Revelation 6:6 – “And I heard a voice in the midst of the four beasts say, A measure of wheat for a penny, and three measures of barley for a penny; and see thou hurt not the oil and the wine.”
There are plenty of financial experts out there assuring us that any comparison between our current economic situation and the Great Depression are utterly baseless. The problem is that most of these experts are either demonstrated hypocrites who have themselves compared our economy to the Great Depression, or they are employing extremely flawed logic in their dismissals that may well even cross the line into outright deception.
Nathan Burchfiel takes CNBC‘s Jim Cramer to task for the sort of blatant hypocrisy that we’ve seen from all to many other media analysts:
CNBC “Mad Money” host Jim Cramer said on NBC’s “Today” show Dec. 2 that comparisons between the current economy and the Great Depression are “scare tactics.” Maybe he forgot about his own reliance on the juxtaposition….
But Cramer has been among the most vocal scaremongers when it comes to throwing around Great Depression warnings.
Criticizing economists who opposed the $700 billion taxpayer bailout of the financial industry on the “Today” show Oct. 1, Cramer warned the country was “on the precipice of Great Depression II.”
He made a similar claim about the financial bailout in September, arguing that if Treasury Secretary Henry Paulson didn’t find a way to get a rescue package passed, “we are going to have The Great Depression II on our hands.”
On Nov. 11, Cramer supported another proposed bailout – this time for the U.S. auto industry by saying it would prevent another depression. “It’s like look – we got to bail them out,” Cramer told CNBC “Street Signs” host Erin Burnett. “We have to. We have to keep the Great Depression off the table.”
In other words, the “Great Depression” basically becomes a shell game, where you see the shell when the shysters want you to look at it, and then you don’t see the shell when they want to keep it out of sight. It’s a bogeyman that some journalist, or some academic, or some government official can trot out to frighten us into doing what s/he wants to advance an agenda, and then put it away until they want to frighten us again.
Now, there was a time when a story like this one would have completely discredited a media personality such as Jim Cramer. But in these Bizarro World days, being discredited seems to be to a journalist’s career what having a tawdry sexual affair does to a movie star’s career.
Then we’ve got the philosophical dismissal of any comparison to the Great Depression, as exemplified by government academics such as Ben Bernanke:
WASHINGTON (AFP) — Federal Reserve chairman Ben Bernanke said Monday the current economic situation bears “no comparison” to the much deeper crisis of the 1930s Great Depression.
“Well, you hear a lot of loose talk, but let me just … say, as a scholar of the Great Depression — and I’ve written books about the Depression and been very interested in this since I was in graduate school, there’s no comparison,” Bernanke said in a question period after an address in Austin, Texas.
Bernanke cited “an order-of-magnitude difference” in the current situation compared to the 1930s.
“During the 1930s, there was a worldwide depression that lasted for about 12 years and was only ended by a world war,” he said.
“During that time, the unemployment rate went to 25 percent, at least, based on the data that we have. The real GDP (gross domestic product) fell by one-third. About a third of all of the banks failed. The stock market fell 90 percent.”
Bernanke said the situation at that time represented “very difficult circumstances,” because “we didn’t have the social safety net that we have today. So let’s put that out of our minds; there’s no — there’s comparison in terms of severity.”
Well, first of all the fact is that Bernanke – just like Cramer – has himself made the comparison between our economy and the Great Depression, as the bottom of the same article clearly demonstrates:
In a related matter, President George W. Bush said in an interview released Monday that Bernanke and Treasury Secretary Henry Paulson warned him weeks ago that bold action was needed to avert a new Great Depression.
“I can remember sitting in the Roosevelt Room with Hank Paulson and Ben Bernanke and others, and they said to me that if we don’t act boldly, Mr. President, we could be in a depression greater than the Great Depression,” Bush told ABC News.
Which clearly means that comparisons to the Great Depression clearly aren’t so silly after all – as evidenced by the very people who are most loudly telling us that such a comparison is silly.
Bernanke and others also imply that our social support structures and our financial expertise would prevent the worst effects of any so-called “Great Depression.” But is that really so?
When the $852 billion Troubled Asset Relief Program (TARP) suddenly morphed into what one writer mocked as Capital Redistributed As Pork (CRAP), shouldn’t it bother you that an abandonment of such an enormous program’s expressed goal midstream amounts to a de facto declaration that our experts clearly don’t know for sure what they’re doing?
The notion that a Great Depression could never happen because we know so much more doesn’t hold much water for me in the light of our “Keystone Cops-approach” to all of our various bailouts and attempts at political legislation. The fact is, after seeing our “experts” at work the last couple months, I have less confidence in them than I’ve ever had before.
But there’s another giant problem with Bernanke’s analysis, and it is difficult to imagine that he doesn’t himself recognize it. The problem is that he’s comparing apples to oranges; he’s comparing an economy that may well be on the throes of a future Great Depression to a 1930s economy that was already well into the worst stages of a depression. And he’s pointing out the obvious – but in fact completely irrelevant and actually completely absurd – fact that they don’t look alike. Of course they don’t look alike – yet.
But what would have happened had Bernanke compared the economy as it was in 1929 with our economy today, rather than the worst period of the 1930s? What would have happened had he looked at the economy just before the Black Tuesday crash of October 29, 1929, or even shortly after that crash? The numbers would have hardly appeared anywhere near so dire, which means Bernanks’ comparison would have failed.
Let me quote Wikipedia to show you what I mean:
The Great Depression was not triggered by a sudden, total collapse in the stock market. The stock market turned upward in early 1930, returning to early 1929 levels by April, though still almost 30 percent below the peak of September 1929. Together, government and business actually spent more in the first half of 1930 than in the corresponding period of the previous year. But consumers, many of whom had suffered severe losses in the stock market the previous year, cut back their expenditures by ten percent, and a severe drought ravaged the agricultural heartland of the USA beginning in the summer of 1930.
In early 1930, credit was ample and available at low rates, but people were reluctant to add new debt by borrowing. By May 1930, auto sales had declined to below the levels of 1928. Prices in general began to decline, but wages held steady in 1930, then began to drop in 1931. Conditions were worst in farming areas, where commodity prices plunged, and in mining and logging areas, where unemployment was high and there were few other jobs. The decline in the American economy was the factor that pulled down most other countries at first, then internal weaknesses or strengths in each country made conditions worse or better. Frantic attempts to shore up the economies of individual nations through protectionist policies, such as the 1930 U.S. Smoot-Hawley Tariff Act and retaliatory tariffs in other countries, exacerbated the collapse in global trade. By late in 1930, a steady decline set in which reached bottom by March 1933.
Keep in mind that OUR stock market began to tank only a little over two months ago. And if the exact same thing were to happen now that it did to the United States in the 1930s, we actually would expect our market to pick up significantly in the coming months – and our economy to even appear to be rebounding – shortly before a downward slope into collapse that would occur one to three years later. It wasn’t until March 1933 – 3 years and 4 months after the Black Tuesday stock market crash – that the bottom really fell out of our economy.
And while “Great Depression” comparisons may be silly in terms of the actual economic numbers RIGHT NOW (the number of banks going under, the jobless rate, etc.), we actually face potential economic nuclear bombs that would very likely have made 1930s American financial experts faint with dread.
We are looking at $700 TRILLION in derivatives. Compare this stupefying fact to the associated fact that global GDP is only about a lousy $50 trillion! Assets have been leveraged as much as a hundred and even two-hundredfold. The Institute for Economic Democracy have an article titled, “Hedging and Derivative Risks Become Infinite Risks.” The result is MASSIVE exposure such as the world has never seen lurking like some incredibly deadly plague in the form of financial vehicles that few even begin to understand and only advanced computers can calculate. As these highly leveraged financial obligations result in losses – as has already begun to happen – the result is cataclysmic failure in financial markets beyond the power of any government to prevent. And anyone but a fool should be able to recognize by now that such disasters can send the entire global economy crashing down very quickly, seemingly from out of nowhere.
None of the bailouts have done ANYTHING to fix the systemic structural problems with our financial system (the worst probably being the massive flow of capital out of production and into speculative markets due to the shift from being a manufacturing-based economy to a service-based economy). And the fact that the $852 billion bailout package went from being used to buy bad mortgages to a completely different solution should kind of serve to tell you that no one really knows WHAT to do.
So our financial experts are throwing out our money the way out-of-control craps players throw dice.
ABC News had this:
The government’s financial bailout will be the most expensive single expenditure in American history, potentially costing around $7.5 trillion — or half the value of all the goods and services produced in the United States last year.
In comparison, the total U.S. cost of World War II adjusted for inflation was $3.6 trillion. The bailout will cost more than the total combined costs in today’s dollars of the Marshall Plan, the Louisiana Purchase, the Korean War, the Vietnam War and the entire historical budget of NASA, including the moon landing, according to data compiled by Bianco Research.
It remains to be seen whether the government’s multipronged approach to bail out banks, stimulate spending and buy up mortgages will revive the economy, but as the tab continues to grow so does concern over where the government will find the money.
One critical thing to understand is that the aforementioned historic massive expenditures – which combined still only amount to half of the expenditure we are talking about today – took place over many decades, such that the various costs to the economy were absorbed over many years. What happens when we spend trillions of dollars in only a few months? Who knows? No one has ever tried it before! And unlike the what had been the greatest – now the second greatest – expenditure in history, the costs associated with World War II were spent producing, building, and developing, whereas frankly most of the costs associated with our current bailouts essentially amount to paying off Wall Street’s gambling debts.
Meanwhile – as we contemplate forking over still more billions to bail out our automakers – we need to realize that we’re entering a potentially insane realm where there’s simply no end to the companies and now even the states who are “too big to fail” and need bailouts of their own. And what of the moral hazard incurred by giving money to people, corporations, and states simply because they were the biggest fools and failures? What impact will this have not only on the economy, but on the hearts and minds of honest people who played by the rules and ended up with nothing to show for it while the failures and the gamblers walk away with money in their pockets? How many previously stable people will begin to angrily demand, “Where’s my bailout?”
What’s going to happen as our financial system attempts to absorb absolutely mind boggling government debts that dwarf anything ever before seen in human history?
A lot of financial experts aren’t so much anxious about what happens in the next few months. We might well be able to throw so much money at the economy that we can stimulate it again; rather, they are worried about 3-5 years down the road as our dollar devalues dramatically due to interest payments that can only be repaid by printing more and more money. You don’t just double an already insanely-out-of-control national debt without severe consequences.
And given the very real probability that massive spending is going to be the cause of our undoing, the social safety net that Bernanke refers to as being a preventative would actually merely be one more causative factor in a pending economic collapse. We won’t be able to hand out food stamps and welfare checks if our government itself goes bankrupt.
So while it’s obviously not accurate to describe our present situation as a “Great Depression,” the simple reality is that we might well – and in the very near future – experience an economic meltdown that would likely make the Great Depression look tame in comparison.