USA & the New Great Depression

Too Big to SAVE

It is my personal opinion that we are on the knife edge of a new Global Great Depression, worse than the one of 1929. The reason for the knife edge, simply, is unregulated and unrestrained human greed, guided by a shameless and selfish financial creativity at par with the recent subprime financial derivatives.

Great banking institutions, now known as ‘Too Big to Fail’, are at the forefront of this greed and because of their impressive size they have now become ‘Too Big to SAVE’. And even if one of these banking institutions fails, it is so interrelated with the other banking institutions that it will bring down the US economy, which in turn will bring down the Chinese economy, which will then be followed by the rest of the world economies.

Those who know this do not spell out the problem, but they know it full well. Especially aware of this is the US government. How is it possible for the collapse of one banking institution, irrespective of how big it might be, to cause the collapse of the world’s economy? Simple. Are you sitting comfortably?

First consider the following:

  • ·The Greek economy represents only 2% of the EU GDP and the Greek debt was originally less than €450 billion.
  • ·So why did the President of the United States get personally involved several times in the negotiations to save the Greek economy?
  • ·Why did Timothy Geithner fly over to Europe several times to take an active part in negotiations to save such a small economy?
  • ·Why would the US even care if the economy of such a small country collapses?
  • ·Why did the other EU countries ensure a ‘haircut’ of €130 billion of the Greek debt and then lent more money to the “lazy” Greeks in order to save them?

The answer is simple. If Greece defaults on its debt, the default will bring down the US economy and subsequently the economies of all nations. If you think that this is impossible, please read on.

The How

Let us take an imaginary financial institution and let us give it an imaginary name, say… Goldman Sachs.

With inflation in developed countries averaging about 3%, how is it possible for banks to make huge annual profits by lending to Germany (for example) at 1.8%? Or even to Spain at 6%? What happens is as follows:

  • ·Our theoretical Goldman, being a huge financial institution, issues its own bonds or promissory notes to borrow $10 billion from investors to lend to Greece – either in the good old days when Greece used to borrow at 1.8%, the same rate as Germany - or now at 6.2%.
  • ·For the loan to Greece, it receives in exchange $10 billion worth of Greek bonds, which are essentially simply a written promise to pay back the loan at the specified time.
  • ·The very next day, Goldman takes this paper-promise to the US Central Bank and, using it as collateral, borrows $10 billion at (say) 1%. (The basic interest rate charged by the US Central Bank currently is at 0.25%)
  • ·The very next day, Goldman then lends this sum to France, at 1.8% and receives a paper promise-to-pay for $10 billion.
  • ·Goldman then takes the French paper-promise-to-pay to the US Central Bank and borrows another $10 billion, again at 1%, which it now lends to Italy at 3% interest and the process is repeated ad infinidum.
  • ·Today, Greek, Spanish and Italian bonds can earn Goldman about 6%, but Goldman still pays the US Central bank only 1%, using the Greek, Spanish and Italian bonds as collateral.
  • ·However, through this creativity, the original $10 billion with which Goldman started out, has now been converted into several trillions, but the actual real, TANGIBLE collateral for these trillions is only the original $10 billion that Goldman started out with.
  • ·In other words, what Goldman achieves is to earn interest of over 1000% on its original $10 billion investment! This is the shameless and selfish financial creativity I referred to above.
  • ·Very simply and naively put, if Goldman collapses, it will owe trillions to the US Central Bank (and others), but will only be able to immediately meet just $10 billion of its liabilities.
  • ·If even a small economy such as Greece’s fails, then the Greek debt of just €450 billion would result in a snowball effect which will evolve into an overall default of trillions, since the weakest link will actually break the chain of Goldman’s financial creativity. Goldman would only have $10 billion to pay for the €450 billion default and will collapse. Its inability to meet its obligations for the other trillions it has borrowed will fall on the US Central bank, which has lent it the trillions essentially without any real collateral.
  • ·In other words, the US Central Bank will be owed trillions by Goldman, which Goldman simply cannot pay.

The Why

This is where it becomes interesting – and even more frightening:

  • ·The US has a currency which is internationally accepted as a means of purchasing commodities such as oil and gold.
  • ·As a result, if and when the US needs to, it can actually purchase oil and gold by merely printing its own money and pay for such goods with simply - paper (if it wants to).
  • ·The US does this printing but only within certain limits it has placed on itself, in order to prevent the dollar from depreciating/collapsing in value.
  • ·Because of these limits, the US borrows back some of its own dollars from economies which have managed to accumulate them through trade surpluses, especially from China.
  • ·Because the US also borrows its own money from investors such as China, it does not want to pay high interest rates, so it keeps its own lending rate at a mere 0.25%.
  • ·By accepting Euro-bonds when the European economy was booming, the US was essentially accepting something of value, which value was calculated on the EU’s (Germany’s) trade surplus and giving out paper.
  • ·The value of the Euro is based on trade surpluses, which are now almost non-existent except in Germany.
  • ·The strength of the Euro has enabled the politicians-in-charge (governments) of some countries of Europe and specifically Portugal, Italy, Ireland, Greece and Spain (known collectively by the acronym PIIGS) to buy votes through social benefits made easy by easy credit.
  • ·Because of the wealth created in this fashion in the PIIGS countries, German industry was able to increase its exports to them exponentially.
  • ·However, German selfishness and blind self-interest prevented Germany from having the political will to accept the creation of a common European treasury, WHICH WOULD NECESSITATE THE IMPLEMENTION OF STRICT RULES AND INSPECTIONS of itself and the PIIGS.
  • ·The result is that through excessive overspending, the PIIGS are now in danger of collapse and default.
  • ·Should the PIIGS default, the Euro would collapse and the US economy would be left holding trillions of worthless debt.
  • ·The US dollar will be devalued.
  • ·China would stop lending money to the US.
  • ·The US and Europe would be unable to buy more goods from China and the Chinese economy will collapse.
  • ·The Germans will be unable to export to other European countries and also to their main markets of China and the USA.
  • ·The German economy will collapse, ensuring the financial collapse of the whole of Europe.
  • ·To pay salaries and other obligations, the US would have to print more money.
  • ·The US dollar would lose its value and be worth less than the Philippine peso.
  • ·For example, one gallon of gas in the US might end up selling for $50.
  • .China will end up with a bloody revolution.
  • .As to the large size countries of the world, India has been used to living on very little and it will revert to doing with just that - very little. Countries which can produce their own food and energy needs, like Argentina, Brazil and Russia, will close their borders and concentrate on food production.

From here on you can add your own bullets and draw your own conclusions…

This is the reason that I advise my family and friends to buy a plot of land where they can start raising their own chickens and vegetables.

The Conclusion

So, you ask reasonably, why do they not (USA and Germany) simply pay off the measly debt that tiny Greece owes and avoid all the possible repercussions?

The answer is again simple: They would do it in an instant, if it was not for the rest of the PIIGS who might also default. The debts of the others are much bigger than that of insignificant Greece and they count in the trillions. Therefore, it is better to make an example of the Greeks, drag them down to absolute poverty, so that the rest of the PIIGS will see what can happen to them if they default and take whatever measures they can now, to prevent default.


In other words, the other countries in trouble will realize that it is better to do with just one meal a day, rather than starve.

The result of all the above will be that it is possible that we might find ourselves in the grip of a New Global Depression much worse than the one of 1929.

UNLESS…

Germany accepts the creation of a common European treasury, the EU decides to imitate the USA and begins printing money with which to pay off its debts and to aggressively invest in new projects for growth… (possibly even consider the temporary devaluation of the Euro). This will result in serious and painful inflation, but it will be temporary and in any case, much better than the alternative…

GOOD LUCK TO US ALL! ;-)

De Greek

(Note: The above is a personal opinion ONLY and it is based exclusively on personal observations, NOT on actual scientific evidence)






Comments 45 comments

chamilj profile image

chamilj 4 years ago from Sri Lanka

You are correct new Global Great Depression is possible.


De Greek profile image

De Greek 4 years ago from UK Author

Thank you for taking the trouble to read and to comment chamilj


handymanbill profile image

handymanbill 4 years ago from western pennsylvania

Thoughtful. Alarming. Well written . Buying Chickens


CHRIS57 profile image

CHRIS57 4 years ago from Northern Germany

Whow, a very good explanation of the Ponzi scheme behind the virtual financial system.

What may have to be added: all this money shifting is based on trust, and - trust is not created by virtual financial action but only by real economics.

You are right about the possibility of a Great Depression. However i believe it won´t be global. The current debt crisis is limited to a handful (20?) of countries with developed economies. By today, this handful represents less than half of the world economic activity and receding. The developing world is not exposed to the financial Ponzi. India is growing from the inside, China is on the fast lane with global trade, any substantial growth coming also from the inside, what about Russia, Brazil?


De Greek profile image

De Greek 4 years ago from UK Author

Handymanbill, please save a chicken for me ;-))))


De Greek profile image

De Greek 4 years ago from UK Author

CHRIS57, unfortunately our economies are too interrelated not to be influenced by a crash.

As for your comment about trust, please remember that Bernie Madoff operated exclusively on trust and he managed to accumulate $50 billion.

As to the countries you mention, India has been used to living on very little and it will revert to doing with just that. Countries which can produce their own food and energy needs, like Argentina, Brazil and Russia, will close their borders and concentrate on food production. China will have a bloody revolution.

But I hope that I am wrong about everything ;-)))


Marigeo profile image

Marigeo 4 years ago

I don't know what to say! It looks like we're all in big trouble and not even chickens can help us! You're very good and you should use this gift to wake more of us up more often! Take care!!!


Gypsy Willow profile image

Gypsy Willow 4 years ago from Lake Tahoe Nevada USA , Wales UK and Taupo New Zealand

I don't think you are wrong . Very scary. Glad I am a gardener and know how to look after chickens and livestock. BUT I don't own a gun so it will all be for nowt!


christopheranton profile image

christopheranton 4 years ago from Gillingham Kent. United Kingdom

Scary stuff. Where can I buy a few hens?


Genna East profile image

Genna East 4 years ago from Massachusetts, USA

Excellent article. We can trace the beginnings of the "2008 global financial crisis" to when they pretty much repealed the Glass Stegall Act and enacted the FSMA of 1999. The financial services industry wanted too big to fail, and they got it.


drbj profile image

drbj 4 years ago from south Florida

Your thorough and painstaking analysis, Dimi, is very insightful, and tremendously scary. Since I have no room to raise chickens at my place, perhaps I could buy chicken futures. Whatcha think?


Green Lotus profile image

Green Lotus 4 years ago from Atlanta, GA

Very smart and very scary. Is there no hope? What we all need is a little good old fashioned deus ex machina.


De Greek profile image

De Greek 4 years ago from UK Author

Marigeo, let us just hope that I am wrong or that wiser minds will prevail in this insanity ;-)


De Greek profile image

De Greek 4 years ago from UK Author

Raye, I hope you have the land to raise your chickens and simply hope for the best. Perhaps you might want to visit me and consider safety in numbers ;-)))


De Greek profile image

De Greek 4 years ago from UK Author

Christopheranton, I am sure that Gypsy Willow will give you a good deal ;-))


De Greek profile image

De Greek 4 years ago from UK Author

Genna, unfortunately they have now become too big to save and something goes wrong, they (and we) are in for it. The worst part is that the people in charge know they endangering their own children, yet they continue to do what they do.


De Greek profile image

De Greek 4 years ago from UK Author

Drbj, to buy chicken futures you would have to buy them from Goldman. Work out what you will end up with ;-)))

Nice to see you and kiss you ;-)


De Greek profile image

De Greek 4 years ago from UK Author

Green Lotus, yes, as the self-perceived DEUS in the ex machina part, I took it upon myself to create a solution, but by the time people decide to implement it, it will be too late: ;-))))

http://hubpages.com/politics/Communism-Capitalism-...

http://hubpages.com/politics/Greek-Financial-Crisi...


Winsome profile image

Winsome 4 years ago from Southern California by way of Texas

Correct what we can see and control, pray for Hillary's deus ex machina for the rest. Sounds good to me.

What I really want to know is how to make these bonds so I can cash them in as collateral for a cheap loan. The Republic of Winsome, based in the Cayman Islands, can issue as many bonds as my printing business can create, borrow ten billion and lend it to hubbers in the form of micro loans at 5% interest, giving me 4% profit.

What is 4% of 10 billion? Would it be more than my adsense earnings? =:)


De Greek profile image

De Greek 4 years ago from UK Author

Winsome, you are a fast and dangerous learner. I now fear for the Universe! ;-)))))


De Greek profile image

De Greek 4 years ago from UK Author

Today, April 26th 2012;

I have just heard in the news that the US economy has been downgraded again. From AA++ to AA. It used to be AAA.

Am I good, or am I good? ;-))))


CHRIS57 profile image

CHRIS57 4 years ago from Northern Germany

The US economy never came out of recession if you look at the numbers. Productivity still lags at 10% and any growth of real economy can only be sparked by making, harvesting, producing real stuff. Economy is not moving forward if more and more unproductive, service oriented labour is making up for the GDP.

When GDP rises 3%, population rises 1% (rough estimate) and industrial production rises 5%, what does it do to real growth?

Firstly, GDP growth is 2% nominal. Industrial production is 10% of GDP and gets a kick of 5%, that results in 10,5%. That leaves us with 1,5% GDP growth unaccounted for. What is that? Higher trade deficits? Nothing good for the US economy. Higher service sector? Is it really helpful to have another Pizza shop in your neighbourhood?

I guess it is quite obvious to understand that the unaccounted 1,5% is already fuel for the next bubble, but no real growth.

So, by putting economic figures together, the US stands in line with countries like Greece or Spain. But still - size matters. So the US giant must be treated differently than the small European countries in sick bay.


Dolores Monet profile image

Dolores Monet 4 years ago from East Coast, United States

Though hard for me to understand, I got enough to realize that this is a frightening situation. Compound it with the fact that the taxes on the highest earners here in the US have never been this low since 1929, and the fact that money is made, nowadays, by passing money back and forth, one has to wonder what they are thinking. I just looked at the interest rates at my local bank. For a new passbook savings account, the interest is zero percent.


De Greek profile image

De Greek 4 years ago from UK Author

You know CHRIS57, I believe in the potential of the US because of its people. I have been to the US many times and I always leave with a feeling of pleasure because of the friendliness, generosity and the smiling faces I have come across during my stay.

For the time being the people have been hoodwinked by the few and they have been let down by their politicians. But I have no doubt that another gifted great man will soon come along and guide them in the right direction.


De Greek profile image

De Greek 4 years ago from UK Author

Dolores Monet, let us just hope that I am too pessimistic and completely wrong about the pending crush.

I must agree with you on the matter of the low taxes for the super-rich. The US market is huge and anyone with any sense would not want to leave it. In consequence, the reason given for not taxing the rich - that they would actually leave the US – does not hold much water. It is the wealthy who control governments, the world over. ;-)


CHRIS57 profile image

CHRIS57 4 years ago from Northern Germany

DG - i am fully with you, concerning the people.

But the US is like a supertanker, it takes an awful lot of time and effort to change direction. Is the hope for one gifted great man enough?

And what about the political situation of elections every 2 years (Congress, Presidency). That is like commanding starboard .. port .. stb .. with the result of no fundamental adaption.


De Greek profile image

De Greek 4 years ago from UK Author

CHRIS57, we can only hope for the best. With all its faults, the USA is still a leader in democratic values and an example to many. Most of us can only observe the developments with interest and anxiety.


JamaGenee profile image

JamaGenee 4 years ago from Central Oklahoma

De Greek, many of my friends know I was firmly against the 2008 bailout of those banks deemed "too big to fail". This was even before we knew the extent that derivatives were a major part of the "assets" of every banking system in the world, or what "credit default swaps" were.

My feeling at the time was any bank "too big to fail" probably NEEDED to fail, not play fast and loose with billions of dollars in toxic investments and then expect taxpayers to replace their losses when those schemes failed so miserably and caused world-wide financial disaster.

I said instead the bail-out money should be given to taxpayers, say at least $50,000 or more to each, which they could use to catch up the mortgage, pay off credit cards, buy a new large-ticket item like a car or appliances, and put the rest into savings accounts at LOCAL banks. All of which would have jump-started the economy from the bottom up, then work its way UP to the institutions (those still in business) that caused the financial meltdown in the first place.

I found out later this is precisely what Australia did, and its economy totally recovered in a very short time. Iceland prosecuted those who caused the collapse of THEIR banks (those who didn't commit suicide, that is) and they're doing fine now.

Had the U.S. let a few Big Banks fail and followed Australia's example instead, our economy would be fine now, too. The problem would've been dealt with AND solved almost 4 years ago rather than still lingering on as it is now, with no end in sight and the WORLD economy on the brink of collapse.

The thing that ticks me off the most are the CEOs and other VIPs on Wall Street who knew the meltdown was coming, bet against it, and reaped obscene amounts of personal wealth for themselves, now tucked away in secret, off-shore accounts. Those accounts and the ill-begotten profits they contain should be confiscated by the U.S. government and used to stabilize the economies of Greece and other countries on the brink of collapse thanks to Wall Street's greed.

American bankers and mortgage lenders are responsible for this mess, and America's "too big to fail" financial institutions should be FORCED to fix it. I think *eventually* some will have no choice but to unlock those hidden fortunes and do just that, but they should be MADE to do so ASAP.

Stricter regulations need to be put in place so this can never happen again. Strict regulations WERE put in place after the 1929 collapse...to make sure such a thing couldn't happen again...but one by one those regulations were relaxed OR eliminated, and everything they were meant to prevent happened. Again.

Voted up and awesome! Apologies for running on so long. ;D


Gypsy Willow profile image

Gypsy Willow 4 years ago from Lake Tahoe Nevada USA , Wales UK and Taupo New Zealand

Great response JamaGenee


De Greek profile image

De Greek 4 years ago from UK Author

My Dear Joanna,

I think that future historians will not be kind to the last two Presidents of the US for sacrificing their people’s prosperity to save the Saudi investments in Citi Bank and other US corporations.

They, the Presidents, succumbed to pressure from the Saudis for reasons which those future historians will be better able to document.

And i agree with Raye: Great comment ;-)


JamaGenee profile image

JamaGenee 4 years ago from Central Oklahoma

Thanks, Gypsy and DG. Thing is, I worked all that out WITHOUT a Business degree from Harvard. Too bad Congress and those U.S. presidents weren't blessed with the same amount of common sense...and the backbone to USE it.


De Greek profile image

De Greek 4 years ago from UK Author

That's the spirit Joanna. Youa and I shall rule the world!!!!! ;-))))))


arb profile image

arb 4 years ago from oregon

One of the most incisive opinions I come across lately. Beginning with your comment of unbridled human greed and concluding with a forseeable global depression. I believe, however, that such an outcome will be avoided by the very genesis of its original launch, greed. The gluttenous appetite of corporations controlling both economy and government are too accustomed to satisfying a voracious hunger when the bell rings. They will take the necessary hits and diet long enough to right the sinking ship. We will bow in homage to their illusory sacrifice, pay tribute once again and the merry-go-round will go round and round fullfilling the endless cycle. Greed, absent any moral fabric, has given birth to a monster many are just being introduced to. When we realize the monster can't be killed we will find a way to feed it. The sheep will go back to thankful grazing and a token shepherd will manage the wolves and all the world will be happy again. The chickens will not do for the wolves will not discriminate when hungry. Unfortunately for the wolves the sheep are a necessary comodity to their long term survival. Even wolves will feast on cabbage to insure their future.


De Greek profile image

De Greek 4 years ago from UK Author

arb, great obsetvations. And thank you for your kind words ;-)


De Greek profile image

De Greek 4 years ago from UK Author

FOR THE RECORD:

Silvio Berlusconi 1 June 2012

"We have to go to Europe and say forcefully that the ECB should start printing money," Berlusconi said in an entry on his Facebook page.

"Otherwise, if it doesn't, we should have the strength to say 'ciao, ciao' and leave the euro, while remaining in the EU, or to say to Germany that it should leave the euro if it doesn't agree," he said.


SilverGenes 4 years ago

Another excellent article, and your vision in coming closer to actuality now that we are at the end of September. Food and gas prices are escalating quickly here in Canada and will continue to rise over the winter. That will leave many people in the cold - literally. I agree with you completely that we are going to need to become a lot more self sufficient and create our own community mini-economies through barter. It's already happening where I am and it's unfortunately going to get worse before it gets better. Chickens for all!


De Greek profile image

De Greek 4 years ago from UK Author

SilverGenes ,

Chickens for all indeed ;-)

The sad part is that there is a very simple solution, a new Economic System that I have proposed, but neither the ‘Controllers’ of the politicians nor the unions will consider it, because they would lose their control over our lives.

The idea is written with the Greek cinancial crisis in mind, but it can be modified to apply to all countries. If you are interested, you can read it here:

http://hubpages.com/politics/Greek-Financial-Crisi...

I am currently writing an analysis of how we got here, how corruption is all pervasive even in countries which appear not to have it and how history has been skilfully fabricated to suit the intersts of the ‘Controllers’. It will make interesting reading, but only for the few who are not happily wallowing in their slavery. ;-)


SilverGenes 4 years ago

People around the world are rising up against their governments and demanding change so I'd have to say that even the most reticent are no longer happy wallowing in slavery, except in North America. We haven't even recognized the problem yet and are too busy answering rallying cries to think for ourselves - almost. Suddenly, those who do stand up and say something are put on 'lists' and targeted. Our system here is feudal really but that is hard for most people to accept. I will be reading your article "Greek Financial Crisis" next. Again, well done!


De Greek profile image

De Greek 4 years ago from UK Author

The foundations for the existence of our current masters were established in 1066, with the Normans' invasion of Britain. Feudalism is the basis of our current western civilization. You actually get it! I am impressed! ;-)))


SilverGenes 4 years ago

Thank you :) Yes, I do understand the system and also the social conditioning that makes what you are saying carry a label of 'fringe/conspiracy/radical/extremist thinking'. Don't you just love how the herd (us) are manipulated? [sarcasm]


De Greek profile image

De Greek 4 years ago from UK Author

Look out for my Hub on this. Because of you I am expediting the article and I hope to hear your comments ;-)


SilverGenes 4 years ago

Excellent! I look forward to it - I'm already sharing your hubs on Facebook :))


SilverGenes 4 years ago

Oh - I forgot to add that I have added links to your hubs from mine :)


De Greek profile image

De Greek 4 years ago from UK Author

Ah... how kind... thank you ;-)


De Greek profile image

De Greek 4 years ago from UK Author

Oct 18, 2012:

Study: Greek euro-exit could start €17tn 'wildfire'

http://euobserver.com/economic/117912

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