Not 1929!
To understand what is going on in the financial markets today, beware of making the mistake to compare the present crisis to the stock market crash of 1929.
1929 was purely an out-of-bound speculative orgy in stocks which crashed and lead to the great depression. There was nothing wrong at the time with the financial system itself. The Central Banks had ample reserves, mostly in the form of precious metals, and they acted responsibly. Although fiat, money still kept its value.
The present financial crisis-in-progress, however, finds its roots in the structural legal miscarriages embedded throughout the whole of western finance. EXAMPLES: Hemorrhaging currencies in circulation; capital and power concentrated in a few hands only; pyramiding credit upon credit; spewing
speculative bubbles everywhere; manipulation of public and private money;
promotion of crime and corruption. All under the cloak of anonymity.
And if not radically redesigned from scratch (which I do not believe the West will be able to ), it will unavoidably lead to the total collapse of the whole edifice of western finance with all its consequences. As present day fiat money and fiat finance make up the vertebra of western society and stands for its very livelihood, the looming collapse is bound to take our whole western civilization, as we know it, with it.
The present crisis is not about stocks versus money as in 1929. It is the whole financial edifice, the king-pin of western society, where all and everything turns around, which is teetering at the point of collapse. It is fundamental. The stock, currency, commodity and real estate markets show only the symptoms of the underlying structural malaise. They are not the cause.
Do not lose time with the stock markets to gaze into the future. Today's stock markets are rather irrelevant to the problem. With the exception of NASDAQ, the stock market indexes should be seen more as gauges to judge the general state of the economy in combination with inflation expectancy, rather than as crisis indicators. With hyper-inflation a probability in dollar-land even a Dow of 100,000 would not look too far out!
There are two ways of sanitizing a society drowning in debt. One is to discipline the guilty and let them go broke. The other is to spread the debt burden out over society as a whole by inflating at infinitum. Let the guilty off the hook and let the people suffer. Increasing inflation acts like a whip and forces everybody to work harder and run faster, just like Alice. Although real values will fall behind, inflation bookkeeping will keep on showing the necessary profits for the hungry governments to go on collecting taxes.
The man in the street is not that dumb and with an instinctive mistrust of State and banks, he knows that there is no other way to survive than to keep on investing in stocks, real estate and certain tangible assets, which will always keep some value, except naturally for stocks of companies going belly-up. He "knows" that all fiat papers with time are prone to lose their value down to zilch. Although presently mislead by relentless anti-gold information, he will wake up one day and return to precious metals.
The culprits of the present financial crisis are not the economy, nor the people, but the leviathan fiat and credit monster created by the State and banks. And the only power to slay the monster is the "golden sword" back in the hands of the free. It is gold against fiat!
The bond and currency markets have to be watched, not the stock markets. And as the U.S. is the nursery of this leviathan monster, it is the in-dollar-denominated fiat paper and the dollar itself, which have to be watched. And it is there, that in the last few weeks things have begun to happen. Whatever Greenspan is trying, dollar bonds have started their long slide down and the dollar itself is bound to follow suit soon. Greenspan has lost control over the financial markets already years ago. The credit monster is feeding on itself, laying the basis for uncontrollable future inflation.
CHICAGO (MarketNews May 4 2001) - Order flow in U.S. debt options Monday
witnessed a bearish slant as many technicians believe the bond market is setting up for a reversal of the 2000 rally. "Last week's price action seems indicative of a BIG MARKET MOVE TO COME and it is not good for lower rates," McGlone said. "The fact that the bond market has merely drifted lower in a extreme over-sold condition while stocks have consolidated higher, lends strongly to the possibility that the market is setting up to take back the year 2000 stock flush bond-rush," so far McGlone.
I wish to add here that the time may be near that stocks will cease to function as the natural counterweight to bonds and that gold and precious metals will return and take over this task from stocks.
Hans Schicht
Zürich, 9 May 2001
Other essays by Hans Schicht
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