Authored by Jeff Thomas via InternationalMan.com,
A crash is coming, and it may be terrific... The vicious circle will get in full swing and the result will be a serious business depression. There may be a stampede for selling which will exceed anything that the Stock Exchange has ever witnessed…Wise are those investors who now get out of debt.
— Roger Babson, September, 1929
In the run-up to the 1929 crash, which heralded in the Great Depression, many pundits claimed that the new highs in the market signified that the business cycle had been “repealed.”
Stocks had never enjoyed such a bull market before, and this led many to believe that “the sky’s the limit.” All over the US, people put all the money they could find into stocks. Then, wanting to buy more, they bought on margin. Then, wanting still more, they borrowed privately to buy on margin - a double-dip into debt.
In essence, this meant that a large portion of the extreme bull market was the result of stock investments that were made with money that didn’t exist - a mere “promise” to somehow pay, with nothing to back that promise up.
This, of course, is the very essence of a bubble. And, sooner or later, bubbles pop.
After the crash, the pundits that had driven the market ever-upward were all but speechless, saying only, “No one could have predicted this.”
However, it was predicted by those who understood market bubbles. Roger Babson, in particular, made the statement above to the Annual Business Conference in Massachusetts on 5th September, 1929. At that time, he was vilified by Wall Street for making such an obviously false proclamation, yet, after the crash, he was again vilified for having brought on the crash with his statement.
Neither was true and no lesson was learned by those who created the crash. Yet, it was the logical conclusion to the buildup of events. In fact, there could have been no other outcome… and the same is true today.
The $20 trillion debt that the US government has created is far beyond anything the world has ever seen and, in fact, it exceeds the total of all other countries combined.
To add insult to injury, the unfunded liabilities of Medicare, Medicaid, Social Security, etc., bring the total real debt to over one hundred trillion—an amount so large that not even the interest can be repaid.
Although Republicans have traditionally railed against debt, they’ve recently voted in a dramatic tax cut, with no corresponding cut in federal spending. This is akin to an addict giving himself a shot of heroin. A brief period of investment in business will occur, but, within a year, will be followed by a deeper tightening.
In addition, dramatically increased spending has been approved. Republicans have joined Democrats in the elimination of budget...