How to Deliberately Cause the Greater Depression

C.S. Lewis’ short but masterful The Great Divorce is about Ghosts in Hell who journey by omnibus up through a crack in the earth to meet Solid People and hopefully be guided into the mountains. As the Ghosts become substantive their feet are pricked by the sharp grass. Only a few overcome their problems and journey into the mountains while most board the bus and shrink into oblivion as it descends back down the crack from whence it came.

In the financial realm, many are lured by the the derivative illusion and ensconced in a rapidly dissipating cocoon of self-satisfied self-deception woven over their eyes and mind leading to their faulty thinking that the way they see things is the way things really are. Fractional reserve banks and fiat currency have wreaked predictable havoc and mayhem on the entire world economy. Fortunately, monetary and currency alternatives exist.

HOW TO INTENTIONALLY CAUSE THE GREATER DEPRESSION

The Great Credit Contraction and the accompanying liquidation of malinvestment is to be embraced and not feared. As Murray Rothbard observed on page 18 of his 1963 America’s Great Depression,

“It is true that credit contraction may overcompensate, and, while contraction proceeds, it may cause interest rates to be higher than free-market levels, and investment lower than in the free market. But since contraction causes no positive malinvestments, it will not lead to any painful period of depression and adjustment.”

Mr. Rothbard continues the observation that government policy can hobble the adjustment process by:

“(1) Prevent or delay liquidation, (2) Inflate further, (3) Keep wage rates up, (4) Keep prices up, (5) Stimulate consumption and discourage saving and (6) Subsidize unemployment.”

In the present case, mark-to-market rules, like FAS 157, are not implemented, delayed, ignored or willfully violated. For example, Section 132 of the Emergency Economic Stabilization Act of 2008 is titled “Authority to Suspend Mark-To-Market Accounting” and restates the SEC’s authority to suspend the application of FAS 157.

The Austrian definition of inflation is an increase in the money supply. The Adjusted Monetary Base, the very lowest layer of power money, shows a tremendous increase over the past couple months. The effects are most likely masked by the tremendous slowing in the velocity of money.

click to enlarge

In an effort to stimulate consumption and discourage savings that will result in keeping prices and wages high the Obama administration has unveiled a $1 trillion stimulus package. The Geithner toxic asset plan will only serve to hasten the destruction of wealth from the economy as the system evaporates.

Minimum wage is set to rise for the third consecutive July. Unemployment will be subsidized by extending benefits for 13 weeks and delaying the income tax payments. Legacy industries, like the auto industry, are receiving bailout money to keep wage rates up and people employed doing nothing all day long because of the huge over capacity of automobiles.

Austan Goolsbee, a senior Obama economic adviser, said on CBS’ Meet the Press, “We’re out with the dithering, we’re in with a bang.”

FINANCIAL INSANITY VIRUS EPIDEMIC OUT OF CONTROL

Well, it is obvious that the Financial Insanity Virus epidemic is raging on Wall Street and in Washington. They are hitting the bulls-eyes on all six policies to hobble any potential recovery. The result will be a lengthening and intensifying of The Great Credit Contraction and resulting Greater Depression. Worse is that these criminal gangs costumed in government regalia have no excuse for not knowing what the result will be. Therefore, they are acting either with premeditation and deliberation or with reckless disregard for the world economy and all the individuals affected.

This will result in a lot of economic and physical pain and misery coupled with individual culpability. As the mentor in The Great Divorce sagely taught, “All who are in Hell choose it. Without that self choice there could be no Hell.” Indeed, “to be afraid of oneself is the last horror.”

“All Hell is smaller than one pebble of your earthly world: but it is smaller than one atom of this world, the Real World.” The Great Credit Contraction continues to grind while the illusions evaporate making many organizations and institutions increasingly irrelevant. Hopefully these soon to be worthless entities that are gluttonous parasites on the global economy will become at the most footnotes in the annals of history.

Comments

[Gem Hudson:]

Using green pease as to en-Stalin their kind of a five year plan is to do what ever they say but what was done was to build big and building big did not sell any bigger. His soviet business went out of business.

Go from your rags to your riches. Than get to know your business inside and out. J. Paul Getty business rule number 2. Getting to know what would work for you is working out the business until your buisness is working out for you.

Mar 25 08:45 AM

[ebworthen:]

Spending trillions on bailouts, "legacy asset" purchase with borrowed money, and saving the economy with healthcare, green energy, and more money for education which will cut the deficit in half. What!?!?

Does...not...compute...

The only thing the above will accomplish is more debt spending by government and irresponsible individuals, which increases the debt deleveraging. It will decrease the value of what little money the responsible are saving or using to pay down debt. It will force more layoffs, lower home prices further, increase foreclosures and business failures.

If I were trying to create a dependent populace to foist a socialist state upon a republic this is how to do it. They are either glossy eyed idealists without a clue or master manipulators with a plan.

Mar 25 09:24 AM

[Ferdinand E...:]

Hmm, Murray Rothbard again. Where did you say that bus was parked, and can you lend me enough for a ticket?

Mar 25 09:26 AM

[kelm:]

We are going through the cheering part right now. I liken it to the part of the horror movie where the actors think the monster is dead. This is where the illusion is still alive and willingly believed that things will be all right again soon. And, in fairness, there is profit to be made in this period. Inevitably however, the monster returns. In this case we will see surging inflation, most likely while the economy is still weak, coupled with a determined move away from the dollar by the rest of the world. It won't be very funny at that point and the buses may not be running to anywhere.

Mar 25 09:42 AM

[One Eyed Guide:]

Good article but...

Many Austrian assumptions don't work in the real world because there are existing Govenrnemt regualtions that keeps markets from clearing even if there is no more Government action.

The other problem is that most people don't like to live in a society where abject poverty is evident. Without "subsidised unemployment" (unemployment insurance) you get beggars in the street. With it, you need government stimulus to clear the market.

What's a Government to do?

Mar 25 10:03 AM

[jksisco:]

"He who governs least, governs best."

Mar 25 10:22 AM

[shrivman:]

"The result will be a lengthening and intensifying of The Great Credit Contraction and resulting Greater Depression. Worse is that these criminal gangs costumed in government regalia have no excuse for not knowing what the result will be. Therefore, they are acting either with premeditation and deliberation or with reckless disregard for the world economy and all the individuals affected"

Boy - that's some leap you make there. "Criminal gangs","premeditation"... disregard". Don't hold back for Pete's sake, let us know what you really think. Although I am surely not loving a lot of the picks the current administration is making, I in no way think of them as criminals, as you do. Since they are criminals they should [logically] be arrested,yes? That's what we should do with criminals,no? So which of the current administration would you suggest goes to jail first?
Did you apply this yardstick to the "criminal gangs" in the previous administration.....or were they innocent of the many misdeeds so many others believe? Your perspective [as is true of all of us] is certainly not objective. So that makes it subjective [in your case in the extreme] and therefore interpretive. I would say trot out your facts, but anyone can skew "facts" to favor their "opinion" and parade it as "truth". Me too.We all do it.
Since no one to this day actually knows why the Great Depression started and ended [ the current spin from the right is that government intervention was the culprit], then logically no one knows how to end it.I've over the years read 5-6 books on the Great Depression [long before the current financial debacle] and never felt that any one of the books definitively "got it right", Rothbart included. Of course reading 5 or 6 books makes not an expert, but I have at least a passing knowledge of the Depression and the number of differing opinions by very smart folks as to it's origins and factors that may have lengthened/shortened it. Nobody KNOWS and so we are left with lots of varying opinions about how to solve this depression/crisis. Having an opinion other than yours [or mine] does not a criminal make. You need to get back to taking your meds on a regular basis and at least TRY to understand that you are NOT the final arbiter on matters of great import. As is true of us all - you're entitled to your opinion. But if you print it - expect to be challenged.Consider yourself challenged.

Mar 25 10:34 AM

[Chris B:]

Austrian theory, Marxist theory, cold fusion...

All work great in theory and in books, but have proven to be utter failures wherever tried, despite their apologists insisting each time that "it's never trully been applied correctly."

I'm grateful to live in a society that adapts to changes in reality rather than conforming to ideologies at any cost. The rejection of failed ideas is a critical growth factor for any society. A cyclical 2% fall in GDP for 9-16 months after each DECADE or so of 2-3% growth does not invalidate an economic model that has led the world in living standards and growth.

Mar 25 10:53 AM

[fireball:]

if they are just going to print ( and ledger enter) fiat money at will exactly why do we need to pay any tax? oh yeah, to punish success, social engineering, enforcement of green zealism, and control of the sheeple.
crises, soluton more control. extend the misery and the sheeple cry louder for mama govt. to give them their tit. they are already convinced the tit is a right. to stand on your own two feet is just unreasonable.
make it bad enough with foolish policies and the (dumbed down socialist) sheeple will vote away their God given rights for safety and security. they will recieve tyranny.
change is for obama to multiply the overspending? someone mentioned trials for the bush regime for treason too. we should go back for decades. this has been a steady, relentless drive to destroy the democratic republic by socialist party A and socialist party B. only the lies they tell change. the constituton and bill of rights are buried under a mountain of crap legislation. the public has failed in its' duty to jealously guard their liberties. most have no clue of the legal govt. of this country.
it will take a miracle to turn the federal parasite back. somehow i know obamamama is not divine. he's just one more statist. perhaps under his regime the last embers of freedom will be smothered.

Mar 25 11:52 AM

[Evelyn:]

Hmmm. Some people have their political underpinnings showing, and it's clouding any thinking they might otherwise be doing.

Obama is continuing the practices along with the personnel of the past administration. I knew we were in trouble when Karl Rove praised Obama's picks to run things, as exhibiting "continuity." The people from Goldman Sachs had way too much power before, and they are just as firmly in control, if not more so, now as they were before Obama took over the figureheadship.

We are being raped by big bad "Casino capitalists." The financiers are running the country for their own interests. Everything that happens at the Fed and Treasury is aimed at "what is good for Goldman Sachs big shots and their buddies?"

If you look at it from that standpoint, and stop trying to make silly GOP talking points fly, or the cruelly dashed hopes of those of us who were kind of rooting for society as a whole, it all makes a whole lot of sense. Terrible sense.

Back to the article: Solving a credit problem by borrowing more money works in the same way that a Ponzi scheme works. One more round of funding creates a delay, possibly allowing as few savvy people tine to get away with a pocketful of cash. But when the crash comes, it is that much bigger and badder because of the increase in magnitude caused by the delaying round.

Maybe the best way to understand is in a more personal, intuitive way. If you have received offers to "consolidate your debt" inviting you to put it all into one big new debt, and borrow some more money at the same time, and you have hesitated because you suspect it might not really be a great idea, then you have figured out what's wrong with the current attempts to "cure" our problems.

Krugman's idea that a "short sharp shock" to the system was based on the premise that it might fix a liquidity/trust glitch, but it's been too long, now. Besides, the problem is solvency, not liquidity, which is why everyone in charge is stonewalling on any kind of transparency.

There's nothing "socialistic" about the current shoveling of vast amounts of money into AIG and its counterparties, throwing taxpayer money at the gigantic leaking derivatives bubble. Look at the amounts of money involved: the sums being publicly fussed about are minor in comparison to the big picture.

Mar 25 01:13 PM

[Did U Think...:]

On Mar 25 10:03 AM One Eyed Guide wrote:

> Good article but...
>
> Many Austrian assumptions don't work in the real world because there are existing Govenrnemt regualtions that keeps markets from clearing even if there is no more Government action.

Don't blame the Austrians for government involvement in the economy!! In fact, Austrians think that government involvement is one of the biggest problems because it does not allow a natural working of the economy. Just because something works a certain way today does not mean that it could not be made better. The Austrians know that their ideals are not embraced today and Keynesianism abounds. AKA something for nothing. The Austrians are warning that it will end badly.

> The other problem is that most people don't like to live in a society
where abject poverty is evident. Without "subsidised unemployment" (unemployment insurance) you get beggars in the street. With it, you need government stimulus to clear the market.

Wait a second. Unemployment insurance is not an entitlement, it is a paid for product. Employer's make unemployment insurance payments on behalf of their employees. It is part of the compensation package. The employer does it, but that is just saving the employee from doing the paperwork. It comes out of the budget for paying the employee. So this is not what Austrians are talking about. They are talking about unlimited something for nothing programs such as welfare.

But as to your statement that people do not like to see beggars, do you think this policy will stop that from happening? Have you not seen all the tent cities popping up all over America? The government cannot produce money. All it can do is redistribute wealth from producers to nonproducers thus encouraging nonproducers to remain that way.

> What's a Government to do?
Get out of the economy and get back to its real job which is defined by the constitution. Stop trying to fix the unfixable and let the economy operate the way it was intended to. Government caused the bubble with low interest rates and artificial stimulus in the first place. Now they are trying to fix it by creating levels of indebtedness that are extreme and unprecedented. They are in effect, looting this country and ruining it for decades to come. I bet you voted for Obama, didn't you? You believed his claptrap "Yes we can" bull$shit. Now you are figuring out that he lied to you and that the real answer is "No we can't". So here is where the apologists come in saying "what could anyone do any better". This is the sign of a sheeple. Had you voted for Ron Paul like intelligent people did then there would have been true change. Short term pain? YES!!!!! That was unavoidable and it still is unavoidable because Greenspan blew such massive economic bubbles. But the pain would have been 2-3 years and then a real sustainable based would have been installed. Under the Obama/Geithner plan we will be screwed Japanese style.

You get the government you deserve, sheeple.

Mar 25 01:18 PM

[Warnthepeop...:]

Some say UI should be curtailed. But you don't give any suggestion as to how people can bridge the gap without it. If there aren't any jobs to be found what can the people do? I think a better plan would be to employ people temporarily doing city or state projects such as cleaning the streets or street repair, mowing grass, fixing signs etc. I'm currently on UI, you think I'm getting rich on my $227 a week? I don't have health insurance, drive a 26 year old car, I'm not eating any fancy food. I don't have the money to start a new business. I agree that this Depression is being caused on purpose, but for different reasons than the OP suggests. And don't gimme the "lazy" pitch either because I'm not but you think you can live on $6-8 an hour for a job that will probably go to Mexico in a year? Can you afford to spend $20-40k for "higher education" just to get a $15 an hour job? It isn't worth it. I don't say mandatory minimum wage is "the" answer but if we didn't have it then we could work for $1-2 a week like they can in China right? I personally don't have a problem with less wages but the housing costs, groceries, utilities, and all the taxes have to come down by a similar amount. Otherwise it's all academic isn't it?

Mar 25 01:40 PM

[Evelyn:]

Oh, and on "criminality" -- the wonderfulness of being in a position to make and unmake law is that, once you succeed in dismantling the regulations put in place to keep terrible things from happening, you can proceed to step two and get even more obscenely rich and powerful, legally. Don't forget, what happened in Nazi Germany was all legal too.

A reminder from This Modern World's Jonathan Schwartz, who wrote:

Here’s the New York Times story about the 1999 repeal of the Glass-Steagall Act:

Congress approved landmark legislation today that opens the door for a new era on Wall Street in which commercial banks, securities houses and insurers will find it easier and cheaper to enter one another’s businesses…

“Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century,” Treasury Secretary Lawrence H. Summers said. “This historic legislation will better enable American companies to compete in the new economy.”

The decision to repeal the Glass-Steagall Act of 1933 provoked dire warnings from a handful of dissenters that the deregulation of Wall Street would someday wreak havoc on the nation’s financial system.

-- "Thank God this Summers guy no longer has any power over American economic policy."

Mar 25 01:43 PM

[Socialism c...:]

On Mar 25 10:03 AM One Eyed Guide wrote:

> Many Austrian assumptions don't work in the real world because there
> are existing Govenrnemt regualtions that keeps markets from clearing
> even if there is no more Government action.

What the flip are you talking about? And why can't those regulations be abolished?

> The other problem is that most people don't like to live in a society
> where abject poverty is evident. Without "subsidised unemployment"
> (unemployment insurance) you get beggars in the street. With it,
> you need government stimulus to clear the market.

Our government was never tasked with preventing poverty!! That is a losing battle for any government. Voluntary charity can *help* with that problem...coerced socialism is NOT the answer!! Why the former and not the latter? Because voluntary giving does not remove the freedom of the giver, and allows him to give what he can and wants to. Socialism involves a government that cannot possibly know how much of the giver's income he really needs, deciding how much it wants to take from him, generally leaving him with less than he needs for his own current and future needs! Government is a DRAIN on wealth...and strips us of our property rights and Liberty in the process.

> What's a Government to do?

Nothing. "That government governs best which governs least."

Mar 25 01:52 PM

[CJJ:]

As a commentor above pointed out, having a bunch of poor, starving, miserable people roaming the streets of every US town and committing crimes seems like a bigger issue than a few For Sale sign on 4000 square foot homes or a few empty malls whose owners have more personal money than they know what to do with.

I'm sorry but this isn't 1800 folks. Governments are not perfect and don't keep blindly stroking the US Government around inception. Bailouts, stimulous, etc is nothing new. Obviously as populations grow the dollar figures and sheer numbers around these issues is going to grow. That is to be expected.

I'd like someone to personally relay what Liberty the Government has taken from them personally. Hopefully its not your right to bitch and moan, because you're quite good at flexing that one.

Mar 25 03:11 PM

[fireball:]

cjj
i won't make the absurdly long list of the taxes we pay. what they tax they control or destroy.
so far the war on home and private schooling has not succeeded everywhere so there are alternatives to the govt. schools.
because of bitching and moaning govt. has not taken over healthcare yet.
luckily i live where my 2nd ammendment has not been damaged to much.
somehow the churches have been intimidated into the 501c3 and must not speak on certain subjects lest they become taxable.
bitching, moaning, and debate are preferable to violent resistance. this is a short list off the top of my head. i won't bore you with a long list. i am sure with a little thought you can come up with your own.

Mar 25 04:30 PM

[axelrod608:]

Good article. "Financial Insanity" is as good a descriptor as I've heard to describe the foolishness going on in DC in an attempt to fix what Wall St handed the nation. And the world. "Too big to fail" is an oxymoron.

The worst aspect is that to date, not one Attorney General - federal or state - is prosecuting the criminals that packaged subprime and alt A loans with teaser interest rates yielding perhaps 3% and sold them as AAA rated financial instruments yielding 20% interest.

Madoff's scheme is like a convenience store stickup in comparison to the financial cost of Wall Street's criminal enterprise. Goldman should be taken under the RICO act. And AIG.

I'm mad as hell and my government is getting 'sloppy seconds'. The rule of law is dead and buried in current "America:.

Mar 25 06:42 PM

[THofler:]

I have a read a little on the great depression, but I've never heard anyone speak of a real estate bust in that context. However, many years ago I read "You Can't Go Home Again" by Thomas Wolfe.

While I realize that it is a work of fiction, it is based on the before-and-after of the crash of 1929. The crux of the title is revealed 20 or 30% into the book where the author leaves his residence in NYC to go home again, in the small town south. And everything is different there primarily because of a colossal speculative real estate boom, the likes of which would put the California/Las Vegas/Phoenix/Florida boom of 2006 to pale.

Perhaps it is true that all real depressions begin with a real estate boom/bust.

Mar 26 01:30 AM

[Hot Richard:]

The ONLY business that sees a Great Depression as a growth opportunity is government.

"if they are just going to print...fiat money at will exactly why do we need to pay any tax?"

This is one of the greatest statements I've read on SA. Part of the answer is wealth distribution, part is to grow the state ever larger, part is to devalue the currency to improve our debt obligations. Of course the other answer is that you haven't given Congress nearly as much money as TARP recipients have.

"Without "subsidised unemployment" (unemployment insurance) you get beggars in the street."

Even IF this were to happen, this would be a problem with the human being and not Austrian Economics. You've set government up as more caring and benevolent than the people. This is not true, nor should it be true. The state is a wretched morality leader, not to mention welfare does the recipient no favors.

"I'm grateful to live in a society that adapts to changes in reality rather than conforming to ideologies at any cost."

The two--reality and ideology--are not exclusive if you have the right ideology. If you think they are, you probably have not found the right ideology.

"what Liberty the Government has taken from them personally."

Marriage, school choice, weed, assisted suicide (dad died from cancer...wanted to die with dignity), helmet-less hog riding, travel to Cuba for cigars...one more thing...OVER $3 MILLION OF MY MONEY VIA TAXES. Hey, you asked.

Mar 26 10:34 AM

[Conan the B...:]

Axelrod: your comment "The rule of law is dead and buried in 'America'.''

Does that include Backdating Loans to include new conditions and obviating contracts without going through the legal system?

Mar 28 08:22 AM

[Conan the B...:]

The whole article is a piece of fiction based on the opinions of the Author. Opinions do not constitute actual facts, for instance, what is the definition of a "malinvestment" pick a dictionary of your choice.

Or "Fractional Reserve Banks" Have Wreaked havoc, how long ago?, where? Some parallel universe?

"The Minimum Wage is set to rise for the Third time this July"...really, when were the last TWO times? another piece of fiction. The Minimum Wage law on a Federal Level was signed into on May 25th, 2007, the increases take effect over 2 years, July 25th, 2009 is the final of 2 increases.

FAS 157??, Keep it ,enforce it and Let Mark to Market price the Toxic assets, appears to be what your opinion is. I say appears because this will, in my opinion, hasten the destruction of wealth.

On the other hand, the Geithner Toxic Assets plan which takes the Toxic Assets bit by bit, can only slow the process even if the end result turns out to be the same. My opinion VS your opinion.

Your Chart shows quite graphically that the Monetary base can rise substantially over time without an equal or greater rise in Inflation. The 1982-2002 time frame specifically comes to the fore as interest rates spent 20 years going down but Money supply went up. (I know, it must be the Government disguising the actual inflation rate, the graph is useless then since its Government Issued)

In the last three weeks you have to finally put together your Book which you are advertizing with this article and your previous one. And managed to "appear on National TV stations and a radio station which has affiliates".

I would imagine you have clips of your appearances since they are Noteworthy enough to include in your Profile and on your Website.

Where might I find them?

Mar 28 09:45 AM