Great Depression of 2018 With 1970s-Style Inflation

By Lisa Reisman, Tom Chatham, Mark Kolakowski and Michael Snyder

Most people simply don’t understand the gravity of the situation.  Nothing was ever fixed after the last financial crisis.  Instead, we went on the greatest debt binge that humanity has ever seen, and central banks started creating trillions of dollars out of thin air and recklessly injected that hot money into the financial system.

But it is inevitable that our bad choices have caught up with us, and the pain that we are going to experience is going to be absolutely off the charts.

The Great Crash of 1929 is mostly associated with plummeting stock prices on two consecutive  trading days, “Black Monday” and “Black Tuesday,” October 28 and 29, 1929, in which the Dow fell 13% and 12%, respectively. But this was only the most dramatic episode in a longer term bear market.

After peaking at a value of 381.17 on September 3, 1929, the Dow eventually would hit bottom on July 8, 1932, at 41.22, for a cumulative loss of 89%. It would take until November 23, 1954 – over 25 years later – for the Dow to regain its pre-crash high. The Great Crash is generally considered to be one of the factors contributing to the onset of the Great Depression of the 1930s.

Concerned about speculation in the stock market, the Federal Reserve “responded aggressively” with tight money policies starting in 1928, which helped to spark the Great Crash, per the Federal Reserve Bank of San Francisco (FRBSF). Moreover, in 1929 the Fed pursued a policy of denying credit to banks that extended loans to stock speculators, according to Federal Reserve History.

Former FED chairman Alan Greenspan, is among those who now warn that, by continuing this easy money policy for years after the 2008 crisis was stemmed, the Fed has created new financial asset bubbles. (For more, see also: Stocks’ Big Threat Is a Bond Collapse: Greenspan.)

Computer-driven program trading, which caused rapid waves of frenzied selling in 1987, as well as later violent market downdrafts such as the “Flash Crash,” has increased in speed and pervasiveness. The upshot is that computerized trading algorithms may pose one of the biggest threats to the markets today. (For more, see also: Could Algo Trading Cause a Bigger Crash Than 1987?)

After the experience of 1929, the Fed has been indisposed to tighten monetary policy in an attempt to deflate asset bubbles. However, as economic growth reports improve, the Fed is increasingly concerned today about keeping inflation in check. Any miscalculation that raises interest rates too high, too fast could spark a recession and send both stock and bond prices tumbling downwards. (For more, see also: How The Fed May Kill The 2018 Stock Rally.)

Additionally, an increasingly interconnected world economy means that the spark that ignites a stock market plunge in the U.S. can be lit anywhere around the globe. (For more, see also: 5 Global Risks That Could Hammer Stocks in 2018.)

Did you know that Venezuela just went into default?  This should be an absolutely enormous story, but the mainstream media is being very quiet about it.  Wall Street and other major financial centers around the globe could potentially be facing hundreds of millions of dollars in losses, and the ripple effects could be felt for years to come.  Sovereign nations are not supposed to ever default on debt payments, and so this is a very rare occurrence indeed.  I have been writing about Venezuela for years, and now the crisis that has been raging in that nation threatens to escalate to an entirely new level.

Things are already so bad in Venezuela that people have been eating dogs, cats and zoo animals, but now that Venezuela has officially defaulted, there will be no more loans from the rest of the world and the desperation will grow even deeper.

In recent years, Republicans have been characterized by two principal positions: They like starting wars and don’t like paying for them. George W. Bush initiated two major wars in Iraq and Afghanistan, but adamantly refused to pay for either of them by cutting non-military spending or raising taxes. Indeed, at his behest, Congress actually cut taxes and established a massive new entitlement program, Medicare Part D.

Bush’s actions were unprecedented.

No one ever imagined a US president would actually conspire to attack his own country in order to engineer a political agenda…but one did. And now , by Trumps own inaction , is doing the exact same thing Bush & Cheney did.

Brad McMillan — who counsels independent financial advisors representing $114 billion in assets under management — told CNBC on Monday that the stock market is way overvalued.

“The market probably would have to drop somewhere between 30 and 40 percent to get to fair value, based on historical standards,” said McMillan, chief investment officer at Massachusetts-based Commonwealth Financial Network.

Debt brings consumption from the future into the present, and so it increases short-term economic activity at the expense of long-term financial health.

But we simply cannot continue to grow debt much, much faster than the overall economy is growing.  I have never talked to anyone that believes that our debt binge is sustainable, and I doubt that I ever will.

The only reason why we have even gotten this far is because interest rates have been pushed to historically low levels.  If the average rate of interest on U.S. government debt even returned to the long-term average, we would be paying more than a trillion dollars a year in interest on the national debt and the game would be over.

Our financial system is based on a pyramid of debt, and we have allowed Wall Street to operate like a giant casino.  Our entire economy has essentially become a colossal Ponzi scheme.

And the politicians never examine the costs to the public or the benefits to the public of financial reform. That is never part of the discussion.

In the last depression those who had money were in a good financial position to ride it out but the next depression will see those with fiat money drowning in it as it becomes worthless.

Very few Americans have any significant savings today. Most live on credit and those with savings have it stored in financial instruments that will be wiped out as the bankers collapse the system to hide the theft they have been involved in for decades. Those who think they will retire with their IRA, pensions or social security will suddenly find them all gone never to return leaving them with no means to care for themselves.

The west line has moved to Asia. This means that North America is no longer the shipping center of the world. The consequences of this for Americans will be disastrous. This means our economy in the future will be smaller and slower and will result in a standard of living far below what it currently is.

Those that own very few assets free and clear will become the new homeless as they become jobless and default on all of their credit obligations. All of the social safety nets that exist now to keep people fat and happy will fail leaving mobs of people to roam the streets to seek out what they need to survive. One only has to look at Venezuela today to see where this will all lead.

Understanding what will likely happen and insuring you have a plan to deal with it is the only hope you will have of coming through the coming bad years in tact. Those who trust in government or only live for today will reap what they sow and it will be unpleasant at best if they survive at all. A simple strategy to insure you do not suffer does not have to be expensive or complicated. The best plans are simple and allow you to adapt to the changing times. If you invest in a simple, inexpensive plan and the world somehow goes on as normal, you will not be any worse for the investment but if things takes an unexpected turn and your plan becomes necessary, it will allow you to survive the crisis much better than the bulk of the population.

When the next great depression hits it will be unlike anything we have lived through before. Nothing will be as it seems and only those that have the resources to adapt will come through it whole. Preparation is the key to adapting to future events and those without resources will reap a bitter harvest as they struggle to survive. No announcements will be made, no warnings will be given by the establishment, it will just suddenly happen out of the blue and everyone will say it was unpredictable. But those who prepared will know better.