Hey You!

By Howard Katz    May 18 2009 2:23PM

Hey;, you. Yes, you, the guy who wants to know what is going on with the economy, the guy who is searching the web sites and reading articles, the guy who wants to make money.

I have bad news.

Everything you have been taught is a lie. There are some bad guys out there, and they want to steal from you. Now if your first thought on reading this last sentence is, “so what else is new,” then you are my kind of man. You have a chance.

The problem is that these bad guys are really, really bad. They employ Hitler’s big lie technique. Tell a lie so fantastic, so outrageous, so beyond belief, and everyone will believe you because they will not imagine that you could possibly be so evil. That is economics today.

Now you know that the country is in a recession, except for a few of you who know that the country is in a depression. This is a good place to start. A depression is a general decline in an economy such that virtually everyone gets poorer. Depressions, it is universally believed, come out of nowhere. But never fear because our government is a big father who will make the depression go away. For those of you who believe in recessions, then similar definition, but more moderate. (The recession guys go around with suits and ties, speak in soft tones and are quintessentially establishment.)

Now the one thing of which you are absolutely certain is that a great depression hit this country in the 1930s. It is called the Great Depression. There is one idea to keep firmly in your mind:

EVERYTHING I HAVE BEEN TAUGHT IS A LIE.

Well, maybe not everything, but 99%. Later, when you have a basis of truth, you will be able to relax a bit on this, but for now keep this idea firmly in your thoughts.

The Great Depression is the economic equivalent of the influenza pandemic of 1918. It is revisited in the media every few years, and dire predictions are made of a repeat of the disaster. It just never seems to happen (like the Swine Flu scare of the past few weeks, which disappeared as quickly as it appeared). The only difference is that the 1918 flu pandemic was actually real the first time around.

Consider these facts. There is, in every major library in the country, a large book of statistics about the United States, entitled Historical Statistics of the United States, Colonial Times to 1970, published by the Commerce Department. It says that from 1930 to 1934 per capita consumption of meat rose from 129 lbs/year to 144 lbs/year.

Well, maybe there is some other explanation. Maybe the people of that day did not like meat and only ate it when they got poor? This, however, will not hold up. Today we have people who do not eat meat for ethical or health reasons. But the Americans of the 1920s were less likely to posture about ethical issues and not at all concerned with health. They wanted to make it. If they were poor, they wanted to become middle class. If they were middle class, they wanted to be rich, etc. Meat, in the 1920s, was a sign that you were moving up. Not only did meat taste good, it was a sign that you were a successful person. Indeed, the Republicans took advantage of this widespread desire for meat in the election of 1928. They bragged that Republicans had put “a chicken in every pot,” meaning that they had made it possible for every American family to eat meat every day. (This was not true in 1928, but it became true in 1930-34.)

Historical Statistics also reported that during what is called the Great Depression people switched from margarine to butter. That was a funny thing for them to do when they were getting poor. Furthermore, charitable giving surged during those years and (figured as a percent of disposable income) rose to levels not seen since.

If the Great Depression was a lie, does this mean that there are no depressions? Not quite. In fact, shortly thereafter America was hit by a very difficult economic situation. For 3 years, not a single new house was built in the country and not a single new car. Certain important food items (like butter and eggs) were rationed, and no one could get as much as they wanted. Gasoline was limited to 3 gallons per person per week. And many families found it necessary for the wife to go back to work (something common today but unheard of at that time).

This later period was certainly a depression, a general decline in the economy such that everyone got poorer. But you know what? The economic establishment, both of that day and this, did not call it a depression. This was the period 1942-1945, and the economic establishment called this period a boom (and still does). That is, when we were getting richer, they told us we were in a depression, but when we got poorer, they told us we were getting richer.

“EVERYTHING I HAVE BEEN TAUGHT IS A LIE.”

Neither can you say that these events happened long ago and are of no relevance to us. The flu pandemic of 1918 happened long ago, but it was driving people to hysteria just within the past few weeks. If you listen to Ben Bernanke, then all his speeches are the same: “Great Depression, Great Depression,. We won’t let it happen again.” He has been nicknamed after a helicopter, but it might be better to nickname him after a broken record.

What has Ben Bernanke done to avert the imaginary depression he thinks is in the offing?

In 2 months, from Sept. to Dec. 2008, he doubled the monetary base of the country. This has not yet reached the nation’s money supply. In order for that to happen, it is necessary for the private banks to employ the money pumped into their reserves by the Fed and make private loans. Due to the bearish propaganda from the newspapers, the banks have been afraid to do this. However, history teaches that soon enough the banks overcome this fear. Timidly at first and then with more confidence, they expand their lending. This expands the nation’s money supply proper, and this causes a general increase in prices.

It will take several years for this general increase in prices to come to the attention of the media. Not only do they lie to us, they lie to each other. They are therefore ignorant liars – of no use whatsoever in the greater scheme of things. A good example of this was the 1970s. Those of us who could see the truth (and were smeared as the gold bugs of the day) were alert to a major increase in prices after Aug. 15, 1971 when Nixon destroyed what remained of the American gold standard. We were vilified and ridiculed for warning people of this and telling them to protect themselves by buying gold. Eight years later the general media was screaming in big headlines:

“DOUBLE DIGIT INFLATION.”

The general public was alarmed, but in 1979 it was too late to buy gold. You needed to wake up earlier. You needed to disregard the establishment idiots. You needed to listen to the gold bugs when it was still early and before most people were paying them heed.

That was the first upswing in the commodity pendulum (1971-1980). This is the second upswing in the commodity pendulum (2001-?). The second period will track the first. It will be the same in principle, but not in every detail. For example, the first downswing in the pendulum (1963-71) was moderate. The second downswing (1980-1999) was much more intense. It can thus be inferred that the second upswing will be much greater than the first. The first upswing took 9 years. I am estimating the second at 20 years, but this is just a very broad guess, and I doubt that I will be able to give an exact prediction of the top until it comes. (I did a nice job in catching the Jan. 21, 1980 top of gold, but it was hard to do, and I hope I will be able to do as well this time.)

To go back to the concept of depressions, here is what they are all about. From the very beginning of American economic history, the commercial bankers acquired the privilege to create money in the process of making loans. At first, this privilege was restricted, and Andrew Jackson (with Martin van Buren) tried to abolish it entirely. But in 1914, it was expanded, and in 1933/1971 it was vastly expanded. A good way to understand this is by comparing a modern commercial bank with an old fashioned (pre-1981) savings bank. Both banks make loans. So far so good. But the savings bank gets its money by paying interest to depositors. The commercial bank gets its money by CREATING IT OUT OF NOTHING. (This is not exactly counterfeiting because the commercial bank does not stick the new money into its own pocket. It lends it and sticks the interest in its pocket. Still, it increases the money supply and causes an increase in prices.) The savings bank gets its money honestly. It pays its depositors interest. The commercial bank gets its money dishonestly. It tells its depositions that it is a warehouse for money and will give them their cash anytime they ask. But it does not have enough cash to keep this promise. Every commercial bank is like a juggler – one pin in the air at all times. Every so often (1814, 1861 1933) depositors ran to the commercial banks and said, “Give me the cash you promised.” And the bankers said “No can do.” (The U.S. made peace in 1815 when a bank run prevented the nation’s banks from making further war loans to the Government.)

Establishment economics can be understood if you realize that the bankers are always fighting, tooth and nail, to increase their privilege to create money. These bankers promoted the careers of crackpot economists who defined a decrease in the money supply as bad for the whole country, i.e., as a depression. It is very interesting to note that the late 19th century was full of such “depressions.” There was the Depression of 1866, the Depression of 1873-79, the Depression of 1893 and the Silver Campaign Depression of 1896. And yet when the dust had lifted from all these “depressions,” America had become the richest country in the world and the richest country that ever was.

Historical Statistics has data on butter consumption from 1869-1970. It shows that the highest butter consumption in the nation’s history occurred in 1896, a year which these economists label as a depression. Indeed, these :”poor” people of 1896 used more butter per person than Americans in the latter 20th century used butter plus margarine together. On the other hand, periods which these crackpot economists labeled booms (including WWI and WWII) saw large drops in butter consumption.

Later the bankers bribed the nation’s colleges so that these crackpots were installed as economics professors, and since that time one generation of students after another has graduated with their heads filled with garbage. This is why all the media is filled with such idiots. This is why their predictions are wrong and wrong and then wrong again. Think of Dow 36,000 in 1999. Think of Dr. Doom in 1982. Think of The Great Depression of 1990. Think of the New York Times buying their own stock at 40 a decade ago and watching it come down to 6. The reason is that their economic writers and reporters are all crackpots. They echo what is good for the bankers. Their job is to lie to you, the public, for the benefit of the bankers.)

The big lie of 2008 was that the country was in a recession/depression. When this lie was announced to the American people (Sept. 15, 2008), there was not one iota of evidence for it. The media hype became a self-fulfilling hypothesis. People read in the papers or heard on TV that things were terrible. So advertising executives cut back ad spending, and fewer people were attracted to the stores. Other execs laid off workers. The only real decline was the decline in home prices, which was a much needed and healthy correction. No newspaper noticed that the drop in gasoline prices from $4/gal to $2/gal was a very desirable event for the nation’s car owners and brought America much needed savings at the expense of Saudi Arabia, Iran and Venezuela. What will happen next? Pretty much everything that came down will now bounce back up. The massive rise in commodity prices which started in 2001 will resume, and from the perspective of a few years in the future the drop of late 2008 will appear as a small blip on the charts.

Howard S. Katz