I was asked to post this from Doug Nusbaum - from www.fskrealtyguide.blogspot.com
Wednesday, April 30, 2008
The Federal Reserve Caused the Great Depression
What caused the Great Depression? There is a huge amount of disinformation spread on this subject. The Great Depression was 100% caused by the Federal Reserve. Anyone who suggests otherwise is a propaganda artist or a fool.
In the mid 1920s, the Federal Reserve used its cartel power to set interest rates at a really low level. This caused inflation and an economic boom. Politically-connected insiders knew that an economic boom was being created. At the start of the boom, they loaded up and debt and bought assets before inflation set in.
The Great Depression is blamed on "greedy speculators". With artificially low interest rates, it made sense to borrow and buy assets. If interest rates are 2% and inflation is 10%, then borrowing to invest is sensible. Many farmers and small business owners were forced to borrow to expand, to keep up with their competition.
The "greedy speculators" were acting independently in the "free market". The Federal Reserve and negative interest rates were the real culprit. The speculators were following the false signal the Federal Reserve was sending via artificially cheap interest rates.
In 1929, the Federal Reserve insiders decided to jack up interest rates worldwide, causing a depression. The insiders knew what was coming. They stopped issuing loans and converted all their holding to cash.
At that time, the Federal Reserve did not publish its interest rate target to the general public. The Federal Reserve did not publicly state in advance whether it was planning to raise or lower interest rates. Even in the present, someone who knew in advance about a Federal Reserve move could profit immensely.
The insiders had converted their holdings to cash before the crash. After the crash, they were able to buy assets at a huge discount. Since they were unleveraged, they were able to borrow and buy up even more assets at the bottom of the Great Depression.
In 1933, President Roosevelt confiscated everyone's gold, defaulted on the dollar, and declared the USA bankrupt. The dollar was devalued relative to gold, from $20/oz to $35/oz. Since the dollar was no longer redeemable in gold, this allowed a further increase in the money supply. The insiders who borrowed to buy assets at the bottom of the Great Depression were allowed to default on their loans, repaying their debts with devalued dollars. Many loan contracts contained "gold clauses" requiring payment to be increased if the dollar were devalued relative to gold. Congress declared these "gold clauses" invalid, ripping off creditors and providing a massive subsidy to debtors.
In this way, politically connected insiders profited from all three legs of the Great Depression. They profited by borrowing and buying assets at the start of the boom. They were first in line to buy assets with the newly printed money, so they were the primary beneficiaries of inflation. Due to their political connections, they were able to foresee the crash coming. They converted their holdings to cash before the crash. At the bottom of the Depression, they were able to borrow and buy assets at a discount. Later, they were able to default on these loans via inflation; inflation meant these loans could be repaid with devalued dollars.
Insiders profit in this manner EVERY TIME there is a boom/bust cycle. The Compound Interest Paradox means that boom/bust cycles are an inevitable consequence of debt-based money. No matter what the Federal Reserve does, there will be boom/bust cycles. Insiders who know what the Federal Reserve is going to do have the opportunity to profit immensely.
The Great Depression accomplished several goals. It forced small farmers off their land when they were unable to repay their mortgages. It forced many small businesses to close. It caused the cartelization of many industries. Conditions of great poverty enabled the welfare state apparatus to be put into place. The Great Depression converted the USA from a nation of farmers and small business owners into a nation of wage slaves.
Nowadays, boom/bust cycles as severe as the Great Depression are no longer needed. The independence of the average American was permanently broken during the Great Depression.
Posted by FSK at 12:00 PM
4 comments:
gilliganscorner said...
Correct again. In fact, Bernanke admitted it (not as bluntly as you put it) that the Fed caused the Great Depression. He admitted to Milton Friedman here:
http://www.federalreserve.gov/BOARDDOCS/SPEECHES/2002/20021108/default.htm
Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna: Regarding the Great Depression. You're right, we did it. We're very sorry. But thanks to you, we won't do it again.
April 28, 2008 10:27 PM
Anonymous said...
You forgot the part that the stock market crash of 1929 was also engineered. The margin account was invented in the roaring '20's, with low interest rates. Many investors took advantage and were leveraged to the hilt. This of course helped cause bubble to grow spectacularly. The bankers then called in their margin loans at the same time, forcing investors to sell their holdings at the same time. Voila, instant market crash.
April 29, 2008 12:21 AM
9/29/08 Sammy Averbuch