Rabu, 03 April 2013

Signs of an impending disaster

Today, there were many similar characteristics with previous troughs. However, when we think of depression, there are 2 types. One of them is the American depression in 1929, while the other is that German after World War II. Now we analyze if the impending disaster that we will face is the American or German type and why is happening.

Now, first we’ll look at the backgrounds for the 2 types of depressions. For depression there, occurred because of deflation as the dollar back then was backed by gold and silver. Having received money, the amount of money in circulation was limited, as was to be proportionate to the amount of gold and silver reserves held in the crypt of the Treasury. For this reason, money back then were real money as the u.s. Government could not print too much of it legally, having the need to consider the amounts of reserves held. With this, the money supply remained relatively constant and when consumption fell (being the demand of money), deflation occurred naturally.

For German, depression occurred because of hyperinflation as the Reichsmark was printed back in droves to pay bills of war of Germany. The post-war increase in purchasing power severely diluted by money supply of Reichsmark to involve extremely high inflation as more money chasing the same amount of goods. This broke the bubble for Germany’s debt, unleashing the destructive forces of debt that broke its economy apart.

About 2 types of depressions mentioned, I think the next depression has similar features to that of the German model. Now, you’ll learn why the next disaster coming have similarity with German’s depression.

As many of you know, the formation of the Federal Reserve in 1913 has brought a revolutionary change in the history of finance. Dig deeper, Paul Warburg (one of the founders of the Federal Reserve) had a brother called Max Warburg that it was financial adviser to the German Kaiser. During that time, Warburg was thought to have an elastic money supply that could be modified to meet the needs of business. This thought has led to inflation, but has proven to be flawed as it led to depression, with Max Warburg who flee the Germany in 1938.

However, despite this, the Federal Reserve system has remained unchanged, plant the seeds for the new depression tomorrow. What is in the United States today will have inflationary effects similar to Germany then where income tax is used to pay interest to the Federal Reserve, who in turn buy more titles to print money (to collect more interest). With large purchases of U.S. securities, the money supply has increased drastically, leading to higher inflation. This is a scenario of taxing the poor to pay the rich and goes on for nearly a century.

To add, the implementation of such quantitative easing policy is basically similar to the German depression where the Government of the United States today simply prints debt to pay the debt. The result is a debt bubble that will burst at the end when the economy becomes overloaded. Be it for the German economy, stressed from debt to pay their bills, there will be hyperinflation and a new string of events that lie ahead.

To add, US President Franklin D. Roosevelt forced the Americans to hand over their gold for u.s. $ 20.22/oz in 1933. Subsequently, he jacked the price of gold at US $ 35/oz, cheat US Americans $ 15/oz. This was done to acclimatize audiences to the use of paper money as the single currency and the fact that we printed too much money without enough gold reserves to the world.

To date, this policy has worked out its magic, as most people are quite accustomed to the printed money. To make matters worse, with the invention of the credit card in 1951, money has become more digitized and now it’s easier to get into debt than before. With the ease of running into debt, banking debt has increased from 21% in 1980 to 116% of GDP in 2007 and this number still grows today. Fostering the growth of a bubble of debt of the United States calls on inflation to destroy the economy.

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