The great depression and this crisis have to be viewed from the perspective of the run up to the crisis.

In the 20’s debt ran rampant. People weren’t buying homes on shoe shine salaries but, were borrowing and buying stocks on margin. But, homes and cars and other things were also running up personal debt, just like in the years of the housing bubble.

The problem is that whether you have too little or too much government intervention, it won’t work because there is no “right amount.” The problem isn’t whether government does anything or not, regarding stimulus but, what the condition of the consumer is. What the consumer does in an economy where normally 62% of GDP is from consumer spending and recently 70% has been, is where you have to look for what will happen.

The Keynesian approach is to replace the consumer with government spending but, that means you borrow in a debt based economy like we have and that means more interest for decades. Since we are already past the point we can even begin to pay down debt, we are just digging the hole deeper and have been since 1968 when we first started borrowing more than we grow GDP.

Now we have 1/2 a trillion interest. That is about 4% just for interest. We don’t grow our economy 4% even in good times so how do we every get ahead. AND, if you use real inflation, we not only didn’t grow GDP 4% but have been negative for 8 years now, except for only one quarter out of the whole 8 years.

The Gov. Accounting Office and others have warned Congress for years, we had placed ourselves on an unsustainable course and face the loss of our standard of living. The Congress heard testimony we can’t grow or tax out of this.

So, why are we doing this? Because we are in denial in Congress and among the voters. I hear it daily. “We always find a way.” or “We are too big to fail.” or “The world can’t get along without us.” “They won’t let the dollar collapse.” “They have to do something.”

To admit we can fail, means we have to admit the economic and monetary principles we operated on for the last 95 years were wrong. It means admitting the Congressmen, economists and analysts who said Keynesian economic policy the way we used it wouldn’t work, were right and both parties leaders were wrong.

Well, we are going full bore ahead with Keynesian economic policy now. No holds barred. So, we will finally find out if they are right or not.

As an investor, you have to understand how that will affect markets, sectors like food and commodities, and you have to have plans in place you can use as things become clear because changes could happen in days or even hours.

I have read that if they are wrong in this plan, in just one night, starting in Asia and before you can even do anything here, the dollar could see as much as a 40% devaluation. That means that even in the pre-market trading, you would be too late if you weren’t ahead of the curve. It can happen that fast and you need to have a plan in place to deal with that potential.

If the President’s team is wrong, and most pray it isn’t, then devaluation of the dollar is very possible since we are going to borrow about 4 times what is available to be lent and that may be a conservative estimate. The difference will have to be made up by printing the money we can’t borrow.

Keep in mind that they aren’t hiding this fact. The President has been very open that we will have trillion dollar deficits for years.

Keep in mind that since the budget year started, we have borrowed over 1/2 a trillion already and haven’t even began to borrow to cover the stimulus packages they are proposing.

Debt from Treasury site
09/30/2008 — $10,024,724,896,912.49
01/22/2009 — $10,618,718,703,374.78
======================

They know quite well what the debt is and what they are doing and how much money is available globally for lending based on history but, that history doesn’t even include the fact the world is also in a recession and doesn’t have as much to loan. What is saving us so far is liquidation of assets and the demand for bonds to store the money in. But, that won’t last for many more months unless people have to just keep selling and selling and then turning to bonds for a safe harbor.

It is hard to pick any particular time that we see all this unravel. It could be months or years or never if the President’s team is right and the Austrian economists are wrong.

The current policy of fighting price deflation is a recipe for economic disaster. What is required is purging the economy of various false activities that severely undermine its ability to generate real wealth. Various policies aimed at fixing the symptoms rather than addressing the true causes are only making matters worse. The fall in the prices of goods and services is in response to the weakening of false activities. This means that so-called price deflation indicates that false activities are in trouble. This should be seen as great news since it means that the process of purging the economy is in force. The sooner the economy is cleaned up, the sooner wealth generators can start making real wealth — the key for the economy’s revival. To prevent a further destruction of the American economy, Congress must stop the reckless policies of the Fed and the Treasury as soon as possible.

Related Posts:

• U.S great 2009-2010 depression is more likely now
• Government needs to fill up the gap for consumer spending to delay the collapse
• GDP is not a good indicator of economic health; We are heading to a CRASH.
• China’s nowadays is similar to the 1920’s and 1930’s.
• No fundamental reason for a recovery yet.

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