"Regarding the Great Depression, … we did it. We’re very sorry. … We won’t do it again." - Ben Bernanke, November, 2002
"Waiting too long to begin moving toward the neutral rate could risk a
nasty surprise down the road - either too much inflation, financial
instability, or both." - Janet Yellen, December, 2016
In his speech above, future Federal Reserve Chairman Ben Bernanke
acknowledged that, by raising interest rates, the Fed triggered the
stock market crash of 1929, which heralded in the Great Depression.
Yet, in her speech above, Fed Chair Janet Yellen announced that “It
makes sense” for the Fed to raise interest rates “a few times a year.”
This is a concern, as economic conditions are similar to those in 1929
and a rise in interests rates may have the same effect as it did then.
So let’s back up a bit and have a look at what happened in 1929. In
the run-up to the crash in 1929, the Federal Reserve raised rates to 6%,
ostensibly to “limit speculation in securities markets”. As history
shows, this sent economic activity south rather quickly. Countless
investors, large and small, who had bought stocks on margin, would be
unable to pay increased interest rates and would be forced to default.
(It’s important to understand that the actual default was not necessary
to crash markets. The
knowledge that investors would be in trouble was sufficient to send the markets into a tailspin.)
Mister Bernanke was quite clear in 2002 when he stated that the Fed
would not make the same mistake again that it did in 1929, yet, then, as
now, there’s been a surprise victory by a Republican candidate for
president. Then, as now, a wealthy man who had never held elective
office was unexpectedly in the catbird seat and had the potential to
endanger the control of the political class, at a time when that
political class had been complicit in damaging the system by creating
massive debt.
Then, as now, conditions were ideal for the Deep State to create a
solution to all problems: An economic crash was inevitable; therefore,
create
a trigger for it to occur and blame the collapse on the conservative
political outsider. Demonstrate to all that the collapse was due to the
greed of the outsider and those who were of like mind. Use that leverage
to demonstrate to the hard-hit populace that what was needed was the
opposite of what the outsider had proclaimed. Recommend far greater
control by a new government that was staunchly liberal - a government
that would change the political landscape in such a way that all those
who suffered would be saved by a benevolent collectivist government.
And, of course, when it’s stated that way, it’s an easy sell. In
2017, it will be an even easier sell than it was in 1929, as the new
president has already set himself up for a fall. In his inauguration
speech, he focused on a single topic – the return of power to the people
and away from Washington’s bureaucracy.
Beginning by decrying Washington for what it truly is, he stated
that, “for too long, a small group in our nation's capital has reaped
the rewards of government while the people have borne the cost.
Washington flourished -- but the people did not share in its wealth.”
He then went on to describe that his presidency would bring about a metamorphosis:
“I will never, ever let you down. America will start winning again,
winning like never before. We will bring back our jobs. We will bring
back our borders. We will bring back our wealth. And we will bring back
our dreams. We will build new roads, and highways, and bridges, and
airports, and tunnels, and railways all across our wonderful nation. We
will get our people off of welfare and back to work -- rebuilding our
country with American hands and American labor… We will reinforce old
alliances and form new ones -- and unite the civilized world against
radical Islamic terrorism, which we will eradicate completely from the
face of the earth… We will not fail. Our country will thrive and prosper
again.”
Of course, new presidents are prone to making big promises when they
first take office. However, Mister Trump has, in his brief speech,
effectively declared himself the enemy of the Washington bureaucracy. In
so doing, he’s left himself wide open to be the fall-guy if the economy
does not rebound, if the average American’s lot does not improve,
and if the US does not dominate the world through an expanded military.
In short, the Deep State and their cronies, who were instrumental in
creating the economic, social and political house of cards that now
exists, have the perfect opportunity to bring on the collapse and blame
the new president for it.
Were Mister Trump to have honestly stated that the US is effectively a
house of cards and that he’ll begin the laborious job of trying to
salvage what’s left of it and begin to rebuild it, he would have
provided himself with a justifiable excuse when the house of cards does
collapse. However, by making such lofty claims to “Make America Great
Again,” he’s lost this opportunity.
In the last year, whenever I’ve been asked who I hoped the Americans
would elect as their president, I’ve replied, “Bernie Sanders.” To those
that were shocked by this answer, I would add, “An economic collapse is
inevitable. No one, no matter how capable, can prevent it. The best
that can happen is that the collapse occurs under a president who’s an
avowed socialist. That would assure an eventual return to smaller
government and more conservative economics.”
As unfair as it may be, a nation’s people almost always blame whoever
is on watch when a collapse occurs. It matters little who or what is
actually at fault. People need a “face” to vilify for the disaster and
the sitting leader is almost always spontaneously chosen by a nation as
that face.
And, of course, the opposing party invariably makes the most of the
situation. Just as in 1929 and for years thereafter, Herbert Hoover
received the lion’s share of the blame for a Wall Street crash and the
subsequent Great Depression, even though he was not at fault, so too
will the US come to blame the new president who made promises that were
far beyond what he could deliver.
The die is cast. The patsy-in-chief is now installed. The media will
do all they can to discredit Mister Trump and civil unrest will be
funded by his opponents. The US economy is more debt-laden than any
country in the history of the world and, historically, this has always
resulted in economic collapse. At present, there are a score of triggers
that could bring about collapse. Any one of these black swans could do
the job, but it’s entirely possible that the Federal Reserve will serve
once again as the trigger, as it did in 1929.
This is unquestionably the smart way to play the game. Rather than
wait for a random occurrence, if a date is set for a controlled
collapse, those connected to the Deep State will have a brief time to
disconnect their wealth from the system, as was done in 1929.
The trigger would be pulled by the Fed and the US economy would go
down in as controlled a fashion as Building Seven in the World Trade
Center.
When is this likely to occur? Herbert Hoover was given just under
eight months. The date for the next collapse could be earlier or later.
But the question is not when that date might be, but whether we’ve
prepared ourselves for the eventuality.
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Jeff Thomas is British and resides in the Caribbean. The son of an economist and historian, he learned early to be distrustful of governments as a general principle. Although he spent his career creating and developing businesses, for eight years, he penned a weekly newspaper column on the theme of limiting government. He began his study of economics around 1990, learning initially from Sir John Templeton, then Harry Schulz and Doug Casey and later others of an Austrian persuasion. He is now a regular feature writer for Casey Research’s International Man (http://www.internationalman.com) and Strategic Wealth Preservation in the Cayman Islands.
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The author is not affiliated with, endorsed or sponsored by Sprott Money Ltd. The views and opinions expressed in this material are those of the author or guest speaker, are subject to change and may not necessarily reflect the opinions of Sprott Money Ltd. Sprott Money does not guarantee the accuracy, completeness, timeliness and reliability of the information or any results from its use.
