The United States is Facing the Biggest Bubble in HISTORY (Part 2)
It’s hard to escape the financial impact of the current coronavirus pandemic. The stock market crashed in March, unemployment rates have skyrocketed, and entire industries have been decimated amidst “stay at home” orders across the country.
Unfortunately, the financial bubble we’ve all been living in is headed for the greatest burst since the Great Depression.
Ask yourself, does it make any sense at all that the stock market is at an all-time high during a pandemic?
The answer is no.
Many experts who study trends and cycles agree that there is something happening—a crash is coming. What happens to the economy after the crash is what they don’t agree on—whether we’ll see inflation or deflation.
Coming back to the discussion we opened up in a recent issue, we covered the short term ramifications. Today, we’ll dive into the longer term.
In September 1929, the Dow hit an all-time high of 381. By July 8, 1932, the market had lost a staggering 89 percent of its value. On that day, the volume on the New York Stock Exchange contracted to around one million shares traded, and the Dow sank to a low of 41 points. That low was the bottom of the bear market, and from there the market soared bullishly—even in the middle of a depression.
It has been said that the market cycles approximately every 45 and 90 years.
One of the reasons depressions are hard to pin down is because there is no real working definition for depression. Economists only define recessions. But one reason why we may not have gone into a depression earlier is that the Federal Reserve and the U.S. government have manipulated the money supply to keep the economy afloat—just as they are doing today.
Stepping back and looking at the past 90 years, you can make a case that the last depression never really ended. Many of today’s financial problems stem from issues from the last depression that were never solved. The problems were simply pushed forward onto our generation.
For example, Social Security was created in 1933, and the price for that government program will explode, as 75 million baby boomers began retiring in 2008. A solution created to combat the last depression has grown into a mega-problem today.
Social Security also led to the creation of Medicare and Medicaid, which are financial problems five times bigger than Social Security. The Federal Housing Administration led to the creation of Fannie Mae and Freddie Mac, and those two agencies are at the center of today’s subprime mess.
In other words, stepping back and looking over the past 90 years, the last depression never ended; the socialist solutions created to keep it at bay just keep getting more expensive.
Are We Headed For Deflation?
One of the reasons the first Great Depression was caused by deflation was because the U.S. dollar technically still had real value. It was money backed by gold and silver: receipt money. Receipt money was basically a paper receipt for gold or silver supposedly held in the vault of the U.S. Treasury.
The problem in the first Great Depression was the country’s’ inability to pay off war debts because of the constricting nature of the gold standard. Since Nixon removed the dollar off the gold standard in 1971, the US and other countries are now able to print their way out of debt
After the stock market crashed in 1929, fear spread, Americans hung on to their dollars, the economy deflated, businesses closed, people lost their jobs, and depression set in. The government did not print money to solve the problem because it was technically illegal to do so—although the government did stretch some rules. Savers were winners in this case because money was scarce and still had tangible value. A depression was caused as deflation set in.
Today, the world is facing many of the same problems that were being faced before the Great Depression set in. The world’s governments are facing massive and unsustainable debt.
All over the world people are paralyzed. They’re clinging to their money for security. This is bad news for established countries like the US that rely on consumer spending for the majority of their economic growth.
Instead, the Fed is artificially propping up the economy by printing trillions of dollars. The dollar is a free-floating currency backed by nothing but the good faith and credit of the U.S. government. Now that the government has the authority to print debts into oblivion, what do you think it’s going to do?
History has proven that printing fake money never ends in prosperity. History is evidence that printing fake money always ends in poverty for those who work for fake money.
American Baby Boomers are the economy’s canary in the coal mine. Once aﬄuent American Baby Boomers are now worried about living in poverty. Boomers are canaries, sensing fake money’s looming failure.
Historically—from the Chinese, the Romans, the German Weimar Republic, and Venezuela today—printing fake money has never produced sustainable prosperity. Historically, printing fake money has always ended in either depression, revolution, war, or all of the above.
How do I survive?
Many people will be paralyzed by fear during the coming years. But for the financially intelligent, this will be the opportunity of a lifetime. For those who aren’t financially intelligent, I’d suggest at the very least purchasing some gold or silver. Although most Americans have no idea where to buy gold and silver coins, or even why they should be buying gold and silver coins. All they can see are jobs disappearing, and their retirement savings going down with the stock market.
If the bubble does in fact burst, and we head into a deflationary period, gold will basically be on sale.
Be on the lookout for deals. As asset prices crash, be ready to swoop in and buy them up.
The important thing to remember about depressions is that wealth doesn’t disappear—it’s simply transferred.
This is the biggest transfer of wealth in modern history. You have the choice to be on the receiving end—or to lose it all. The dividing line will be those who are financially intelligent and those who aren’t.
Editor, Rich Dad Poor Dad Daily