Category: Macroeconomics

When “I Told You So” Ain’t Fun Any More – The End Game of Un-sustainability

The great thing about what is left of the “free” Internet is knowing that you are not alone in one’s own thoughts about the future. I think it can be a curse to be equipped with the ability to see “red flags” when few others do. When I think of the word prophetic, I don’t mean fore-telling as in declaring future events, but forth-telling as in revealing truths.

There are those that have this gift, like Patrick Henry, when he commented about the release of the document called the US Constitution with “I smell a rat”. This among many other “red-flags” he saw in that document came true in the years and decades to come.

The administrator of The Burning Platform wrote today about his (and others like Ron Paul) ability to see what was coming before 2008 and now sees more clearly what is unraveling once more. He also has learned a bit about human nature in this decade since the economy was turned upside-down and the banks were bailed out using taxpayer money.

First, about the sheep:

I will also no longer overestimate the ability of the American populace to see through this charade and come to their senses regarding their unsustainable use of debt to try and maintain an unrealistic lifestyle. Their willful ignorance, created through government education propaganda and social engineering, will not be extinguished until the inevitable financial collapse wipes them out again.

Second, about the wolves:

I suppose I continue to underestimate the level of maliciousness, gluttony, and pure arrogance of those pulling the strings behind the curtain, as they rape and pillage the dwindling financial resources of our empire in its death throes. These psychopaths in suits care not for this country or its people. These globalist pricks want nothing more than pliable slaves, distracted by their iGadgets, sports, and Hollywood drivel.

Lastly, about President Donald Trump:

Vintage 2016:

“They’re keeping the rates down so that everything else doesn’t go down. We have a very false economy. At some point the rates are going to have to change. The only thing that is strong is the artificial stock market. The U.S. economy is in a big, fat, ugly bubble. I will get rid of the nation’s more than $19 trillion national debt over a period of eight years. I’m renegotiating all of our deals, the big trade deals that we’re doing so badly on.” – Donald Trump, September 2016.

Vintage 2019:

“The U.S. economy would grow more quickly if monetary policy were eased. If we had a Fed that would lower interest rates, we would be like a rocket ship. We don’t have a Fed that knows what they’re doing. Our most difficult problem is not our competitors, it is the Federal Reserve. The Fed raised rates too soon, too often, and doesn’t have a clue!” – Donald Trump, July 2019

Obama did that too! The candidate sounded credible .. but once in office, one would think that someone has their kojones in a vise.

I certainly overestimated the campaign rhetoric truthfulness of Donald Trump as he railed against the Federal Reserve for keeping interest rates too low, creating a stock market bubble, and contributing to the parabolic rise in debt. His promise to eliminate the national debt in eight years was impossible, but I thought he might rein in spending and reduce annual deficits.

It seems men who may have the best intentions to do what is right on behalf of the American people when they seek higher office or are appointed to positions of power, such as the Federal Reserve, are summoned into a dark boardroom and informed who are the real bosses and what truly makes the world go round.

Sick but true. As FDR said:

The only reason they are selected is because they WILL do the bidding of those that bought, I mean brought, the puppet, I mean candidate to office.

So where does that have us in the 4Q of 2019?:

So here we are, entering Trump’s fourth year in office as the Deep State and their cronies in Congress, the CIA, and fake news media use impeachment as their last straw in their ongoing attempted coup, and the national debt is up by $3 trillion since Trump took office. At the end of his first term the national debt will exceed $24 trillion and interest on that debt will approach $600 billion.

Is this a good direction? Is this Trumps 4D chess? Using Kevin’s voice from the movie “Home Alone” I say: “I don’t think so”

The tax cuts for corporate America and the richest individuals reduced tax revenues and resulted in corporations buying back billions of their own stock to drive the stock market to the highest valuations since the 2000 dot.com bubble. Meanwhile, Trump fed the military industrial complex with billions more, while funding war throughout the world. Rhetoric about ending wars is just bullshit for the masses. The entitlement outlays remain on an unsustainable path, as Trump and all the feckless politicians in D.C. pretend all is well. Nothing bad has happened – Yet.

I am sure during the Democrat/CIA attempted coup that Trump did not want to pull back DOD spending, especially since a large number of his backers are pro-military, no matter what other country’s women and children will be droned.

The Fed balance sheet peaked at $4.5 trillion as they increased interest rates by a mere 200 basis points over a few years, still 200 basis points below what used to be considered normal. We’ve heard the boasts about the “best economy ever”, “lowest unemployment in history”, “stock market highest ever”, and “record corporate profits”, but with interest rates still at emergency levels and the Fed balance sheet a mere $750 billion lower than its peak, somehow the Fed feels compelled to cut rates and restart QE – but not calling it QE. Powell is bowing down to his Wall Street masters and Trump by taking actions which would only be taken during a recession or financial crisis.

Nothing to see here. Either they will fake it until 2020 elections or the wheels will come off the months prior.

GDP has averaged 2.5% in 2019, with consumer confidence high, consumer spending solid, unemployment at all-time lows, the stock market within spitting distance of all-time highs, and corporate profits at all-time peaks. Why would the Fed cut rates by 50 basis points, with more coming, and increase their balance sheet by $180 billion in one month, with a commitment to increase it by $60 billion a month for the foreseeable future? Will these actions benefit the average person or the above average bank and corporate executives? Savers are again being sacrificed on the altar of corporate America.

Yes, this is the reward people who have tried to save all their lives so they will not be a burden to their kids or to society get when the central bank allows a government to mortgage the future taxpayers lives as perpetual slaves.

Until then, other than Climate Change causing the end of the world in 2032, we have a few things to beware of:

  • His [Trump’s] impeachment and/or election of a gun grabbing socialist will surely lead to civil violence.
  • The continued provocations between superpowers with nuclear weapons and a Middle East always on the verge of apocalypse only needs an arrogant misstep by an egomaniacal leader to trigger a global conflagration.

Stay tuned. Glad I am not the only one that sees these “red-flags”. Now there are at least two, or three or more if you count Captain1776 and Malibu, two of my sons, .. or maybe more if you count my other two sons and my daughter.

You may not know it today, but in the days to come, you might have to lean on your faith (if that is what you have/want/need), that there is a hope for a better future at some point. The founders talked a bit about Providence in their trying times.

Here is to a new generation that can take to heart that after the storm, there will be peace and prosperity.

-SF1

Blowback from Stupid Empire/Kingdom Decisions – This Time in Saudi Arabia

I do hope that the readers of this blog are well versed in what can happen after empires oppress people toward a degree of rebellion. The thirteen American colonies stood up to the powerful British army and navy and then formed their own federated republic in its aftermath.

In 2019, on the world stage, we have seen a 4 year war by Saudi Arabia (aided by US arms and the US military) on its neighbor Yemen. The blogger “Moon of Alabama” does a great job of not only covering the events of the evening of 13SEP2019 but also the context for this ongoing war that has led to a humanitarian disaster inside of Yemen:

The war on Yemen, launched by the Saudi clown prince Mohammad bin Salman in 2015, cost Saudi Arabia several billion dollar per month. The Saudi budget deficit again increased this year and is expected to reach 7% of its GDP.  The country needs fresh money or much higher oil prices.

How does one country get away with attacking another country without consequences in 2019. Enter the United States of America, the American Empire. The Saudis actually launched the war in late MAR2015 with the full support of the Obama administration. They had that agreement ahead of time that the United States would provide the logistical support, the bombs themselves as well as assistance in targeting.  Not necessarily explicitly targeting of each bomb, but sort of the strategic technical assistance in making decisions about how to approach the war. In addition to this, was the assurance the United States government would provide the political and even diplomatic cover for the war.

Is this sick or what? Actually, this is the same guarentee the American Empire has given to Saudi Arabia’s middle east partner (in crime) Israel, but I digress. (I sense another blog post is needed for that one right there)

The Saudis have actually felt that they could get away with not just continuing to bomb civilian targets, infrastructure targets and establishing a thorough blockade, but this economic blockade of Yemen preventing the fuel, food and medicine from coming into the country that this poorest nation in the Middle East needs to have in order to survive is lunacy. Only the US could enable a nation to operate above international laws in this world.

So the continuity from the Obama administration through the Trump Administration is that all they care about is to support the Saudis because the Saudis are anti-Iranian. Human life is second to keeping the US citizens in fear about what the Iranians might do. Millions starve because the American Empire is acting as the world’s bully. This ain’t no shining city on a hill. This ain’t no land of the free, it is a land of sheep who care less about what its masters do across the globe.

Again, I digress.

Back to the events of a few nights ago when 10 drones controlled by Yemeni Houthi forces targeted two major Saudi oil installations, Abqaiq and Babqaiq only 60 km (37 miles) southwest of Aramco’s Dhahran headquarters, and caused several large fires.

The oil and gas conditioning plant in Abqaiq is the largest of the world. It sits at the center of Saudi Arabia’s oil and gas infrastructure. Abqaiq processes 6.8 million barrels of crude oil each day. More than two thirds of all Saudi oil and gas production runs through it. It is not clear yet how much of the widespread facility was destroyed.

Looking at this map and the sheer distance from Yemen, one does have to wonder about these ten drones being this accurate. My own questions include, is this a false flag? Could these have been launched from within the Kingdom of Saudi Arabia or from Iraq or Iran even?

‘Moon of Alabama’ is on it:

But drones may not have been the sole cause of the incident. Last night a Kuwaiti fishermen recorded the noise of a cruise missile or some jet driven manned or unmanned aircraft coming from Iraq. Debris found on the ground in Saudi Arabia seems to be from an Soviet era KH-55 cruise missile or from a Soumar, an Iranian copy of that design. The Houthi have shown cruise missiles, likely from Iran, with a similar design (see below). After an attack on Saudi oil installations in August there were accusations that at least some of the attacks came from Iraq. Iran was accused of having been involved in that attack. While this sounds unlikely it is not inconceivable.

The August 2019 turning point of this war with Yemen has the Saudi’s on their heels. The Saudi’s have no protection setup to the south of their oil production facilities. ‘Moon of Alabama’ said last month:

Saudi Arabia finally lost the war on Yemen. It has no defenses against the new weapons the Houthis in Yemen acquired. These weapons threaten the Saudis’ economic lifelines.

Houthi drones on display

Blowback is like Karma .. sometimes it is a b****. In my mind, this is partial justice for the Saudi’s decision (along with Israel, UK and US) to create ISIS and all the havoc it did in Iraq and Syria.

The projected Saudi expenses to get protection is expense and takes time and will not necessarily work.

… would require hundreds of Russian made Pantsyr-S1 and BUK air defense systems to protect Saudi oil installations.

In the mean time to shore up their financial state the Saudis recently renewed plans to sell a share of its state owned oil conglomerate Aramco.

What goes around, comes around. For whatever reason Saudi Arabia had for starting a war with the poorest country in the Middle East has coincided with low oil prices which is driving the Saudis to new levels of desperation in order to maintain control of the citizens of their country.

This will not end well.

Stay tuned

-SF1

26AUG1794: President George Washington Decides to Send the Army Against Tax Protestors

If one follows “History.com” (not recommended), one finds the following:

On August 26, 1794, President George Washington writes to Henry “Light Horse Harry” Lee, Virginia’s governor and a former general, regarding the Whiskey Rebellion, an insurrection that was the first great test of Washington’s authority as president of the United States. In the letter, Washington declared that he had no choice but to act to subdue the “insurgents,” fearing they would otherwise “shake the government to its foundation.”

If one prefers their history to match what you heard all your life, with George Washington chopping down a cherry tree, then the above clip probably sounds good to your ears.

If you prefer the truth, then “Mises.com”, “LewRockwell.com” and Murray Rothbard are better educators, but hang on.

If you are curious about the Whiskey Rebellion, you can start here:

The Official View of the Whiskey Rebellion is that four counties of western Pennsylvania refused to pay an excise tax on whiskey that had been levied by proposal of the Secretary of Treasury Alexander Hamilton in the Spring of 1791, as part of his excise tax proposal for federal assumption of the public debts of the several states.

Western Pennsylvanians failed to pay the tax, this view says, until protests, demonstrations, and some roughing up of tax collectors in western Pennsylvania caused President Washington to call up a 13,000-man army in the summer and fall of 1794 to suppress the insurrection. A localized but dramatic challenge to federal tax-levying authority had been met and defeated. The forces of federal law and order were safe.

Pretty sure this is what you may have been taught, but you were lied to. Murray, who wrote this in the periodical ‘Free Market’ in September 1994:

This Official View turns out to be dead wrong. In the first place, we must realize the depth of hatred of Americans for what was called “internal taxation” (in contrast to an “external tax” such as a tariff). Internal taxes meant that the hated tax man would be in your face and on your property, searching, examining your records and your life, and looting and destroying.

Why was THIS type of tax hated? (a type we are faced with all the time these days in “the land of the free”)  Hang on for some history to help understand the mindset of the American people in the 1790s:

  • Americans ..  had inherited hatred of the excise tax from the British opposition; for two centuries, excise taxes in Britain, in particular the hated tax on cider, had provoked riots and demonstrations upholding the slogan, “liberty, property, and no excise!”
  • The most hated tax imposed by the British had been the Stamp Tax of 1765, on all internal documents and transactions; if the British had kept this detested tax, the American Revolution would have occurred a decade earlier, and enjoyed far greater support than it eventually received.

In summary, “.. To the average American, the federal government’s assumption of the power to impose excise taxes did not look very different from the levies of the British crown…” just 15 years prior!

It seems that this rebellion (as well as the appearance of an “insurrection” from this new president’s view, with borrowed glasses from his associate Alexander Hamilton) was much more wide spread than just some counties in Pennsylvania:

The main distortion of the Official View of the Whiskey Rebellion was its alleged confinement to four counties of western Pennsylvania. From recent research, we now know that no one paid the tax on whiskey throughout the American “back-country”: that is, the frontier areas of Maryland, Virginia, North and South Carolina, Georgia, and the entire state of Kentucky.

Why Western PA then? Turns out that this was the ONLY region where wealthy officials willingly tried to collect these taxes. Other more southern areas consisted of a more principled and honorable type that refused to enforce an immoral law.

There were two attributes of this tax that really p*ssed the common folk off, and one had to do with the whiskey itself and the other had to do with who really benefited from Alexander Hamilton’s tax:

  • The whiskey tax was particularly hated in the back-country because whiskey production and distilling were widespread; whiskey was not only a home product for most farmers, it was often used as a money, as a medium of exchange for transactions.
  • … in keeping with Hamilton’s program, the tax bore more heavily on the smaller distilleries. As a result, many large distilleries supported the tax as a means of crippling their smaller and more numerous competitors.

The truth is, in 99% of the area where this tax was ignored, it was non-violent. Only the 13,000 troops (more troops that were ever assembled in one place in the American Revolution) under George Washington (traveling in his carriage), but actually led by Alexander Hamilton, might start something:

Rather than the whiskey tax rebellion being localized and swiftly put down, the true story turns out to be very different. The entire American back-country was gripped by a non-violent, civil disobedient refusal to pay the hated tax on whiskey. No local juries could be found to convict tax delinquents. The Whiskey Rebellion was actually widespread and successful, for it eventually forced the federal government to repeal the excise tax.

Since the tax rate was $0.06 – 0.18 per gallon or $5 per year from the “producer”:

  • the retail price of whisky in the West was about half what it was in the East, the effective tax rate in the West was twice as high, computed as a percentage of the price.
  • Since the “producer” in the West were farmers who bartered with whiskey as a currency, there was no one to pass these costs on to as the large distilleries could.

The blow-back from this internal tax (verses the external tariff type) would sweep Thomas Jefferson into office who would then repeal this tax.

Not until the War of 1812 would Americans tolerate this tax once more. It was all downhill from there:

Except during the War of 1812, the federal government never again dared to impose an internal excise tax, until the North transformed the American Constitution by centralizing the nation during the War Between the States. One of the evil fruits of this war was the permanent federal “sin” tax on liquor and tobacco, to say nothing of the federal income tax, an abomination and a tyranny even more oppressive than an excise.

One only has to look at the actions of those awesome early Americans to know how far the citizens have come in this country, and yet they call it “progress”.

Not cool.

-SF1

1933: Depression, Election of FDR to Lead the United States to Prosperity

A slight rabbit trail is needed for me to see the parallels that will converge in 1940 as another world war breaks out in Europe. Since I am slowly reading the book “Appeasement”, as I posted about last week, I decided I needed some background on the American front towards balancing what really happened in the months and years leading up to a big fight on a global scale.

I also posted yesterday about the rift between two US heroes, FDR and Charles Lindbergh, and remembered that at one time I read the book “The Roosevelt Myth” by John T. Flynn that I felt would fill in the gaps I had in making a good run on the real issues and decisions of the 1930s.

I have seen this time and again in my lifetime, a presidential candidate makes promises, only to break them time and again when in office. FDR was no exception to the rule as he set the tone for stretching the executive branch’s power, like his cousin Teddy Roosevelt did, to the max.

FDR, sworn in on 04MAR1933 had stated this just under a week later:

“For three long years,” he said, “the federal government has been on the road toward bankruptcy. For the fiscal year 1931 the deficit was $462,000,000 . . . For the fiscal year 1932 it was $2,472,000,000 . . . For the fiscal year 1933 it will probably exceed $1,200,000,000 . . . For the fiscal year 1934 based on appropriation bills passed by the last Congress and estimated revenues, the deficit will probably exceed $1,000,000,000 unless immediate action is taken.” Then he warned: “Too often . . . liberal governments have been wrecked on the rocks of loose fiscal policy. We must avoid this danger.”

Then the kicker:

He declared “the credit of the national government is imperiled.” And then he asserted: “The first step is to save it. Recovery defends on that” The first step was a measure to cut government payroll expenditures 25 per cent. The second step, incredible as it may sound, was to authorize a bill providing in effect for the biggest deficit of all—$3,300,000,000 ..

Ouch. Seriously?

.. [by JUN1933] The “spendthrift” Hoover [previous president Herbert Hoover] was in California at his Palo Alto home putting his own affairs in order, while the great Economizer who had denounced Hoover’s deficits had now produced in 100 days a deficit larger than Hoover had produced in two
years.

You cannot make this stuff up. The USA is still paying on that debt!

If we were to compare the character of Herbert Hoover and FDR, the events in last few weeks of Hoover’s lame-duck administration sums it up quite nicely:

.. In his [FDR’s] speech of acceptance of the nomination he talked about all sorts of problems, including the woes of Puerto Rico, but never mentioned the banks. In his discussion of the Democratic platform in his first radio address he ignored the banking question. He delivered a group of addresses on various specific problems—agriculture, labor, foreign policy—but none on the growing banking issue…

.. After his election when the fatalities among the banks became critical, he remained quite unmoved by it. There can be no doubt about this. Ray Moley, who was at his side through these days, has written that between February 18, when he got Hoover’s ominous warning, and March i, he could not discover how seriously Roosevelt was impressed with the seriousness of the crisis. With this in mind, let us return to the alarming letter which Hoover sent to Roosevelt. Hoover wrote that letter on February 17. He sent it by a Secret Service messenger who put it directly in Roosevelt’s hands on February 18. It was the morning of February 19 that Roosevelt went over to the Inner Circle dinner. And all that day he never showed it to anyone. He did not hand it to Moley until hours after he got it. Twelve days later Hoover had not yet received
even an acknowledgment of the letter. Then, on March 1, he got Roosevelt’s reply with this curious explanation. Roosevelt said he had written an answer over a week before but through some oversight of his secretary it had not been sent. When he did reply, twelve days later, he indicated there was nothing he could do…

This trait would be one of FDR’s strongest, outright lying. Is that a 20th century “add-on” for US presidents?

.. By February 19, gold withdrawals from banks increased from five to fifteen million dollars a day. In two weeks $114,000,000 of gold was taken from banks for export and another $150,000,000 was withdrawn to go into hiding.
The infection of fear was everywhere. Factories were closing. Unemployment was rising rapidly. Bank closings multiplied daily…

It was now dawning on Hoover that he and Roosevelt were talking about two different things. Hoover was talking about saving the banks and the people’s savings in them. Roosevelt was thinking of the political advantage in a complete banking disaster under Hoover. Actually, on February 25, Hoover received a message from James Rand that Rexford Tugwell had said that the hanks would collapse in a couple of days and that is what they wanted…

FDR sacrificed other’s investments, American’s savings, for his own political expediency. If you want big, central government, you will have this immorality on a grand scale. The hope that the republic, the federated states and the three pillars of US government would somehow keep things in check totally failed in the 20th century, all because of an “emergency”. Between that and wars, leading nations can be pretty heady stuff, with plenty of money and plenty of power.

In a rare moment of clarity, Abraham Lincoln said:

“Nearly all men can stand adversity, but if you want to test a man’s character, give him power.”

In the middle of crisis, noble men weep, but political SOB’s laugh. But I digress:

.. The following day the situation grew worse. New York and Chicago banks were forced to pay out $110,000,000 in gold to foreigners and $20,000,000 to others, while another $20,000,000 was drained away from the interior banks. At this point the panic spread to the Federal Reserve Board officials. Bankers in New York and Chicago had been in practically continous session. Fatigue had done its work. Panic spread amongst them.

On the eve of FDR’s swearing in as president of the United States, he outright lies yet again:

That night Roosevelt’s quarters in the Mayflower were filled with callers. At 1130[PM] the telephone rang. It was Hoover. He told Roosevelt he was still willing, with his consent, to issue the proclamation against hoardings and withdrawals. He asked Roosevelt if he agreed with him there should be no closings. Roosevelt answered: Senator Glass is here. He does not think it is necessary to close the banks—my own opinion is that the governors of the states can take care of closings wherever necessary. I prefer that you issue no proclamation
of this nature. There the conversation ended. Roosevelt then told Glass that the Federal Reserve Board had urged Hoover to close the banks, that Hoover had refused saying most of the banks still open were solvent, and that he told Hoover Senator Glass agreed with him. Then Glass asked Roosevelt what he was going to do. To Glass’ amazement, he answered: “I am planning to close them, of course.” Glass asked him what his authority was and he replied: “The Enemy Trading Act”—the very act Hoover had referred to and on which Roosevelt had said he had no advice from Cummings as to its validity. Glass protested such an act would be unconstitutional and told him so in heated terms. “Nevertheless,” replied Roosevelt, ‘I’m going to issue a proclamation to close the banks.”

A political animal the likes the US had not seen since Abraham Lincoln. (Possibly with the exception of the pastor’s son, Woodrow Wilson)

Unbelievably, FDR was indeed an economic moron, who had no grand plan and had no clue how to reopen the banks. In the end:

.. To the great audience that listened to the [12MAR1933] fireside chat, the hero of the drama—the man whose genius had led the country safely through the crisis of the banks—was not any of the men who had wrestled with the problem, but the man who went on the radio and told of the plan he did not construct, in a speech he did not write.

So we have come full circle. Stupid masses elect a stupid man as their messiah, and they are fully in love with the leader of their democracy. Mod rule (i.e. democracy) is not a pretty sight.

For years and decades men and women all over this nation will have been convinced of the righteousness and noble nature of this man that led them through the Great Depression, including my own grandfather, a small land owner with 25 cows to milk, who saw FDR give hope to Americans, electric to their homes, and safety in fighting WWII. He defended FDR to his dying day!

The chart below says more accurately what really happened:

The hypocrisy was heavy in the air during the passing of the Congressional bill to reopen the banks when FDR shared:

.. The next day Roosevelt sent his now famous message to Congress deploring the disastrous extravagance of the Hoover administration, uttering many of those sentences about balancing the budget, the fatalities of government spending, etc., which were to be quoted against him so many times, and calling for powers to reduce salaries and government expenses. As one reads that message now it is difficult to believe that it could ever have been uttered by a man who
before he ended his regime would spend not merely more money than President Hoover, but more than all the other 31 Presidents put together—three times more, in fact, than all the Presidents from George Washington to Herbert Hoover.

Quite the negative legacy, once you are aware of the real story behind the narrative, the history books and the teachers that take those history books at face value. What can a person do but hope that this might help convince some people that collectivist governments (democracies, Marxism, Socialism and Communism) are a bad road to travel.

I will continue to read the book “The Roosevelt Myth” as that book starts to unpack the “New Deal” (all versions) as I dive back into the book “Appeasement”.

Stay tuned.

-SF1

2019: Is This Anything Like 1929? Same Thing, Only Different!

With history disappearing before our eyes (note the latest purge from You Tube of history lessons related to Nazi Germany and Hitler because – “Hate Speech”), it probably good to remember what your grandparents, or great grandparents said about the Great Depression. Possibly, you have only learned this from a history teacher, or from history books .. or, maybe you are unaware of what happened in 1929 that rippled out from the United States to the rest of the world.

However, history repeating itself has been a saying for a long time, but is it actually true? Sometimes it does, but it seems that there is a little different spin on it in every age. As a wise man said years ago:

What has been will be again, what has been done will be done again; there is nothing new under the sun.

Context does matter, but this does not mean we can’t learn from history, we just have to be smart about it. We have to be able to discern those “red flags” and take appropriate action to be prepared.

So when I read this post from Doug Casey I thought to myself, ‘this is why so many people don’t get it’ .. it is because there are certain things that don’t add up. What can make the Stock Market go up on bad news when in 1929 it went down on bad news. This is where we need to consider a few things without drawing our conclusion too soon.

Doug’s examples up front help set the tone:

During the American Revolution, the British came prepared to fight a successful war—but against a European army. Their formations, which gave them devastating firepower, and their red coats, which emphasized their numbers, proved the exact opposite of the tactics needed to fight a guerrilla war.

OK, so what worked in the past, did not work on the American continent. Next:

Before World War II, in anticipation of a German attack, the French built the “impenetrable” Maginot Line. History repeated itself and the attack came, but not in the way they expected. Their preparations were useless because the Germans didn’t attempt to penetrate it; they simply went around it, and France was defeated.

OK. Same thing .. only different. Now on to economics:

Investors, unfortunately, seem to make the same mistakes in marshaling their resources as do the generals. If the last 30 years have been prosperous, they base their actions on more prosperity. Talk of a depression isn’t real to them because things are, in fact, so different from the 1930s. To most people, a depression means ’30s-style conditions, and since they don’t see that, they can’t imagine a depression. That’s because they know what the last depression was like, but they don’t know what one is. It’s hard to visualize something you don’t understand.

True. We saw this before the last bubble ..

This brings me to another post, also put out today by my favorite independent financial guy who has a heart for the world, Jesse Colombo. His frustration is that most people conclude that he is sayin’ the sky is falling over and over again:

I have been criticized literally thousands of times as the stock market surges year after year and the economy continues to grow. The criticisms typically take the form of “you’ve been warning about bubbles for years – you’re a broken clock!,” “you’re a permabear!,” and “you’ve been missing out on tons of profits!” I’ve heard every criticism in the book and I’m completely unfazed by them because those criticisms are based on misunderstandings of my approach and because I know that my analyses are correct.

He was correct about the 2008 bubble, and his stats show that we are on a similar path since there has been nothing else the Federal Reserve can do but QE (Quantitative Easing) all over again as it is the last card they hold.

Jesse’s message is two-fold, and that is where many get confused. On the one hand is his message to the average person (get your own financial house in order) and on the other hand his message to investors is different:

I am able to separate anti-economic bubble activism from tactical trading and investing. I am fully aware that shorting a bubble too early (such as when I make my warnings) would completely wipe out any trader who is foolish enough to do so. Furthermore, I have publicly stated for years that I believe in “trading with the trend and not against it,” which is an approach that helps economic skeptics like myself avoid the bad outcomes experienced by typical “permabears” who are short all the time.

Back to Doug Casey for a moment. What can we learn about the 1930’s Depression that needs to be adapted to today’s situation?

First, we need to understand the foundational difference between then and now in the financial world when it comes to businesses and their relationship to the federal government:

1930s

Banks, insurance companies, and big corporations went under on a major scale. Institutions suffered the consequences of past mistakes, and there was no financial safety net to catch them as they fell. Mistakes were liquidated and only the prepared and efficient survived.

Today

The world’s financial institutions are in even worse shape than the last time, but now business ethics have changed and everyone expects the government to “step in.” Laws are already in place that not only allow but require government inter­vention in many instances. This time, mistakes will be compounded, and the strong, productive, and ef­ficient will be forced to subsidize the weak, unproductive, and inefficient. It’s ironic that businesses were bankrupted in the last depression because the prices of their products fell too low; this time, it’ll be because they went too high.

You catch that? No deflation, but inflation, because of government interference in the “free” market.

But wait, there’s more:

UNEMPLOYMENT

1930s

If a man lost his job, he had to find another one as quickly as possible simply to keep from going hungry. A lot of other men in the same position competed desperately for what work was available, and an employer could hire those same men for much lower wages and expect them to work harder than what was the case before the depression. As a result, the men could get jobs and the employer could stay in business.

Today

The average man first has months of unemployment insurance; after that, he can go on welfare if he can’t find “suitable work.” Instead of taking whatever work is available, especially if it means that a white collar worker has to get his hands dirty, many will go on welfare. This will decrease the production of new wealth and delay the recovery. The worker no longer has to worry about some entrepreneur exploiting (i.e., employing) him at what he considers an unfair wage because the minimum wage laws, among others, precludes that possibility today. As a result, men stay unemployed and employers will go out of business.

Wait, you get that? Lowest unemployment statistics in years, so the economy MUST be buzzing. Hogwash!

WELFARE

1930s

If hard times really put a man down and out, he had little recourse but to rely on his family, friends, or local social and church group. There was quite a bit of opprobrium attached to that, and it was only a last resort. The breadlines set up by various government bodies were largely cosmetic measures to soothe the more terror-prone among the voting populace. People made do because they had to, and that meant radically reducing their standards of living and taking any job available at any wage. There were very, very few people on welfare during the last depression.

Today

It’s hard to say how those who are still working are going to support those who aren’t in this depression. Even in the U.S., 50% of the country is already on some form of welfare. But food stamps, aid to fami­lies with dependent children, Social Security, and local programs are already collapsing in prosperous times. And when the tidal wave hits, they’ll be totally overwhelmed. There aren’t going to be any breadlines because people who would be standing in them are going to be shopping in local supermarkets just like people who earned their money. Perhaps the most dangerous aspect of it is that people in general have come to think that these programs can just magically make wealth appear, and they expect them to be there, while a whole class of people have grown up never learning to survive without them. It’s ironic, yet predictable, that the programs that were supposed to help those who “need” them will serve to devastate those very people.

So what happened in 1865 when the slaves were free? They were UNPREPARED for real life. Ditto here with all the social programs that have made so many dependent on the Nanny State. This will not end well.

There are many more examples, but one more before I conclude:

THE FINANCIAL MARKETS

1930s

The last depression is identified with the collapse of the stock market, which lost over 90% of its value from 1929 to 1933. A secure bond was the best possible investment as interest rates dropped radically. Commodities plummeted, reducing millions of farmers to near subsistence levels. Since most real estate was owned outright and taxes were low, a drop in price didn’t make a lot of difference unless you had to sell. Land prices plummeted, but since people bought it to use, not unload to a greater fool, they didn’t usually have to sell.

Today

This time, stocks—and especially commodities—are likely to explode on the upside as people panic into them to get out of depreciating dollars in general and bonds in particular. Real estate will be—next to bonds—the most devastated single area of the economy because no one will lend money long term. And real estate is built on the mortgage market, which will vanish.

Everybody who invests in this depression thinking that it will turn out like the last one will be very unhappy with the results. Being aware of the differences between the last depression and this one makes it a lot easier to position yourself to minimize losses and maximize profits.

So much for the differences. The crucial, obvious, and most important similarity, however, is that most people’s standard of living will fall dramatically.

Ouch! Didn’t see that coming right?

So when Jesse’s stats show this:

You have to see the difference. Look at that Federal Debt level. We have built the largest military on the planet, probably in the hopes that the elite can remain safe under its protection in the years to come.

Sorry for all the Friday “Debbie Downer” news, but this was too important not to share.

Your mileage may vary

-SF1