Rabu, 03 April 2013

The great depression has ever end?

According to statistics, depressions occur roughly every 75 years. However, for me, the great depression hit in 1929 never finished. Let’s look at why this is the case.

Statistically, many believe that America recovered from the great depression in 1954 as the Dow Jones Industrial Average hit its previous high of 381. On the surface, this might be the case. However, Socialist solutions to this major recession are getting increasingly expensive, laying the ground for a worse economic downturn. Thus, the depression never ended as it had just swept under the rug.

Today, Social Security, Medicare and Medicaid cost US $ 65 trillion in total and this impressive amount is rising as baby boomers advance in age. With the u.s. economy in shambles, now, it is extremely difficult for the Government to cough out money. One way might be to issue US Treasury bonds sale where the Federal Reserve buys them to print the money needed.

How much money gets circulated in the economy will increase inflation and the dollar will become more and more useless. All other national currencies will suffer the same fate as countries must keep their exports competitive against America by devaluing their money. Signs of it are already showing now with a currency war between the yen and US dollar. With this, an inflationary depression will be distributed worldwide, infecting every economy and creating havoc the world hasn’t seen for a long time.

To add, as a way to protect their savings during the great depression, the Federal Deposit Insurance Corporation (FDIC) was established to ensure savers ‘ deposits. While this protects savers, rewards even bankers who take more risks because they know that the Government will bail them out if it commits errors. A clear example is seen in the recent financial crisis, where the Government just handed billions to banks through the Troubled Asset Relief Program when the big banks were caught with problems.

In addition, this also covers banking fraud on how bankers can use loopholes in accounting to evade the law. With such decadence and going on deception, what I can say is that deposit insurance only give investors a false sense of security while encouraging bankers to take more risks. When the bankers undertake more risk, there will be an increased chance of gaffes to occur, making more frequent saves. This increases the debt and inflation, paving the way for an inflationary depression.

Furthermore, in order to secure the loans of its people, America created Freddie Mac and Fannie Mac, allowing politicians to control the body. Initially, this approach had advantages because it helped nip in the bud the depression targeting the homes. Housing was so important because many people have most of their money tied up in their homes, and helping to ensure the most important asset of the people would have prevented the great depression from worsening.

However, over time, the management of Freddie Mac and Fannie Mac began to take more risks, seen especially in case when their insured subprime mortgages. Today, because of their misjudgments, they will cost taxpayers billions.

Freddie Mac will be above all a big AIG bailout (costing US $ 180 billion). This is because unemployment will increase losses for Freddie Mac as it pays more to keep the homes they foreclose. As of March 2009, they took back more than 30,000 homes with each House at US $ 3,300 a month. Given such drastic scenarios, most rescues will be granted and this will push toward hyperinflation.

To add, as a way to increase the American sphere of influence, the Bretton Woods agreement was signed in 1944, the creation of the International Monetary Fund (IMF) and the World Bank that spread the fiat monetary system throughout the world. The meaning of this song in 1971 when Nixon in the US dollar was severed from the gold standard. This is because during that time, the IMF and the World Bank forced other countries to adopt the fiat monetary system America or be thrown out, li disqualification for any benefit membership might bring.

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