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“The Monetary Theory of the Great Depression is incorrect, however. Consequently, the Fed’s Quantitative Easing policy is more likely to exacerbate than resolve the global crisis,” Duncan argued in an article. “The Great Depression was caused by the inability of the private sector to repay the debt it incurred during the Roaring Twenties, just as the economic crisis that began in 2008 was caused by the inability of the private sector to repay the debt it incurred between 1995 and 2008,” he said.

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Federal Reserve Chairman Ben Bernanke’s approach to stopping the financial crisis by printing money is wrong, as the private sector is still unable to pay its debts, Richard Duncan, the author of ‘The Dollar Crisis: Causes, Consequences, Cures’ wrote Friday. (1)

“Bernanke believes in the Monetary Theory of the Great Depression, which holds that the Federal Reserve could have prevented the Great Depression by stopping the US money supply from contracting during the early 1930s,” Duncan wrote on his Web site.

Printing money and trying to prevent a contraction of the money supply does not change the fact that the private sector cannot repay its debts, said Duncan, who believes when an economic upturn begins it follows a path that eventually leads to excessive investment gluts and falling product prices, while overly inflated asset prices become unaffordable and begin to fall.

“Falling product prices and falling asset prices lead to business distress and insolvencies; and business failures lead to bank failures and, hence, to the destruction of deposits. Credit contracts and the economy enters recession,” he explained.

Not the whole story

In 2011, any nation that has a weak currency has a very significant competitive advantage in global trade. A weak currency means that the products and services produced by that nation will be less expensive for other nations. Therefore other nations will buy more of those products and services. When exports go up, employment goes up and more wealth flows into the country. Alternatively, when the value of a national currency declines, exports do down, unemployment increases and less wealth flows into the country.

Therefore, dozens of exporting nations around the globe have become increasingly determined to keep their national currencies very weak in an attempt to maintain a competitive advantage in the global marketplace. Essentially what we have is a race to the bottom among global currencies. Whenever any nation wants to gain a little bit more of an edge in global trade they push the value of their currency down just a little bit more. So who is the winner in all of this? Well, that is easy. Gold, silver and other precious metals will continue to be the winners as fiat currencies all over the globe continue to decline in value.

With millions upon millions of Americans out of work, and with millions of homes being foreclosed, and with poverty statistics soaring into uncharted territory, it is very tempting for our politicians in Washington to borrow even more paper money and to pump it into the economy in an attempt to get things going again, but right now an election is coming up and the Tea Party has raised such a ruckus about government debt that there isn’t much appetite for more “stimulus packages” right now. Of course the truth is that “stimulus packages” never solve any of our long-term problems anyways.

As usual, the jobless number doesn’t tell the whole story. Here’s a better picture of the situation:

Year 2000: 4% of Americans were unemployed. Of those, 10% were defined as long-term unemployed (looking for work for longer than 27 weeks)

Year 2010: 9.4% of Americans are unemployed. Of these, 40% are long-term unemployed.

This is alarming. The nature of joblessness has changed in ten years. It has become chronic and prolonged. So much so that the Bureau of Labor Statistics is thinking of sub-dividing its “unemployed more than 99 weeks” category (as high as it currently goes) so it can more closely monitor those still looking for work after three,four, or even five years.

Imagine, tracking an unemployed person through five long years. How sad. Yet, BLS does not monkey with its data lightly. The terrible possibility of millions of long-term unemployed seems to be something it is preparing for, and if that’s what American workers face, maybe they SHOULD have let the banks go down. Would the consequences have been any worse?

References:

Bernanke is Wrong on Quantitative Easing: author

This entry was posted on Monday, January 24th, 2011 at 5:32 pm and is filed under All Posts, Bankruptcy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

2 Comments

  1. January 24, 2011 @ 8:05 pm


    Can anyone World Wide explain in a simple language the long-term benefit of “printing money”?

    Can a careful fiscal policy exist in economies were people’s expectations are full employment and increased salaries above the inflation rate?

    What is the risk in 2011 onwards of Hyperinflation?

    The uncertainties of “financial markets and the tools” are upsetting the collector market by driving people to invest, how can we reverse this position?

    SwK

    Posted by SwK
  2. February 27, 2011 @ 3:53 am


    We live in a Fiat Inflationary Bubble Boom-Burst Top-Down Money-out-of-thin-Air Pyramid Predatory War Economy. It is Dangerous to Human Rights, Justice and Civilization as we know it.

    It keeps the Poor, Poor. It makes the Rich Richer. It allows the dominance of Predators, Parasites and Dictators by Stealth, Cunning and insidiousness like Cancer. It demoralizes the Hard Working. It catches the naive unprepared. It diminishes the Importance of Family. It is a Mockery to Capitalism and Democracy. It is an insult to the Intelligence of Thinking Men and Women all over the World.

    Money Printing is just Part of the whole Rogue Economy Created By Modern Man and it must be disassembled before it destroys everyone.

    Posted by David Jeremiah

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