Great Depression Online Archive Issue:

What Could Possibly Go Wrong?

Great Depression Online
Long Beach, CA
October 01, 2010

Inside This Issue You Will Discover…

*** Socking Americans in the Heart
*** The Delusion of Government Spending
*** What Could Possibly Go Wrong?
*** And More

Socking Americans in the Heart

The President was out and about all week, stumping the political trails for the November midterm elections.  The days were long and the nights were too… 

After eating “Obama Cookies” Tuesday night at a café in Des Moines, for example, the President was back at it on Wednesday…telling a backyard gathering, “…we’ve got a long way to go, but I do want everyone to be encouraged about our future.”

For Obama, the rhetoric and syntax is always smooth and polished, yet the substance is rutted and coarse.  Was he talking to fools or dead men?  Where is it we’ve got a long way to get to?  And why should everyone be encouraged about the future?

~~~~~~Welcome to the Mania~~~~~~

With gold punching the $1,300 mark, thoughts of what a gold mania will be like crossed my mind.  If we’re right about the future of precious metals, a gold rush of historic proportions lies ahead of us.  Have you thought about how a mania might affect you?  Not like this, you haven’t…

You log on to your brokerage account for the third time that day and see your precious metal portfolio has doubled from last week.  Gold and silver stocks have been screaming upward for weeks.  Everyone around you is panicking from runaway inflation and desperate to get their hands on any form of gold or silver.  It’s exhilarating and frightening in the same breath.  

Welcome to the Mania 

~~~~~~~~~~~~~~~~~~~~~~~~~

But that’s just it…  There’s no substance.  If asked, we doubt the man has any idea where we are going.  Yet, when asked, the public knows exactly where we are headed…and they are not encouraged about the future; they’re discouraged.  Take the recently released findings of the U.S. Census…

“The recession seems to be socking Americans in the heart as well as the wallet,” reported AP.  “Marriages have hit an all-time low while pleas for food stamps have reached a record high and the gap between rich and poor has grown to its widest ever.

“The long recession technically ended in mid-2009, economists say, but U.S. Census data released Tuesday show the painful, lingering effects.  The annual survey covers all of last year, when unemployment skyrocketed to 10 percent, and the jobless rate is still a stubbornly high 9.6 percent.

‘“Millions of people are stuck at home because they can’t find a job.  Poverty increased in a majority of states, and children have been hit especially hard,’ said Mark Mather, associate vice president of the Population Reference Bureau.”

The Delusion of Government Spending

Being encouraged about the future, of course, is as cyclical as seasons.  One day people are so encouraged about the future they’re willing to bid up a tech stock to over 100 times earnings, the next day they’d rather buy a 10-year treasury note yielding 2.5 percent.

We don’t know why this is so, exactly.  Maybe it’s just the ebb and flow of popular sentiment, mass delusion, and rapid panic.  What to make of it?

Those who came of age during the 1930 were suspicious of debt and saved their money like squirrels burying nuts.  But not a lick of good this did them…their savings were cut in half in just 10 years by the inflation of the 1970’s.

Today’s delusion is that government spending and monkeying with the money supply can reset the economy onto solid grounds.  With enough stimulus, jobs will return, consumption will be reinvigorated, and the economy will somehow grow itself out of its encumbering debt.

That’s the plan at least…

What Could Possibly Go Wrong?

Plans, you see, are mere arrogance for planners.  Some things, like a wedding or a home addition, can be reasonably planned with moderate success.  But planning an entire economy is for fools who think they know more than the combined wisdom of everyone else.  

The idea, no doubt, has been around since pharaoh’s ruled the harvest.  In the early 20th century, however, drawing from the foundations of Marx, it was given an intellectual boost.

In 1908 Italian Economist Enrico Barone put down his meatballs and marinara and gazed into the outer frontiers of deep space.  Looking around, he couldn’t believe his eyes.  For in this far corner of absolute darkness, he saw something truly amazing.  Out in the distant reaches of nothingness, peering into a black hole, he saw not the dark…but rather, he saw the light.

The light being a socialist utopia achieved through “scientific management” of the economy, lorded over by the Ministry of Production.  Through this endeavor, he conceived an economy could attain “maximum collective welfare.” 

The proposal was simple enough.  If a bounty of academics were put to the task of determining the best prices for all goods and services, supply and demand could be optimized to produce an economy without poverty, without unemployment…and without possibility.

Of course with all these number crunchers writing all these tech memos on the optimal price of toothpaste and pizza, how could they account for a change beyond their control?  What if there’s a springtime heat wave resulting in a meager wheat harvest?  How would this affect their pre-determined price for bread?  Before they would know it, the bread shelves would be empty because the price wouldn’t be allowed to adjust upward.

The idea was absurd.  Yet it swept across eastern Europe like a medieval plague.  In the western world the idea never fully caught on.  Who knows why?  Perhaps the culture was not rigid enough.

Nonetheless, the academics of the west never gave up on the dream of a managed economy.  In fact, they found they could circumvent all the headaches of fixing the price of all goods and services by focusing their management on fixing the price of one essential good…the price of money.  By pulling and pushing on the price of money all other prices would fall in line.  Which leads us to today…

New plans for central bank debt monetization are appearing in the papers every day.  Another round of quantitative easing (i.e. QE2) – where the Federal Reserve creates money from nothing and lends it to the government – now seems broadly expected. 

But this time it won’t be a “shock and awe” purchase of $1.7 trillion securities like “the central bank undertook in March 2009,” says the Wall Street Journal.  Instead, the Federal Reserve could be “preparing surgical strikes to spur the economy.”

Don’t worry about a thing.  With the experts on the case…what could possibly go wrong?

Sincerely,

M.N. Gordon
Great Depression Online

P.S.  To be prepared for the coming events, you’d do well to listen to those experts who have predicted the quagmire the financial system now finds itself in long before it happened.  An all-star cast including John Hathaway of Tocqueville Gold Fund fame… Eric Sprott, Sprott Asset Management… Richard Russell of the Dow Theory Letters… and many more.  All those experts will gather at Casey’s Gold & Resource Summit from Oct. 1 to 3.  But even though the summit is sold out, you can still hear every presentation and stock recommendation… on more than 17 hours of audio on CD.  If you order now, you’ll save $100 off the retail price.

Details here

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