Elaine Meinel Supkis
Time to review previous depressions and the solutions to these depressions. An interesting part of all depressions in the past is gold rushing. The great world banking collapse of 1848 coincided with the California Gold Rush of 1849. And the collapse of banks in 1892 coincided with the Alaskan Gold Rush of 1894. There was no gold rush after 1931, there was a rush to loot each other.
This movie ends with a sappy paean to the men who remained in old gold rush towns after failing to find any gold, mostly drunk, living in the past. The opening of this story concerning the family member graduating with a degree in civil engineering, reduced to digging for gold because he had no prospects for work in his field is the scary part of this whole process. Namely, the gold rushers are nearly never anyone who works in mining but are rather dispossed or unemployable urbanites or farmers who have lost the farm.
In its impact on industry and employment, the depression of the 1890s was on a par with the Great Depression of the 1930s. In some places it began before 1890, in a deep agricultural crisis that hit Southern cotton-growing regions and the Great Plains in the late 1880s. The shock hit Wall Street and urban areas in 1893, as part of a massive worldwide economic crisis. A quarter of the nation's railroads went bankrupt; in some cities, unemployment among industrial workers exceeded 20 or even 25 percent.Americans of different incomes experienced the depression in markedly different ways. In the bitter winter months, some poor families starved and others became wanderers. Unemployed "tramps" crisscrossed the countryside, walking or hiding on freight trains. Many appeared at the back doors of middle-class houses, pleading for work or food.
Despite the obvious structural crisis, many Americans blamed those who could not find work, accusing them of laziness or begging. Some among the unemployed blamed themselves, and stories of despair and suicide ran almost daily in many newspapers.
A common feature of all banking collapses and depressions is, the currency of the Great States that have large empires, usually becomes MORE valuable, not less. Namely, money increases in purchasing power, sometimes by an astonishing degree. So people who have squirrelled away a lot of funds, flourish. Those who made money lending money suffered which is why so many banks collapse during depressions.
Namely, their mortgages and loans go belly-up. People who have no debts and hold no debts do very well, comparatively speaking. These people are also called 'tightwads'. I come from a family of tightwads which is why all the depressions this last 200 years haven't affected us at all.
The rich get richer and 80% of the population plunges into poverty just like we are seeing right now in the USA.
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--Jacob S. Coxey, "Address of Protest" on the steps of the Capitol, from the Congressional Record, 53rd Congress, 2nd Session (9 May 1894), 4512.The Constitution of the United States guarantees to all citizens the right to peaceably assemble and petition for redress of grievances, and furthermore declares that the right of free speech shall not be abridged.
We stand here to-day to test these guaranties of our Constitution. We choose this place of assemblage because it is the property of the people. . . . Here rather than at any other spot upon the continent it is fitting that we should come to mourn over our dead liberties and by our protest arouse the imperiled nation to such action as shall rescue the Constitution and resurrect our liberties.
Upon these steps where we stand has been spread a carpet for the royal feet of a foreign princess, the cost of whose lavish entertainment was taken from the public Treasury without the consent or the approval of the people. Up these steps the lobbyists of trusts and corporations have passed unchallenged on their way to committee rooms, access to which we, the representatives of the toiling wealth-producers, have been denied.
We stand here to-day in behalf of millions of toilers whose petitions have been buried in committee rooms, whose prayers have been unresponded to, and whose opportunities for honest, remunerative, productive labor have been taken from them by unjust legislation, which protects idlers, speculators, and gamblers: we come to remind the Congress here assembled of the declaration of a United States Senator, "that for a quarter of a century the rich have been growing richer, the poor poorer and that by the close of the present century the middle class will have disappeared as the struggle for existence becomes fierce and relentless."
Just before any depression hits, usually the gap between the rich and the poor widens dramatically. Usually, the rich also gain an upper hand in various governments so they can work in concert to pass laws that raise their own wealth while exploiting labor more 'efficiently'. This means letting in immigrants as much as possible while setting up factories in cheap labor countries which are then controlled by the military of various empires. The greed these people show gets out of control and eventually, cutthroat competition coupled with destroying the wages paid to the workers leads to a massive, global collapse of all systems when bad weather destroys the ability of farmers and peasants to pay their many bills.
This leads to riots, revolutions and wars. In all previous depressions, everyone imagines there is a monetarist solution. Change the value of money and money will magically begin to flow again! Various mechanisms to decrease the value of money when money ceases to be lent out in great amounts, has caused considerable controversy.
The bitter controversy surrounding the issues of "free silver" and "sound money," so central to the 1896 campaign, has proved difficult for historians to explain. Partisans on both sides made exaggerated claims of the impact monetary policy could have on the nation's economic health. They implied that coinage of silver (on Bryan's side) or adherence to the gold standard (on the Republican side) was the single key to prosperity--and sometimes to the nation's honor.Oddly, before 1896 both McKinley and Bryan had focused more attention on the tariff than on currency issues. Despite his party's platform, McKinley sought to emphasize the tariff and to avoid being labelled a "monometallist" or "bimetallist," leading to accusations of waffling. While he was a Congressman, Bryan allegedly once said that "the people of Nebraska are for free silver, so I am for free silver. I will look up the arguments later." His 1896 campaign became a free silver crusade.
The silver was 'free' because of the invasion of native lands meant the planet's mineral resources which sat there for over a billion years could be dug up and carted off, forever. Silver is one of many mineral resources that won't appear again if we destroy it or disappate it.
Gold was the preferred currency due to its rarity. It couldn't expand in volume except if there is a gold rush. And there is little desire to find gold if certificates of gold are circulating and being used to make purchases. The mysterious cycle of collapses are nearly always relieved by either the government issuing war bonds or a gold rush injects a lot of gold into the system, devaluing the existing gold stocks.
In the Great Depression, there was no possibility of a major gold rush injecting another couple billion dollars into the system so the great empires simply made using gold as the money standard, illegal. All governments then confiscated and hoarded the gold supply (Fort Knox being the most famous) and used fiat releases of gold to keep the price down or to keep it off the markets by not allowing the purchase of gold except as jewelry, etc.
When the world's currencies collapsed yet again as they do over and over in a fifty-year cycle, in 1972, the government released gold and allowed it to be used as a currency again and it deflated the dollar's value tremendously, rising from $36 a troy ounce to $250 a troy ounce in one decade. I remember that really vividly! You couldn't get a loan but if you had cash and bought gold, you were rich! Quite suddenly. So this was an artificial Gold Rush! All gold rushes have an important imputus behind them: the more gold that is 'discovered' or 'bought', eventually, the flood of gold drives DOWN the price of gold and forces people to use the gold currency to get a bargain rather than hoard it and see it go up in value, passively.
Once the economic machinery got into gear again, the government used the hoard at Fort Knox to decrease the value of gold to a 'managable' level and since then, injects gold into the system to keep the price of it from rising so fast, everyone ends up using it rather than paper money, for wealth accumulation. Gold bugs online often crow whenever the price shoots up but so far, the government has been able to keep it really stable even as it whines like a stuck pig about the value of the dollar vis a vis the Chinese yuan which is where our cheap labor happens to be, too!
Dealing with this paradox means doing contridictory things which as caused a typical side problem that causes depressions: a huge housing/stock market bubble. Since money really is losing value but gold is gaining, if secretly, people go into debt to hoard real estate and company certificates. They know the value of PAPER money can suddenly collapse and figure they can insulate themselves from this by buying things of 'real' value, ergo, the term, 'REAL estate'.
But to do this, most people, due to dropping incomes, have to go into debt and this means they are losing ground, instead of building equity that can be tapped, their equity is tapped out. When everyone reaches as state whereby they can no longer convert their real asset values into gold, we get a depression.
This is because you can't even give away 'real' assets when no one is able to offer any gold for it so things suddenly 'deflate' and become much cheaper. This benefits the rich tremendously. They can buys whaver they want including servants and slaves!
The fiscal mess of the 1970's was ended with another Alaskan 'Gold' Rush: oil. Selling this oil to the Japanese injected more money and goods into our system and we crawled out of that mess only everyone misunderstood this and thought magical 'monetarism' did the trick just as they thought Kenysian money manipulations ended the Great Depression and NOT war and looting of the Jewish population of Europe.
The government extended loans to itself but it also had to generate goods which it 'sold' to other empires and after the war, rebuilding other empires required employing Americans at good wages which injected more money into the flow of currencies and this cycle is ongoing, look at the wild spending we are doing today, at war! With the obvious downside: future bankruptcy or the govenment giving up spending due to no more foreign funds flowing into our coffers.
The American middle class is compensating for loss of income by increasing their debt load with credit card debt and home equity extraction. Banks and credit card companies have been glad to oblige, as credit cards and fees on home re-financings are the most profitable of all credit products and bank transactions.In the early days of researching for iTulip.com, one of the surprising discoveries was the large numbers of very wealthy around during The Great Depression as the dust bowl blew and millions of poor waited in soup lines. Text books in U.S. schools teach that The Great Depression made everyone poor. In fact, deflation made a number of people very rich. Not to say that many who made fortunes during the boom did not lose a lot of money after the crash; many did, but those who played it well made money during the bubble and preserved it by storing their wealth as cash in the bank, which at the time meant gold. During the deflation that followed the collapse of the credit system, then nearly completely dependent on the banking system, the purchasing power of this hoarded cash increased. In this way, the rich got richer.
There was a lot of money in the bank, but little in circulation. Meanwhile, the average wage earner had no access to credit and with unemployment running at 25% and no employment insurance, little or no income.
This is all correct. But the way out of depressions isn't hoarding something else. The way out is political. This is why all depressions spawn wars between empires or revolutions at home. Basically, the rich lose their wealth in various bloody ways. Or they have the unemployed die in battle seeking loot for their homestates.
By Associated Press | November 21, 2006
NEW YORK -- The feeble US housing market showed more frailty when third-quarter home sales plummeted in 38 states, hitting Nevada, Arizona, Florida, and California particularly hard, government data showed yesterday.The once-booming real estate market's persistent weakness over the past year has reined in expectations for economic growth but hasn't been severe enough to offset a rising stock market, lower gas prices, and improved consumer expectations.
The National Association of Realtors reported yesterday that sales of existing homes fell in 38 states during the summer. Sales retreated to a seasonally adjusted annual rate of 6.27 million units nationwide, down by 12.7 percent from the same period a year ago.
Home prices also dropped: The realtors' survey showed that the midpoint price for an existing home sold during the summer dipped 1.2 percent year over year to $224,900. Some 45 metropolitan areas saw home prices decline.
This is a significant loss of wealth. Just as the up side of this balloon made everyone magically richer, so this downside will make everyone poorer. Most loans today have been predicated upon the rising value of real estate. When that evaporates, there has to be some gold rush of some sort to revive the system. Since most wealth is denominated in data, eliminating a few zeros from the data base will mean instant poverty that has to be spread out and the usual victims of this are the working poor.
Namely, their falling incomes will be brutally reduced to starvation levels while the middle class sees many members fall into the poverty class. The IMF has been really great at doing this. Their sole solution to fiscal problems in the past is to make money very valuable and depress wages and prevent any money being spent on the poor or helpless.
This brutal prescription will be delivered to us very soon. Instead of spending our way to wealth, we will discover the strictures of saving, spendthrifts will have to turn into tightwads and everything will grind to a halt until someone finds some sort of 'gold rush' event that can free up more 'money' and revive commerce.
Meanwhile, China is inking deals with everyone as they work to extend their markets while preparing to ditch the tapped-out American market. They aren't going to passively wait, like the Japanese, for the Americans to pull them out of their own depressions.
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I have always been totally skeptical about the whole concept of 'economics,. It seems to me that people think that by compartmentalizing stuff that only goes on in their own minds, so they can play some kind of phony game. People are induced, by 'education', and media announcements, etc., to think that there is 'a world of finance' that is somehow walled off from a 'world of politics'. Or that 'Gold is very valuable'. Etc. And all this complicated economic malarkey swirls inside their stupid heads as they grope for another loaf of bread.
I always believed that, somewhere beyond this vast mental shell game there must be this 'real world'. Outside of the matrix of the sound and fury of say, Wall Street.
But no. We each must play the Enron Game -- I will never forget the story about how Enron had all these 'traders' in a huge 'center' furiously pounding at keyboards in a total sham that was purported to be their 'trading center' or something. But really, they were not trading anything at all, but just playing what amounted to this huge video game with one another.
Sometimes I want to shout out 'It's the MATRIX stupid!!! But they would just think I was nuts. I wish it was all that simple, really.
Posted by: blues | November 21, 2006 at 12:40 PM
Worse, everything goes in cycles! Understanding these cycles hasn't done squat diddley at preventing the downside of cycles.
Why?
Because the 'up' side is so much fun, having money accrue magically is so fabulous everyone wants to not look at the obvious downside so when everything goes down, everyone pretends to be surprized and horrified.
This is all pretend. We all know that all things go up and down, over time. Riding the rollercoaster is a tricky thing. This is why it pays off to not go into debt when everyone is rushing to go into debt.
Posted by: Elaine Meinel Supkis | November 21, 2006 at 05:53 PM
I know that the Bad Days are nearer. It's not like I can't hear the sound in the rails. Not only that, but it scares me that so many people have believed for so long that we can just magically export our factories to the third world, and then just let them do all the work. (What a racket, except it's an idiot's game.) I have suggested to people foolish enough to listen that maybe they should not buy a house on credit, but it was just a bring-down that they didn't want to hear.
These people somehow pretend they deserve Bush, and they sure have tried to live up to that. Gotta give them credit for consistency. Some of these sick puppies will eat me. Maybe if I keep a poison pill handy...
Posted by: blues | November 21, 2006 at 07:09 PM
I tried in vain to prevent a good friend of mine and his partner from buying a house last winter. I told him that he could get great deals if he would just wait another year, but he could not wait. He seems to be doing ok, but I am afraid his house may go down in value below the actual loan he took out. I would really hate to see that happen to a friend.
The more you know, the less information you can pass along to others.
Posted by: DeVaul | November 21, 2006 at 07:25 PM
The real estate gold rush was fed by the media as well as the sense of unearned wealth that permeated our society. Get rich quick! Thar's gold in them thar houses!
This is why a good government prevents this sort of hysteria by RAISING INTEREST RATES ABOVE INFLATION! This increases savings and cuts down on price spirals as people rush to spend recklessly.
Posted by: Elaine Meinel Supkis | November 22, 2006 at 10:17 AM
A collateral ancestor was a 49er. He parlayed his modest discovery into a butcher shop in Kings County California and evidently paid for a quite lovely cemetery monument for his parents.
His father speculated on the location of the seat of the newly formed Michigan county to which they'd migrated from Ohio in 1830. County seat speculation was a big deal, too, as the west was settled. Another type of land rush. His mother's family was an early part of the Genesee fever land rush in western New York in the 1st 5 -10 years of the 19th Century. (I think) I know lots about that era. The original "Holland Land Company" records are in Amsterdam, copies at SUNY in Fredonia. The founders were smart enough to disallow foreign ownership of land, but the foreigners figured out a way to be de facto owners and get free or cheap labor to clear the land and till the soil. Land agents. Cazenovia I think his name was. Lots of people went west from your neck of the woods in eastern NY seeking agricultural Eden. I think my ancestors were originally from Westchester Co, went up the Hudson to perhaps Albany or Schenectady Co and traveled the Mohawk to Steuben Co then to Genesee and off to the western reserve and a former British fort.
Unfortunately, we screwed up. Sorry, Hiram and Asahel and Abner.
Posted by: D.F. Facti | November 22, 2006 at 10:56 AM
My ancestors were all the very first settlers here flying on the wings of war and revolution in England. So..the chances of us being related a dozen times over is very, very high, actually. Bet we are related on the German side, too. Eh?
We do think alike. Heh.
Luv ya.
Posted by: Elaine Meinel Supkis | November 22, 2006 at 11:02 PM
Excellent article Elaine,
Especially the line "When everyone reaches as state whereby they can no longer convert their real asset values into gold, we get a depression."
How terribly true and coming to fruition.
Posted by: Rodney Reid | November 23, 2006 at 03:46 AM
Thank you, Rodney. I have a lot more to say about all this. Will do so in a few hours.
Posted by: Elaine Meinel Supkis | November 23, 2006 at 09:17 PM