23 April, 2008

Economist's common sense (for a change)

Tuscon & The Great Depression - This Is Not Your Normal Downturn

By Darryl Robert Schoon

Apr 22 2008 11:01AM


.Goldman Sachs recently revised its forecast for the U.S. economy,
predicting a recession in 2008 (Reuters).Of course, not all recessions
are created equal. Goldman doesn.t predict a deep recession, but rather
a mild turndown, with modest recovery in 2009.

CFR.org, 1/18/08, Lee Hudson Teslik, Assistant Editor and economics
writer at CFR.org The Council on Foreign Relations. Mr. Teslik is 26
years old.

Both my parents were born in Tucson, so it was perhaps not that unusual
when Martha and I left San Francisco and moved to Tucson in 1999. In the
late 1940s as a young boy, I remember watching a woman with her pail of
still warm homemade tortillas slowly make her way up the alley in
Tucson.s summer heat towards my grandmother.s house in the Armory Park

The smell, taste, and texture of those wonderful warm flour tortillas
wrapped around the beans my grandmother had cooked are still with me
today. But the Tucson we returned to in 1999 was far different than what
I remember as a young boy. What is the same, however, is also familial,
but in a far different sense.

My father and mother had grown up during the 1930s, the depression
years, in Tucson. They had both managed to graduate from college, no
small feat especially in those difficult times; but it was clear, even
to me as a young boy, that the Great Depression had left its indelible
mark on the way my parents viewed the world.

Today, Tucson is far different from the Tucson of the 1930s. But, soon,
not tomorrow, but perhaps in the not too distant future, the economic
suffering that characterized the Great Depression may again be returning
to the town and nation of my parents. youth.


In the 1990s, I had become interested in the causes of the Great
Depression, that unique and catastrophic event that brought the world
economy to a halt. The depression had occurred after the 1920s stock
market bubble collapsed in 1929; and, when the dot.com bubble collapsed
in 2000, I found disturbing parallels between the two eras and the two

The 1990s upwards rise of the stock market was similar to the upward
rise of the Dow in the 1920s, driven then by the spread of radio much as
the spread of computers drove the NASDAQ to just as unrealistic highs in

Martha and I moved to Tucson just before the dot.com bubble collapsed.
The money pouring into Silicon Valley had affected the entire bay area.
Rents and housing were far beyond the range of those who previously
lived there, and for that and other reasons, it was yet another sign
that we should consider the warmth of Arizona and the hospitality of
Tucson before the rest of our generation found it.

But when we arrived in Tucson, we were to witness yet another
extraordinary bubble, what was to become the largest bubble in history -
the US real estate bubble of 2002-2006.

Because of my reading about the economic events of the 1930s, I was well
aware of what happens when large speculative bubbles collapse, that the
enormous levels of debt left behind as a result of leveraged speculation
could plunge the nation and the world into another recession at best and
another depression at worst. Those then in charge of the US economy,
Alan Greenspan and others at the Fed, knew it too.

To prevent it from happening, the Fed slashed interest rates from 5.25 %
to 1 % and unleashed a flood of cheap credit in the hopes of reversing
the 2001 economic downturn. But because of changes in financial
packaging and the repealing of the Glass-Steagall Act in 1999 which was
enacted in 1933 to prevent other depressions, the effect of cheap credit
in 2002 was to have an unexpected consequence - an enormous bubble far
larger than even the dot.com bubble.

Real estate mortgages, instead of being held on the books of local
banks, were now packaged and sold by Wall Street investment banks to
yield hungry buyers around the world, buyers who had no way of knowing
that the payments on a $500,000 mortgage were to be made by a $9.00 per
hour convenience store clerk who had been sold a don.t ask don.t tell
no-money down adjustable-rate mortgage by a broker whose incentive was
the considerable up-front fees collected at the time of sale made
possible by the Fed.s 1 % money.


In 2008, the convenience store clerk hasn.t made a payment in months,
the mortgage is in default, the house is in foreclosure, the yield
hungry buyers (banks, pension funds, and insurance companies) are now
aware their investments may never be repaid, mortgage brokers are
looking for jobs, and the Wall Street investment banks that bought,
packaged, and sold $1.5 trillion of subprime mortgages are themselves
caught holding billions of dollars of the highest tranches of subprime
debt once thought to be safe but are not.

The investment banks, however, those who created subprime mortgages and
profited from this bubble are now being bailed out by their colleagues
at the Federal Reserve. The US Federal Reserve Bank, the private bank in
charge of the public.s money, is now allowing global investment banks to
trade their suspect subprime investments for US Treasuries, gratis of US
taxpayers who also recently indemnified investment bank JP Morgan
Chase.s purchase of investment bank Bear Stearns against any loss, all
upside accruing to the shareholders of JP Morgan Chase.


While many in Tucson are now aware that something is seriously wrong
with the economy; that their homes are going down in value while the
price of gas is going up, they, like most Americans, have no idea about
the real reasons for the downturn.

As I looked deeper into the causes of what is about to happen, gold and
silver, the role of the Federal Reserve in issuing debt as money, and
the complicit duplicity between public government and private bankers
have become more important in understanding the reasons for the economic
collapse that is about to happen.

The gold and silver on-line community has become the prized arena where
far from the corporate controlled media, the implications of central
bank gold manipulation, the distorted measures of inflation and
unemployment issued by the US government, and the disturbing denial of
the populace who will soon be affected by what they don.t know are
parsed and discussed.

I wonder what Americans would do if they truly understood the trouble
they are in. I wonder what they would do if they knew America.s gold had
been spent by the military-industrial complex in 1950-1970. I wonder
what they would do if they knew about the dangers posed by investment
bank credit default swaps, CDSs, a $62 trillion unregulated market that
could destroy the global economy as quickly and as easily as charged
explosives brought down three towers at the World Trade Center on 9/11
(regarding CDSs, I highly recommend Thomas Tan.s article Why Wall St.
Needed Credit Default Swaps

Today, the corporate controlled US media diverts America.s attention
away from the real reasons and instead fuels the fear that illegal
immigration, China or Iran are the reason for America.s increasing
problems. The truth, however, is much simpler and much less sinister.
The truth is that we have brought this on ourselves.


A tale to tell that you might hear
The truth of all of that we fear
That and which we hope to be
That and which we'll never see
A tale so old that it might be
Greece or Rome or Brittany
A tale of power you would know
Except you still deny it so
For once again we've gone astray
And once again we'll rue the day
By standing not for what is true
By standing not for what we knew
But let us now this tale be told
A tale new yet a tale old
The traveler spoke to us that day
Of a kingdom far away
He said the kingdom although young
Was watched by all in Christendom
For it was hoped that it would be
A beacon for the world to see
A light of justice a torch for peace
Opportunity within reach
How might this be a voice did ask
When such has never come to pass
That ever since man ruled man
The rule has been by iron hand
The traveler said it was to be
Ruled in ways quite differently
There was to be no king or queen
Nor any manner where it would seem
That one was better than the rest
It was to be a noble quest
It was to be a kingdom fair
Where all would be an equal there
Where every one would have a voice
Where everyone would have a choice
Those who governed would the people serve
Not themselves but those deserved
Such a kingdom it was to be
A kingdom where all would see
That man could rule not selfishly
But for the good of all and could then be
An example fair just and wise
No longer then would man devise
Ways to enslave his fellow man
Because he could because he can
From Canterbury Tales Redux, The Traveler.s Tale, Darryl Robert Schoon

The birth of the United States was a unique event in history. No nation
had ever declared so boldly and eloquently the rights of man in its
Declaration of Independence. Nor had any nation so specifically set out
to define the rights of its citizenry as safe, distinct and sacrosanct
from the overriding power of government.

Those who crafted the Declaration of Independence and the US
Constitution were unusual men in unusual times. The US was born in
revolution and its founding fathers were aware of the ever present
dangers that could threaten its fragile rights and freedoms, as history
was but the story of governmental tyranny in various guises.

Now, the words and warnings of the founding fathers such as Thomas
Jefferson have been lost and hidden; and would certainly be denied today
by those who rule the nation founded by greater men than they.
Caricatures and charlatans have replaced the great thinkers and brave
statesmen who set this extraordinary experiment in motion in 1776, an
experiment now in mortal danger of failure and extinction.

Written two hundred years ago, Thomas Jefferson.s words today are
irrefutable proof that our founding fathers deepest fears have come

Thomas Jefferson on Money & Banking
(http://etext.virginia.edu/jefferson/quotations/) Section 36

Thomas Jefferson to Thomas Cooper, 1814. ME 14:61

Everything predicted by the enemies of banks, in the beginning, is now
coming to pass. We are to be ruined now by the deluge of bank paper. It
is cruel that such revolutions in private fortunes should be at the
mercy of avaricious adventurers, who, instead of employing their
capital, if any they have, in manufactures, commerce, and other useful
pursuits, make it an instrument to burden all the interchanges of
property with their swindling profits, profits which are the price of no
useful industry of theirs.

Thomas Jefferson to John W. Eppes, 1813. ME 13:423

If the debt which the banking companies owe be a blessing to anybody, it
is to themselves alone, who are realizing a solid interest of eight or
ten per cent on it. As to the public, these companies have banished all
our gold and silver medium, which, before their institution, we had
without interest, which never could have perished in our hands, and
would have been our salvation now in the hour of war; instead of which
they have given us two hundred million of froth and bubble, on which we
are to pay them heavy interest, until it shall vanish into air... We are
warranted, then, in affirming that this parody on the principle of 'a
public debt being a public blessing,' and its mutation into the blessing
of private instead of public debts, is as ridiculous as the original
principle itself. In both cases, the truth is, that capital may be
produced by industry, and accumulated by economy; but jugglers only will
propose to create it by legerdemain tricks with paper.

Thomas Jefferson on The Military & the Militia:
(http://etext.virginia.edu/jefferson/quotations/) Section 47

Thomas Jefferson to David Humphreys, 1789. ME 7:323

There are instruments so dangerous to the rights of the nation and which
place them so totally at the mercy of their governors that those
governors, whether legislative or executive, should be restrained from
keeping such instruments on foot but in well-defined cases. Such an
instrument is a standing army.

Thomas Jefferson: 6th Annual Message, 1806. ME 3:424

Were armies to be raised whenever a speck of war is visible in our
horizon, we never should have been without them. Our resources would
have been exhausted on dangers which have never happened instead of
being reserved for what is really to take place..


I am persuaded that in all governments, whatever their nature may be,
servility will cower to force, and adulation will follow power. The only
means of preventing men from degrading themselves is to invest no one
with that unlimited authority which is the sure method of debasing them.

Alexis de Toqueville Democracy In America 1840

In 1840, Alexis de Toqueville published his classic work Democracy In
America. In that extraordinary thoughtful missive on America.s
experiment with democracy, de Toqueville made a startling observation,
that the American experiment contained the seeds of a new kind of
tyranny, a tyranny of the majority; and, that a tyranny of the majority
is no less a tyranny than if only by one.

De Toqueville wrote:

If ever the free institutions of America are destroyed, that event may
be attributed to the omnipotence of the majority, which may at some
future time urge the minorities to desperation and oblige them to have
recourse to physical force. Anarchy will then be the result, but it will
have been brought about by despotism.

Today, opinion in America is influenced primarily by its national media,
controlled by corporate and special interests intent on swaying public
opinion for their own gain and ends; and in America, where majority
opinion is accepted as the truth, dissent and differing opinion are
derided and dismissed - as if dissent and difference were themselves
unpatriotic and therefore de facto not true.

Questioning the opinion of the majority in America is today an
impossible task - and if dissent and differing opinions are, in fact,
true, then the truth will out, but only with extreme difficulty. If
America continues to disbelieve and deny the cause of its economic
problems, it will consequently have to learn the truth the hard way -
and a depression is the hardest way of all.

We have come a long way from 1776 when our forefathers first began
America.s experiment with democracy; but if we continue as we have,
there will only be a short distance to go.

The power of myth is extraordinary. Correctly applied, the ignorant will
believe themselves enlightened and slaves will believe themselves free.


My parents were born in Tucson almost 100 years ago. Tucson was then
nothing like it is today. In the intervening years, we as a nation have
come to expect that tomorrow will be better than today. Time is about to
prove that assumption wrong. It wasn.t so in the 1930s. Soon, it will
not be so again.

My study of the causes of the Great Depression have led me to believe
that America has now gone too far to go back, that Americans because of
their foolishness, the duplicity of their leaders, or a combination
thereof are today incapable or unwilling to understand what is now about
to occur. The lack of understanding, however, will not prevent its

The tortillas are still good in Tucson as are the green corn tamales and
cheese crisps; and, today, we wait for what summer will bring. This
year, however, I fear much more than Tucson.s summer heat is on the way.

Invest in gold and silver. Have faith.

Darryl Robert Schoon


Note: I will be speaking at Professor Antal E. Fekete.s Session IV of
Gold Standard University Live (GSUL) July 3-6, 2008 in Szombathely,
Hungary. If you are interested in monetary matters and gold, the
opportunity to hear Professor Fekete should not be missed. A perusal of
Professor Fekete.s topics may induce you to attend (see

http://www.professorfekete.com/gsul.asp).Professor Fekete, in my
opinion, is a giant in a time of small men.

Bookmark and Share
posted by u2r2h at Wednesday, April 23, 2008


Post a Comment

Links to this post:

Create a Link

<< Home

Locations of visitors to this page Politics Blogs - Blog Top Sites