Lessons From the Great Depression
Longtime correspondent Ishabaka recently shared key takeaways from a classic on-the-ground account of The Great Depression in the U.S.:
Another reader reminded me that the Great Depression was global and occurred earlier than 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 of 2023.
Here are Ishabaka’s key takeaways from the book:
Thank you, Ishabaka for the summary of timeless takeaways. I would emphasize two:
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 , 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 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.
The risks of gambling in speculative frenzies and depending on serial asset bubbles continuing forever are easily observable, yet few act to reduce these risks. The easiest way to minimize these risks is stop going to the casino. Another is to ask how dependent we are on the serial asset bubble economy: if “The Everything Bubble” pops and cannot be re-inflated, what will the likely consequences be for our household?
Another is to of everything: income, energy, food, etc.: get lean.
Another is to invest in what we personally control. Owning a productive plot of land with a livable micro-house and no debt is lower risk than owning a grand house with an even grander mortgage and property tax bill.
Owning 100% of tools and assets that generate essentials of fundamental value to human life provides us and control of how best to deploy those assets. Being dependent on central bank “saves” of speculative bubbles and assets held 10,000 miles away that may be expropriated by other governments is the acme of uncontrollable risk.
All of these are key strategies of Self-Reliance.
All Sectors – Debt Securities and Loans
Total Assets
S&P 500 Index Hourly Chart
SPX Hourly Chart
