Lessons from The Great Depression
Posted by freedomforall 1 year, 3 months ago to Economics
Excerpt:
"Longtime correspondent Ishabaka recently shared key takeaways from a classic on-the-ground account of The Great Depression in the U.S.:, The Great Depression, a Diary.
Another reader reminded me that The Great Depression was global, and occurred earlier that 1929 in other nations and had equally (or even more) calamitous consequences elsewhere. That said, humans are running Wetware 1.0 everywhere, so it's likely that many of these lessons are applicable to the collapse of speculative asset bubbles in other economies and eras--for instance, the global economy's Everything Bubble of 2023.
...
Fewer bad things can happen if you're debt-free. Margin is debt backed by collateral. A mortgage is margin, too, debt backed the collateral of the house and land. All such debt has an inherent risk: the value of the collateral may drop below the debt owed on thr asset. When the debt is called, i.e. repayment demanded (or cash must be paid to lower the debt to the current value of the collateral), the borrower either pays up in cash or the asset is forfeited.
As noted, debts become feather-light in hyper-inflation, which is why banks won't let hyper-inflation be the "solution". Germany was under geopolitical pressure to pay its external debts to the victors of World War I, which was the ultimate source of the central government deciding hyper-inflation was the only "solution" within reach.
This is why many expect asset deflation to occur, i.e. asset bubbles will pop. Central banks will avoid generating hyper-inflation because: 1) geopolitics (destroying the nation's currency has virtually no upside and catastrophic downsides); 2) the central bank exists to protect the interests of banks, and hyper-inflation wipes out debts, loans and banking; 3) th risks of political disorder skyrocket: favoring the already-wealthy and capital is tolerated as long as the middle and working classes feel they're prospering or have hope of prospering. But when the middle and working classes are wiped out, favoring the wealthy (the default setting of the status quo everywhere) triggers blowback that very quickly goes nonlinear, i.e. chaotic overthrow of the status quo."
"Longtime correspondent Ishabaka recently shared key takeaways from a classic on-the-ground account of The Great Depression in the U.S.:, The Great Depression, a Diary.
Another reader reminded me that The Great Depression was global, and occurred earlier that 1929 in other nations and had equally (or even more) calamitous consequences elsewhere. That said, humans are running Wetware 1.0 everywhere, so it's likely that many of these lessons are applicable to the collapse of speculative asset bubbles in other economies and eras--for instance, the global economy's Everything Bubble of 2023.
...
Fewer bad things can happen if you're debt-free. Margin is debt backed by collateral. A mortgage is margin, too, debt backed the collateral of the house and land. All such debt has an inherent risk: the value of the collateral may drop below the debt owed on thr asset. When the debt is called, i.e. repayment demanded (or cash must be paid to lower the debt to the current value of the collateral), the borrower either pays up in cash or the asset is forfeited.
As noted, debts become feather-light in hyper-inflation, which is why banks won't let hyper-inflation be the "solution". Germany was under geopolitical pressure to pay its external debts to the victors of World War I, which was the ultimate source of the central government deciding hyper-inflation was the only "solution" within reach.
This is why many expect asset deflation to occur, i.e. asset bubbles will pop. Central banks will avoid generating hyper-inflation because: 1) geopolitics (destroying the nation's currency has virtually no upside and catastrophic downsides); 2) the central bank exists to protect the interests of banks, and hyper-inflation wipes out debts, loans and banking; 3) th risks of political disorder skyrocket: favoring the already-wealthy and capital is tolerated as long as the middle and working classes feel they're prospering or have hope of prospering. But when the middle and working classes are wiped out, favoring the wealthy (the default setting of the status quo everywhere) triggers blowback that very quickly goes nonlinear, i.e. chaotic overthrow of the status quo."
