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I am an amateur economist. But, one doesn't need years of schooling to be a
better "economist" than Ben Bernanke. One merely needs to take the blinders
off and release common sense. A broad background in law, economics and
history helps, but it is not absolutely necessary. Economics is the study of
human nature as it applies to money. So, it is precisely those who are
narrowly educated, like some professional economists who don't study enough
history, take an intensely academic viewpoint on things, and who don't
understand fundamental human nature, who get things wrong. A narrowness of
outlook and training may be blinding people like Ben Bernanke from reality,
but, if they are operating knowingly and intentionally, as some claim, the
situation is even more frightening.
Unfortunately, Ben Bernanke has been wrong on almost all his predictions
concerning the course of this crisis. That has been true since the
beginning. Where, then, can we obtain the confidence that he knows what he
is doing, or, frankly, that he knows more than we do, as he should? Many
wrong-headed people seem to believe that we must throw away common sense and
listen to him, and the others who think like him, even though we have been
consistently correct, over the past 4 years, and he has been consistently
wrong. The American people understandably have little confidence in the
Washington crowd. Is this surprising in light of the events? What assurance
is there that they know how to address this situation, when they first
failed to regulate the financial madness, and, then, afterward, were
completely wrong on almost all economic projections, one after another?
One must reach the inevitable conclusion that neither Bernanke, nor his
comrades, such as Timothy Geithner, actually "know" what they are doing.
Instead, that crowd in Washington DC, think that if they throw money around,
it will land somewhere, and help things. They are wrong. But, to partly
achieve this goal, they have forced changes in accounting standards,
legalizing misrepresentation of bank bookkeeping, and removed "mark to
market" standards, replacing those standards with a system of "mark to
fantasy" that is remarkably similar to that which previously existed and
caused this crisis. "Mark to fantasy" accounting, now the order of the day
once again, will allow insolvent banks to present the false appearance of
big profits this quarter, even as they are really on the brink of failing.
The end result will be more economic imbalances, as investors unknowingly
misallocate their investment dollars to buy into the fraud.
In truth, there is only one way to save the zombie banks, and it is not
through faked-up accounting books. The only way is to inflate their
obligations away, while increasing the value of their assets at the expense
of the rest of us. That appears to be the plan, if there is any plan. But,
if Ben Bernanke and that crowd do know what they are doing, the most
nefarious heist against the American people, as well as other innocent folks
all over the world, is being planned. The upcoming massive inflation is
going to be a stealth tax upon millions of innocent people, all for the
benefit of a few still wealthy bank executives, who made huge mistakes, and
should be forced to pay for those mistakes themselves. I will give Ben
Bernanke and Timothy Geithner the benefit of the doubt and conclude, until
presented with more evidence, that they simply don't know what they are
doing.
The mass "throwing of money" has already resulted in a stealthy transfer of
wealth, from those who earned it, to those who have political clout. This
process is inherently destructive to the long term health of the economy,
and it will get worse. This is the same insidious series of events that
occured in post World War I Germany. Hyperinflation is a greater evil than
economic depression. It is evil in nature, insidiously immoral in that it
rewards misbehavior and is fundamentally destructive of our economy and the
fabric of our society. It will eventually wipe out the American middle
class.
So far, due to various external events, the U.S. Treasury has been able to
borrow the money used. The final bill has not arrived. But, when it does, it
will be left at the doorstep of the American people, and every other person,
around the world, who once believed in America and the American
dollar. The deep
and sudden devaluation of the U.S. dollar, which is coming, will steal money
from innocent pensioners, savers, and good people of all types and kinds,
both here and abroad. Unfortunately, after having spent and wasted trillions
of dollars for the benefit of those closely connected to the U.S. Treasury
and Federal Reserve, there will be a massive dollar devaluation. Indeed,
were that not to happen, there would be an overt legal default.
The intent to transfer wealth is the key to understanding all economic
catastrophes. It is also the key to understanding why this particular crisis
more closely mirrors that of the German hyperinflation 1919-23, rather than
the early years of the Great Depression in 1930s America. To fixate on the
Great Depression, as Ben Bernanke is doing, ignores the true problem, and
sets us off into wrong directions. Let me point out some comparisons:
1) Post WW I Germany was the biggest debtor nation in the world, at that
time. Debtor nations are dependent upon foreign cash flows. In contrast, in
the 1930s, like Japan in 1990, the U.S. was the biggest creditor nation in
the world. That is why Germany had hyperinflation when it printed money,
while 1990s Japan and 1930s America had deflation as they did the same
thing. Because we are the biggest debtor nation in the world, the current
money printing will result in hyperinflation, NOT deflation.
2) Post WW I Germany had just finished fighting a major war on borrowed
money, without properly budgeting or taxing. The USA has just fought, and
continues to fight, multiple wars on multiple fronts that, while not quite
as "big" as WW I, have been extraordinarily costly. We use a professional
army, and its pay and equipment add huge costs. We have failed to budget
these wars, and have borrowed money instead in order to fight them. By
contrast, from an economic point of view, late 1920s and early 1930s America
was a net "beneficiary" of WW I, which resulted in huge debts being owed to
the USA, and the first stage of the rise of the U.S. dollar to replace the
British pound as an international medium of exchange.
3) Post WW I Germany was heavily dependent upon the import of foreign raw
materials. Indeed, the USA was one of its biggest creditors. The USA is no
longer a creditor. It is now very dependent upon the import of foreign raw
materials and finished goods. The temporary improvement in trade figures
will disappear as the fake recovery gets under way. By contrast, in the
1930s, the U.S.A. was one of the biggest exporters of raw materials.
4) Post WW I Germany was heavily dependent upon foreign cash flows to plug
holes in its budget after the War. Sales of bundesbonds to foreign buyers,
including the American financier, J.P. Morgan, were critical. The USA is now
even more dependent than post-war Germany once was, upon foreign cash flows.
Sales of huge numbers of Treasury bills, notes and bonds are critical, and a
lot of those sales are to China, who, unlike America to Germany in 1918, is
currently our strategic competitor, and that makes our situation somewhat
worse.
5) It is important to point out that Germany was not the only nation
affected by the post-War depression and the so-called 1918 "credit crunch."
All of Europe experienced it. Not all countries, however, followed the same
path to ruin. Similarly, the whole world is now experiencing the so-called
"credit crunch". Hopefully, not all nations will follow the path to ruin
being forced by the United States, although the tendency to do so is
greater, given the leadership position of this nation in the world compared
to Germany then.
6) So, Germany led Europe in the effort to spend its way out of the post-war
depression, while the rest of Europe, with the exception of the former
Hapsburg possessions (the former Austro-Hungarian Empire) did NOT follow
Germany's lead. The former Hapsburg possession did follow the German lead,
although with less gusto, and ended up with hyperinflation, at a somewhat
lower level. Similarly, the USA leads the world in an effort to spend its
way out of this depression, and the U.K. is basically following in our
footsteps. In 1919, many admired the Reichsbank. Employment rose,
unemployment fell...economic output exploded -- or seemed to, at first. No
doubt, that will be the case, again, this time as America leads the way into
a fake recovery. Most of Germany's recovery amounted to irrational
production. The industrial bailouts were improperly allocated and colored by
the illicit transfer of wealth that is inherent when a nation chooses to
print up new money. The same will be the case with America.
7) Like America, now, the post WW I German money flows, into that nation,
continued for quite a while, in spite of the flawed policies of the
Reichsbank. American trade interests, for example, supported German spending
on U.S. raw material products, because Germany was one of their biggest
markets. The USA played a similar role with respect to the Weimar Republic
as China plays now to the USA. It was Germany's biggest creditor. It is
quite likely that money flows to America may continue for an even longer
time. However, eventually, they will be cut off. It is important, once
again, to point out that China is our strategic competitor, whereas a large
part of the U.S. population has German ancestry that made us a natural
friend to Germany.
8) Like the foolish foreigners who now buy U.S. bonds, even otherwise savvy
American financiers, like J.P. Morgan, were convinced by officials of the
Reichsbank, that the problems were temporary, and that the mark would regain
value, just as buyers of Treasury debt are now convinced that the dollar
will retain value. The U.S. has a distinct advantage, because it is able to
pump the exchange value of its currency with credit default events that must
be settled in dollars. This results in a direct benefit to the dollar in
terms of exchange value, and allowed the Fed to obtain foreign currency swap
lines. The swap lines were obtained because foreign central banks
temporarily needed to supply dollars to financial firms who needed to settle
CDS events. In addition, most of the U.S. debt is denominated in dollars.
So, the temporary party will go on longer in America, until the world's
patience is finally exhausted, and the devaluation of the dollar will not be
in the trillions, but, rather likely, it will be in the high single digits,
or low double digits. My personal estimate is from a 4 to 10 to 1
devaluation, although anything is possible.
9) The Reichsbank claimed that it could control the events it created, just
as the Federal Reserve does now. Questionable statistics were regularly
published, just as is now the case in the USA. German authorities believed,
just as American authorities now believe, that the perception is more
important than economic reality. Eventually, however, when the foreign cash
flows dried up, reality did reassert itself, as it always does, and the
German economy entered hyperinflation.
10) Finally, most tellingly, the German "professional" economists called the
1918 post war depression, prior to the hyperinflation, "the credit crisis",
or "the credit crunch", and the prevailing complaint was that banks were
hesitant to lend money. Unwittingly, American professional economists,
including Mr. Bernanke, have dubbed the present crisis with the same names,
and the complaint is exactly the same. Notoriously, the prescribed remedy is
also exactly the same, even though, from all the speeches given by Federal
Reserve officials, rather than overtly intending to copy the Reichsbank,
they seem to be blissfully unaware of the entire German event.
Frightening.
Speaking frankly, in all the years I have studied history, I have never seen
two historical events that turn out to be exactly the same. Yet, the
parallels between the German hyperinflation and the current Credit Crisis
are astounding, and the likelihood that the eventual outcome will be
similar, is very high. The parallels that link this crisis to the Great
Depression are far weaker.
For more information about the German hyperinflation experience, read the
following book. It was written long before the current crisis, and even
before the full impact of the Great Depression hit the world, back in the
1930s. Thus, it has no bias. It will be an eye-opener for the "doubting
Thomas". In the German hyperinflation, only gold and silver, agricultural
lands and, to some extent, rationalized modern plant and equipment, held its
value over time. The word rationalized is very important, because a lot of
useless stuff was purchased by German manufacturers who thought that all
"hard" goods would protect the value of their money.
Turroni-Bresciano, Constantino,
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