We must be in the middle of a campaign season, the forever campaign. The fear machine is just beginning. The latest rants from people like Ron Paul and others is that we are on the precipice of a Great Depression where taxes will need to be raised 14% to pay for a 40 trillion dollar debt. These purveyors of doom and gloom might be right about a future depression but for the wrong reasons.
Everyone remembers the Crash of 1929! The crash was the opening chapter of America’s greatest Depression. The USA was primarily responsible for the causes and length of that Depression.
The world Depression and 1929, has such a negative connotation that we no longer use that word. For example the crash of 1987, the word Depression was absent from the description as was the word Depression at the time of the 2008 Great Recession. The word brings with it the feelings of despair and fear.
Our Depressions beginning in 1819, were the result of speculation and farm depressions. The greed of banks has been the reason behind most of our historic problems. Just recently, 5 major banks were fined 6 billion with a b, for rigging money exchange rates for 6 years. Other countries may have had inflation as a cause for their problems but that has not been the reason for any of the Depressions the United States has experienced.
The following are the 3 reasons for the 1929 Depression:
1. financial institutions vested interest in maintaining euphoria. During the 1920’s and during other periods of stock market euphoria stock brokers and financial institutions just love encouraging potential investors into investing when a market has been going up and up and up some more. They’ll tell you don’t miss out. Greenspan used to call it irrational exuberance. If earnings and market fundamentals justify a continuing market surge that is one thing, but valuations and earnings matter. If brokers sell more stocks they make more money and so do the institutions. Beware of a lack of fear in the market you may be in a euphoric period.
2. Pure speculation: An example of that would be the selling of swamp land in Florida, claiming that you will have a beach front property. Californians were told in the 2008 period that land values never go down in California. Speculation is when there is no sound reason for a real value. This is usually property and land related but it can be penny stocks or dot.com companies whose price only the sky can limit.
3. Tax deductions for the wealthy: Mellon in the 1920’s lowered revenue by lowering the tax rates of the wealthy. It is a fantasy to believe that the most of the money gained through tax deductions will go into new equipment and that it will lead to more employment. Yes, a little of that will occur, but mostly it goes into the pockets of the wealthy or into their own investment portfolios.
During President Reagan’s time in office he experienced lower revenue in attempting to prove Arthur Laffer and the Laffer curve correct or in other words the trickle down theory. In order to pay for what Ronald Reagan needed to do in spending more money on defense he wound up raising taxes to pay for things.
There is always the next Ponzi scheme, the next trick or slight of hand, money manipulation is one. Betting on money by using derivatives is another. One way that the 5 banks could be sure to make money on derivatives regarding the value of a currency was to stack the deck and know what the value would be. Bankers should face jail time for ruining peoples lives.
Economists used to claim that a Great Depression could not happen again; primarily because we have safeguards in place. The negative is we have to have people we can trust in those positions of authority who review and investigate questionable practices. Our laws are only as good as the people we hire to do their job, and protect the consumers from the next illegal practice or bogus investment.
Franklin Roosevelt saved Capitalism from itself, by regulating greed. If we elect a person too close to Wall Street watch out! We might just get a President who hands the keys to your retirement to another fraudulent scheme.
The greatest fear regarding having another deflationary Depression is when we do not have enough people, or consumers making enough money to pay for the goods that are made. You can only have a race to the bottom go so far before you reach a point of no return. If anything the Great Depression proved that deflation is the most difficult ramification to fix. Only World War II helped the world get out of the Great Depression. Don’t count of having another one to bail us out. We need banking reform to help regulate Wall Street from bankrupting Main Street.