gold stocks are a great value right now as you can see in the below chart. So are silver stocks as well. (Even though my Crisis Investment Opportunities newsletter has returned roughly a cumulative +220% over the past four years, since I believe gold/silver mining stocks to be the most highly undervalued asset class in the entire stock market now, I honestly believe that we will shatter those returns in the next four years.)

However, ever since introducing the GLD and SLV, bankers have successfully been able to steer money away from fundamentally solid gold and silver stocks into these likely fraudulent ETFs.

To see the above referenced chart and to read the rest of this article, click here.

Best investing,

JS Kim

Chief  Investment Strategist

SmartKnowledgeU

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Fight of the Century: Keynes vs. Hayek – Round II

The debates raging over what policies will pull the economy out of its Great Recession is quite similar to those that occurred during the Great Depression. And like in the 1930 s it is the theories of John Maynard Keynes who gets most followers. But that does not mean his pay-as-you-go policy is best suited for todays integrated global economy.

“To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm.”

Friedrich A. Hayek

One might get the impression that J.M. Keynes Grand Theory is like a natural law of economics. Underlined by quotes like “We re all Keynesian now, by former US president Richard Nixon, or like former Norwegian politician Einar Forde rewrote – We re all social democrats now.

But during the last years of economic crisis, the once undisputable law of economics have come under questioning.

Ecos of voices of those who were critical of Keynes ideas have surfaced.

And the hottest theme amongst economic experts and science today is whether the whole argument behind governmental stimulation of the economy as a repair tool for recessions is false or not.


The British economist, Friedrich A. Hayek, was Keynes strongest opponent.

In media and in the blogosphere is this debate described as The Fight of the Century, or Keynes vs Hayek – Round 2, etc.

Recently Richard Ebeling, a professor of economics at Northwood University, have published articles, including letters from the two sides that have never been seen before.

The letters have never been seen before and shed a new light on the discussions that formed the ruling monetary policies of today.

The Wall Street Journal writes.

On Oct. 17, 1932, the Times published a lengthy letter from John Maynard Keynes and five other academic economists. Keynes, et al. (Keynes for short), made the case for spending—of any kind, private or public, whether on consumption or investment.

“Private economy” was the culprit that impeded a return to prosperity. If a person decides to save, there is no assurance that the funds “will find their way into investment in new capital construction by public or private concerns.” They cite a “lack of confidence” as the reason that savings is not intermediated into investment. Accordingly, “the public interest in present conditions does not point towards private economy; to spend less money than we should like to do is not patriotic.” They conclude by endorsing public spending to offset unwise private thrift.

The views in this letter came to be known as Keynesian economics. Depressions are caused by a spending deficit, which can be made up by government spending. Keynesian economics (which predates Keynes) is easily identifiable in speeches given by President Obama and his economic team.


Two days later, on Oct. 19, 1932, four professors at the University of London responded to the Keynes letter, and one of the signers was Friedrich A. Hayek who more than 50 years later would win the Nobel Prize in Economics.

Hayek, et al. (Hayek for short), identified three areas of contention. First, they correctly identified Keynes’s argument about the futility of savings as actually being an argument about what has classically been known as the dangers of hoarding, i.e., the potentially pernicious consequences of an economy-wide increase in the demand for money that is not met by a corresponding increase in the supply of money. “It is agreed that hoarding money, whether in cash or in idle balances, is deflationary in its effects. No one thinks that deflation is in itself desirable.”

“The great debate is still Keynes versus Hayek. All else is footnote.”

Second, the London professors disputed that it mattered not the form spending took, whether on consumption or investment. They saw a “revival of investment as peculiarly desirable,” as do today’s proponents of supply-side economics. They distinguish between hoarding of money and savings that flows into securities, and reaffirm the importance of the securities markets in transforming savings into investment.

Their third and greatest disagreement with Keynes was over the benefits of government spending financed by deficits. They demurred. “The existence of public debt on a large scale imposes frictions and obstacles to readjustment very much greater than the frictions and obstacles imposed by the existence of private debt.” This was not the time for “new municipal swimming baths, &c” (Keynes’s example). In our contemporary context, no stimulus.

Finally, and importantly, they offered a way forward. Governments world-wide, led by the U.S. with the destructive Smoot-Hawley Tariff of 1930, had turned to protectionism and restrictions on capital flows. Hayek argued it was time “to abolish those restrictions on trade and the free movement of capital.”

In short, they argued that the cure for the Great Depression was a reinvigorated international global trading system. The world economy has not turned to protectionism this time, but efforts at expanding global trade have flagged. As Allan Meltzer, a professor of economics at Carnegie Mellon University, recently reminded readers of this page (“Why Obamanomics Has Failed,” June 30), only expanded trade can enable us to pay off the public debt that burdens the economy.

Prof. Ebeling’s rediscovery of these letters has unleashed a torrent of comments on blog sites. As New York University economist Mario Rizzo put it, “The great debate is still Keynes versus Hayek. All else is footnote.” Economists have clothed the debate with ever greater mathematical complexity, but the underlying issues remain the same.

Was Keynes correct that savings become idle money and depress economic activity? Or was the Hayek view, first articulated by Adam Smith in the “Wealth of Nations” in 1776, correct? (Smith: “What is annually saved is as regularly consumed as what is annually spent, and nearly in the same time too.”)

Is all spending equally productive, or should government policies aim to stimulate private investment? If the latter, then Mr. Obama is following in FDR’s footsteps and impeding recovery. He does so by demonizing business and creating regime uncertainty through new regulations and costly programs. In this he follows neither Hayek nor Keynes, since creating a lack of confidence is considered destructive by both.

Finally, is creating new public debt in a weakened economy the path to recovery? Or is “economy” (austerity in today’s debate) and thrift the path to prosperity now, as it has usually been considered before?

By GERALD P. O’DRISCOLL JR.

Mr. O’Driscoll, a senior fellow at the Cato Institute.

He formerly served as vice president at the Federal Reserve Bank of Dallas. With Mario J. Rizzo, he is co-author of “The Economics of Time and Ignorance” (Routledge, 1996).

VIDEO BONUS

Well, some of you are probably familiar with last years smash hit eco-mucic video – Fear the Boom and Bust Rap.


So, there just had to be a follow-up.

And here it is, released just about a week ago,

Enjoy!

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