Depression, Deflation and Your Survival

Martin Weiss (one of the few who called this crisis) put out some words of wisdom today:

If you’re still skeptical that we’re sinking into America’s Second Great Depression, you don’t have to believe Alan Greenspan, who says we’re already experiencing the worst financial crisis in a hundred years. Nor need you heed the news that the economy just lost a half-million more jobs or that retail sales have just suffered their worst plunge in 35 years. All you have to do is get up from your chair, open the door and take a walk outside.

Nearly everything you see and hear will clue you in to the true plight of our time — one out of 10 households delinquent or foreclosed on their mortgage, one out of 10 using food stamps, four out of 10 upside down on their home equity, eight out of 10 fearful of the future, and rightfully so.

What will a depression be like? From the manuscripts and reports Dad has left behind, here’s his answer:


“Some people of my generation have fond memories of the family fellowship and sacrifice of the Great Depression, and I do too. But I also cannot forget the numbers or the suffering they implied. In just three short years between the peak of the stock market boom in 1929 and the bottom in 1932, it felt like the entire world was falling apart. The financial bubble burst. Big companies failed. America lost 13 million jobs. Unemployment surged to 25%. American industry cut its production nearly in half. Home construction plunged by more than four-fifths. Deflation — falling prices — drove the value of almost everything into the gutter. Over 5,000 banks failed and ultimately disappeared.

“And yet, despite it all, there was one all-important investment that not only survived, but actually thrived: The United States dollar. Because of deflation, prices fell on virtually everything — commodities, farm land, homes, automobiles, consumer goods, even labor. And because of fear, investors shunned risk, seeking the safety of cash. Result: The dollar’s purchasing power and value surged.”

Now, here we are once again, witnessing with our own eyes in our own generation how financial bubbles are bursting all around us. We see America’s largest companies — Merrill Lynch, General Motors, AIG, Fannie Mae and Citigroup — bankrupt, bailed out or bought out. We have bursting bubbles in housing, commercial real estate, stock markets and commodities. We see busted booms throughout the Americas, Europe and Asia.

Even economies thought to be immune, like China or Australia, are impacted. Even investments said to be safe, like corporate bonds, municipal bonds, certain money markets and large government-sponsored companies, are sinking.

Our leaders themselves are sounding the alarm. Unless they act swiftly, they say, the world as we know it today will fall apart. Thus, to avert what they fear could be the ultimate disaster, the governments of the richest countries have embarked on the most expensive financial rescue operations of all time. The U.S. government alone has spent, lent, committed or guaranteed $7.8 trillion, fourteen times its biggest-ever federal deficit. European governments have jumped in with another $2 trillion; China, $586 billion.

They’re bailing out bankrupt banks, broken brokerage firms, insolvent insurers and any company they deem essential to the economy. They’re pumping resources into mortgage markets, consumer credit markets and stock markets. They’re prodding lenders to lend, consumers to consume and investors to invest. They’re doing everything in their power to prevent a Second Great Depression.


But will they succeed in this endeavor?

Continued here: Depression, Deflation and Your Survival


Though I don't agree with his analysis that the US Dollar will thrive (over the longer term), Martin's thoughts are worth serious consideration.