Crypto Society
This article mainly discusses the economic cyclical depression and recovery through two historical events before World War II in the last century.
Look at historical wars from the perspective of economic cycles, and look at economic cycles from the perspective of historical wars. This is the entire big cycle, which is what people often call the Kondratieff cycle.
Given that most financial media's descriptions of this institution are too textbook and too simple, and contain some misunderstandings, this article will combine what has happened in history to restore the concepts of interest rate hikes, interest rate cuts, inflation depression, economic crises, and wars.
The Origins of the Federal Reserve
From February 2022 to now August 2024, after two years of the Federal Reserve's interest rate hikes, the entire earth has been living a tight life, and some small countries have gone bankrupt, and a dozen small countries are on the verge of bankruptcy.
Why do we start with a central bank of another country when we talk about the economic cycle? Because the US dollar is the world currency. When it issues bonds and expands its balance sheet, the whole world prospers. When it raises interest rates and withdraws money, the whole world tightens. The source of the economic cycle is this thing. Although it seems far away from us and not even close to us, its actions are transmitted through the economic chain and have a great impact on us.
Therefore, we should have some understanding of this faucet, at least know where it came from and who has the final say behind this organization, so that we can know what its purpose is, what it is doing and what it will do.
Given that most financial media's descriptions of this institution are too textbook and too simple, and contain some misunderstandings, this article will combine what has happened in history to restore the concepts of interest rate hikes, interest rate cuts, inflation depression, economic crises, and wars.
The first misunderstanding that needs to be corrected is that we all know the original intention of establishing the Federal Reserve. The official statement is that it is for the long-term stability of the U.S. economy, to stabilize prices and employment rates, and to prevent the economy from overheating or overcooling, triggering a crisis or recession.
In order to ensure a stable life for the American people, this is of course a politician's public display. The function of public display is to at least make the mainstream public opinion think so, so that the righteous surface purpose can cover up the dirty real purpose behind it. The better the deception, the less resistance. Judging from the results, the effect of deception is very good.
Now, the world's mainstream financial media speculate on whether the Federal Reserve will raise or lower interest rates based on two indicators: the US inflation rate and the employment rate released by the US Department of Labor.
If it is too low, it feels like it should be lowered, and if it is too high, it feels like it should be increased. It seems that the Federal Reserve's monetary policy is really intended to increase this public service and become a public welfare department.
But historically, you'll find that the Federal Reserve is a tool used by the private sector to create profits, and it always has been.
How did the Federal Reserve come about? In 1913, John Pierpont Morgan, the third-generation head of the Morgan family, led 12 private banks and seven financial tycoons to launch the Federal Reserve Act, which was formally established after President Wilson signed it.
Among these seven chaebols, there are 13 families that are truly influential: the Morgan family, the Rockefeller family, the Chase Manhattan Bank, the Rothschild family, and the Schiff Banking Group. Including the Stillman family, who co-controlled Citibank with Rockefeller, there are four families. Add a few political families that were co-opted, such as the Adams and Kennedy families, and the US central bank was established.
Here we need to emphasize and remember the person named J.P. Morgan.
You can tell from the photo that he looks very domineering. In fact, he is a real boss. Subsequent major historical events are closely related to him. He took the lead in establishing the Federal Reserve. Why is Pierpont Morgan so famous? Just look at a few numbers to know his strength.
In 1907, when the US was in financial crisis, Pierpont raised $1.4 billion to rescue the market. What does this number mean? That year, the US fiscal revenue was $900 million, and the indemnity of the Boxer Protocol was 450 million taels of silver, which was equivalent to $500 million according to the international silver price at that time. It is not an exaggeration to say that he was rich enough to rival a country.
In the early 19th century, the Morgan family controlled two-thirds of the railroads in the United States, and bought the Carnegie Steel Group for $400 million, monopolizing steel and shipping. He also invested in General Electric, the one that Edison invested in.
It holds 38% of national financial institutions and 60% of insurance companies. In the early days, it accumulated a lot of wealth by accurately predicting the price of gold, buying low and selling high, and arbitrage the price difference, and was called the Gold Magician.
Well, back to our question, when the Fed acts as a faucet and pump for funds, it is the remote control of global asset prices. Cutting interest rates and releasing funds will create bubbles in asset prices, and raising interest rates will burst the bubbles.
When the actual controller of this remote control is also the biggest financial speculator in this market, holding the switch of the world's central bank, what will he do when the athlete and the referee are combined?
To maintain economic stability? Don't be ridiculous. There is no financier who works for nothing for the benefit of the people of the world, right?
There are many tricks here. Before each interest rate hike or cut, can these actual controllers know the next monetary policy earlier than the market? What will they do after knowing it?
It's a very simple truth. You can control the stock price when you trade stocks, so he will do the same thing as you would.
If anyone thinks it’s a conspiracy theory, they can take a look at the Great Depression of 1929 and see who the winners were after the economic crisis, and who the crisis was a danger to, and whose opportunity it was.
The Great Depression
Before the Great Depression in 1929, there was a great prosperity, because the First World War devastated Europe, and the United States watched from the other side of the earth. As the first industrial country, Europe's war demand boosted production capacity, and selling things made money. With the continuous inflow of gold, the Dow Jones Industrial Average in the United States tripled. Volkswagen's car ownership increased from 7 million to 28 million in a few years. One in five people had a car. Everyone thought that the stock market would always rise, and everyone thought that they would become richer and richer in the future. Then what proportion of consumer loans can be achieved in installments?
Cars can be financed at 90%, houses at 70%, and stocks at 90%. That means with 10% of your money, you can get 10 times the funding for stock trading with just one phone call.
What does this mean? It means that if the stock price drops by 10%, those who rely on margin trading, short selling, and leverage to trade stocks will go bankrupt.
When the bubble is blown big enough, fragile enough and thin enough, take a needle and tap it gently, and something magical will happen.
This needle is from 1928 to August 1929, when the Federal Reserve raised interest rates from 1.5 to 6%. The stock market prices could no longer hold on and exploded, and the crisis began.
Whose crisis is this? Consumers who borrowed money to invest in stocks, and industrial companies that borrowed money to expand, are now homeless and the streets are full of homeless people. The unemployment rate has been above 25%, stock prices have plummeted, companies have gone bankrupt, and 9,000 banks have closed down.
The Great Depression came. Did the Great Depression affect the rate hike? At that time, President Hoover declared that this was a normal cycle, the free market was very healthy, and he would not interfere with the operation. It was they who went bankrupt, lost everything, and went bankrupt.
What about the winners? In October 1939, the superhero appeared in the financial world, called the White Knight, Pierpont, who entered the market with $300 million to rescue the economy and finance and swallow up the assets after the crash. Discounted assets were everywhere, right?
After buying everything, the government intervened to cut interest rates and revive the economy. Roosevelt's New Deal came, and fame and fortune came. Then the U.S. stock market began to rise. But all this has nothing to do with those people, because they are out.
Looking back at the Great Depression, there are three paradoxical issues.
The first question: Who pushed the consumer loan and margin trading bubbles?
Answer: Private banking and shadow banking, stocks, trusts, investment management companies, and Wall Street.
The second question: Why do they have money to buy at the bottom after the money in the market is withdrawn due to the interest rate hike?
Answer: It must have landed first. Why? Because the duck knows first when the river water warms up in spring.
The third question: Why is it necessary to raise interest rates?
Answer: Only when the bubble bursts and most people go bankrupt will they sell at a low price. They will sell their children and assets, and only in this way can they copy to the bottom.
The subsequent economic crisis followed the same script, playing out in different regions and times.
During the 1997 Asia-Pacific financial crisis, South Korea's economy was crushed and the IMF, or the International Monetary Fund, offered a conditional loan.
What is a conditional loan? It means taking advantage of the situation, removing restrictions on foreign capital holdings, amending the Banking Law, and allowing free flow of foreign capital accounts.
The end result was that Daewoo went bankrupt and was directly acquired, most of Samsung's shares were acquired, and Wall Street became the major shareholder.
As of today, BlackRock's stake in South Korea's Samsung Group is probably twice as much as the combined stake of the Lee brothers and sisters.
It is obvious whether the US dollar tide created by the Federal Reserve is to prevent the Great Depression or to cooperate with the price manipulation of crops and arbitrage tools. This round of interest rate hikes has resulted in an inflation rate of 3.4% and an unemployment rate of 4%.
Some time ago, Fed Chairman Powell's speech was still creating tension. He said that although the data is good, confidence is still insufficient, so he has to hold back and continue not to cut interest rates. Why? Because there are not enough large economies to burst. After working hard for a long time, there are only Sri Lanka, Vietnam, and Egypt on the table. How can these side dishes be enough?
There is simply not enough for bargain hunting. Many countries are almost unable to hold on. After spending so much effort, how could he stop when these economies are in danger? Wouldn’t that mean all the efforts would be in vain?
Inflation rate and unemployment rate are never the reasons for the Federal Reserve’s monetary policy, they are just reasons.
Profits lead to depression, inflation leads to revival of war
The second topic is to use interests as clues to the Great Depression, inflation and revival wars.
Let's take a look at how depression, recovery, and war happened. From economic explosion to economic recovery, Germany after World War I is a typical example.
In World War I, Germany's industrial facilities were crippled and half destroyed. The Treaty of Versailles was signed, and Germany continued to bleed every year due to war reparations, shortages of supplies, and hyperinflation. 500,000 marks of bread, right?
The unemployment rate is 40%. How come there is no employment problem in a few years? The unemployment rate is 1.3.
40 million working population, more than 10 million people enjoy paid vacations, and many holiday resorts and sanatoriums have been built because of this. Where does the money come from?
From 1924 to 1931, Germany paid a total of 11 billion marks in war reparations, equivalent to 1.5 billion US dollars, using tariffs and industrial and commercial taxes as collateral. It was three Boxer Indemnities.
How can a defeated country, which even gave the right to raise taxes to other countries, recover its economy and afford the huge military expenditure? Expand the military and finally start World War II, just because a mustache was elected? So where does the money come from no matter how smart he is? A good cook cannot cook without rice, right?
Remember the family behind the Federal Reserve mentioned earlier? The story begins with the surrender of Germany in 1918, which marked the end of World War I.
The battle is over, and the next step is the post-match settlement.
The First World War drained the wealth of all European countries. The United States was far away on the other side, selling supplies to Europe while lending it war debts. The result of the war was the debts between the Allied Powers, plus the debts owed to the United States, totaling to $20 billion.
Although the Allied countries won the war, who could they expect to pay for their debts and post-war reconstruction? Of course, they could expect the defeated countries to pay reparations.
At the same time, in the European strategic landscape, once Germany surrendered, the main contradiction disappeared, and the Allies had their own ulterior motives and calculations on the distribution of interests, and their opinions were inconsistent again. France must have wanted to crush Germany and castrate it both economically and militarily.
After all, it is not good for him to have such a warlike neighbor, but from the strategic standpoint of Britain, in order to prevent Germany from becoming too weak and France from becoming the only superpower on the European continent and eventually threatening itself, it is more tolerant of Germany.
For American multinational financial capital, in order to protect its own creditor's rights and get its money back in the end, it is even more necessary to support Germany.
The inconsistency in the interests of various parties is the prerequisite for Germany to develop and survive.
History of Germany
In 1919, the Treaty of Versailles was signed, and Germany paid a compensation of 220 billion marks, which was equivalent to 32 billion US dollars based on the exchange rate at the time.
The debt must be repaid with the gold standard currency. If this shackle is put on and the treaty is strictly followed, Germany will be enslaved for three generations.
But in history, every time a dangerous moment comes, a great man will appear. I know who you are thinking of, it is not the little mustache, at least not him now.
This character is Yamal Shakht.
He is the director of the German Monetary Office, as well as the beard-wearing nobleman and godfather of the Fuhrer.
He was attracted by the mustache, otherwise the failed art student would have spent several years in prison and then run for election to a political party. Where did he get the funds for his activities?
There are bigwigs behind him who help him raise campaign funds on Wall Street.
In 1931, when Schacht was giving a speech at an American university, a female reporter asked him whether the Nazi Party would rule Germany in the future. Schacht answered:
No, they will not rule Germany, we will rule Germany through them.
At the same time, Schacht was also Morgan's man. His father worked in the trust company under Pierpont Morgan. In order to support Germany, after the Treaty of Versailles, Schacht and the American Dawes proposed the Dawes Plan.
What was the plan? To prevent Germany from collapsing and failing to repay the debt, Germany was given another 800 million marks, equivalent to $190 million, and Germany was helped to continue issuing bonds and borrowing money, including $1.5 billion in railway bonds and $700 million in industrial bonds.
Let's do some calculations. How much was the total reparations paid by Germany from 1934 to 1931? How much did Germany borrow from the 1.75 billion US dollars? 3 billion US dollars.
After these German government bonds were subscribed to by international financial capital, Germany's survival became tied to the interests of the financial giants. The defeated country went from losing money to having an extra 1.5 billion US dollars in its hands, but later still shouted that it had no money to pay back.
Later, the United States launched the Yanger Plan, which reduced Germany's war reparations by 30% and paid them off in 59 years. From this moment on, Germany completely got rid of the economic control of the Allies.
At the same time, Germany cleverly used debt to tie itself to the position of global financial capital. Otherwise, why would other countries turn a blind eye when it attacked Poland, Slovakia and the Czech Republic?
Appeasement policy
Because the debt relationship is the strongest, sometimes stronger than the husband-wife relationship. Your wife may not wish you well, but your creditor will definitely wish you well.
Cixi's actions were the opposite. She paid off the foreign debt before the Sino-Japanese War of 1894-1895. At that time, they were Japan's creditors, so of course they supported him and beat you.
Everyone knows what happened later. After the mustache man supported by Schacht came to power, Schacht was appointed German Minister of Economics and fulfilled his campaign promise to rapidly revive the German economy, expand armaments, build roads and infrastructure, and use work to stimulate the economy.
The Nazi Party established a social welfare security system, unemployment pensions, and mandatory paid vacations.
The military controlled the basic necessities of life, such as food and steel. By 1933, the unemployment rate had dropped to 1.3. The people who had received basic security had no worries, and their consumption was unleashed.
The released domestic demand has driven the German industry to create more jobs. Consumption has changed from buying a few pieces of bread to survive to becoming diversified.
Entertainment, vacation, recuperation, etc. Later, he ordered Volkswagen to produce a car that every household could afford.
Although they were defeated before they could realize their goals, you can see that the Nazi Party was not just bragging when it boasted that it had created an economic miracle. In fact, this policy experience was learned by the later US President Roosevelt and turned into the New Deal.
Some people say that the recovery was achieved through Keynesian money printing and money printing, but strictly speaking it was not achieved through monetary expansion alone.
After the Great Depression, Roosevelt's New Deal only increased the US money supply by one percentage point. What really worked was the social welfare security system and bankruptcy protection law to protect the grassroots.
Looking back at Germany's economic recovery, you will find that the Nazi Party solved two key problems:
The first is international financing through debt assetization, which earns twice as much U.S. dollars as compensation by selling bonds.
The role of money
What is money for? It is a tool for allocating world resources across regions. If you have money to purchase resources, there will be no shortage of imported materials, and inflation will naturally not be a problem.
The German government can borrow money in this way, but the currency for expansion must be money that can be circulated globally.
If it cannot be circulated, compare it to the Republic of China Central Bank Governor Kong Xiangxi who also engaged in monetary deficit. The economy would have collapsed. The money he created was not a global currency and could not be spent outside. It did not bring in additional resources, nor was it used for redistribution. A social security system was not established, but those who were not short of money got the most money.
The four big families used the money to continue hoarding supplies, driving up prices, exploiting the poor, and lending at high interest rates. Naturally, the economy imploded, and the banknotes became ghost money.
Therefore, simply flooding the market with money without considering the problem of proper distribution will definitely cause big trouble. Germany has managed to do this.
The second question is to physically eliminate those who profit from it, those who lend money at high interest rates and hoard supplies for speculation, right?
It's the You family. (Now it seems that they are breaking the law, so let's avoid it.)
In this way, money was raised from the international community, and those who lent money at high interest rates to the poor, speculated on prices, and hoarded goods to profit from them were eliminated, and economic vitality was boosted.
We all know what happened later. Success or failure is due to Xiao He. He cannot print the money he borrowed, so he has to pay it back. If everyone is on the same page, you can turn a blind eye to sending troops to Czechoslovakia, Austria, Slovakia, and Poland, because everyone has the same interests.
But when the company becomes big and no longer honors its contract and repays the money, friends become enemies.
The landmark event was Schacht's resignation as German Minister of Economics in 1939, which meant that he had completely fallen out with his financiers and refused to pay back a cent. German bonds corresponding to the Dawes and Young plans soon fell in value by more than half.
If the other party doesn't pay back the money, what's the value of this note? It's like a loud slap in the face of the financial backer. The boss is very angry, and the consequences are serious.
After conquering France in 1940, the Nazi Party seemed to be at its peak, but in fact it was already at the end of its strength.
He discovered that global capital and the communist camp had transcended ideological differences, formed an alliance, and blocked Germany's resource supply around the world.
You know, the military war requires a huge supply of resources to support it. If your neck is stuck, it will be a big trouble.
So later we saw the winter at the end of World War II when Germany was at war on all sides and even wanted to challenge the Soviet Union.
Some people analyzed that it was because of the excessive drug use while skating that caused a brain seizure, but it had nothing to do with that, because there was no way back and the resources were exhausted. At this time, the only way to survive was to occupy the southern Jiangsu area, get supplies, and obtain food, oil, and steel.
This is why we had to send troops to Kiev while attacking Moscow. If we gave it a try, there would be a glimmer of hope. Of course, we lost the gamble in the end.
Historical records show that the German troops under the city of Moscow did not even have down jackets. Germany's latitude is not much lower than that of Moscow, and the winter is also very cold.
The German army couldn't even get enough winter clothes, which showed that they were running out of energy and no longer had the money to make long-term plans.
Later, he colluded with Japan, which was also an agent in East Asia, and the East and the West rebelled together. After all, everyone had the dream of becoming the boss from an agent and getting rid of control, so they joined forces to cause trouble. This was the origin of the fascist alliance in World War II.
From an economic perspective, the context of this history becomes clearer.
There are two types of economic depression and prosperity. One is the debt-plus-deflation artificially created by financial forces, and the other depends on the resource map of the country's war zone, which depends on military strength and financial capabilities.
You can either rob or buy the basic survival guarantee. This is a problem of internal distribution. At this time, a group of people who are causing trouble in the middle must be cleared out, such as those dealt with by the man with a mustache..., right?
When currency cannot solve resource problems, foreign war becomes a necessary means. When distribution problems cannot be solved, internal conflicts will cause chaos.
Speaking of J.P. Morgan, Japan's Meiji Restoration, Russia's October Revolution, the establishment of the Soviet Union, and the subsequent Great Purge all have a close relationship with this person. I will talk to you in detail when I have the chance.
Talking about history is not just about telling stories, it is about building some economic common sense. A few final words.
The game of inflation and wealth redistribution.
The difference between now and the last century is that the previous currency was based on the gold standard, while the current currency is based on the air standard. All countries need to expand their currency to maintain economic operation, so it is meaningless to discuss whether inflation is good or not. This is an era of inflation. Inflation is not the point. The composition structure of inflation and where the inflation occurs are the key points of the game.
Who gets the benefit of the increase in the international price of a commodity? Is it mainly the suppliers of raw materials, industrial added value, labor, finance, or capital gains?
The game between these factors is not entirely a market mechanism. Inflation in oil and mineral raw materials is of course a good thing for Saudi Arabia and Australia, but of course a bad thing for China, Japan and South Korea.
Inflation in industrial added value, rising labor costs and wage increases are of course good things for industrial producing countries, because this is how a virtuous circle can be formed.
Lowering the price of labor to dump goods is equivalent to a disguised subsidy to other countries. The labor factor involves the most people, the most dispersed power, and the weakest bargaining power, so it is also the group that needs the most protection. These people are poorer than other parties, and under the pressure of survival, they have no pricing power for their own labor.
All oil-producing countries know that they need to form OPEC to cut oil production, right? Don't be so aggressive and raise the price of your own raw materials.
The technology industry protects its own rights and interests through patent restrictions, and international financial capital is above all others, manipulating prices and investments through tidal games and then harvesting labor.
Human resources are also a kind of resource. Labor is an important component of wealth. At the same time, they are also the most vulnerable group. Because they are weak and scattered and have no voice, most of the wealth created by this group of people is occupied by other parties. This is the unreasonable aspect of the wealth distribution game in inflation.
Therefore, it is unsustainable and prone to depression.
How can we balance the interests of several parties in the game of inflation redistribution and allow the economy to enter a virtuous cycle? This is the key to winning in modern economic competition and the greatest test of the wisdom of contemporary gamers.
The Origins of the Federal Reserve
From February 2022 to now August 2024, after two years of the Federal Reserve's interest rate hikes, the entire earth has been living a tight life, and some small countries have gone bankrupt, and a dozen small countries are on the verge of bankruptcy.
Why do we start with a central bank of another country when we talk about the economic cycle? Because the US dollar is the world currency. When it issues bonds and expands its balance sheet, the whole world prospers. When it raises interest rates and withdraws money, the whole world tightens. The source of the economic cycle is this thing. Although it seems far away from us and not even close to us, its actions are transmitted through the economic chain and have a great impact on us.
Therefore, we should have some understanding of this faucet, at least know where it came from and who has the final say behind this organization, so that we can know what its purpose is, what it is doing and what it will do.
Given that most financial media's descriptions of this institution are too textbook and too simple, and contain some misunderstandings, this article will combine what has happened in history to restore the concepts of interest rate hikes, interest rate cuts, inflation depression, economic crises, and wars.
The first misunderstanding that needs to be corrected is that we all know the original intention of establishing the Federal Reserve. The official statement is that it is for the long-term stability of the U.S. economy, to stabilize prices and employment rates, and to prevent the economy from overheating or overcooling, triggering a crisis or recession.
In order to ensure a stable life for the American people, this is of course a politician's public display. The function of public display is to at least make the mainstream public opinion think so, so that the righteous surface purpose can cover up the dirty real purpose behind it. The better the deception, the less resistance. Judging from the results, the effect of deception is very good.
Now, the world's mainstream financial media speculate on whether the Federal Reserve will raise or lower interest rates based on two indicators: the US inflation rate and the employment rate released by the US Department of Labor.
If it is too low, it feels like it should be lowered, and if it is too high, it feels like it should be increased. It seems that the Federal Reserve's monetary policy is really intended to increase this public service and become a public welfare department.
But historically, you'll find that the Federal Reserve is a tool used by the private sector to create profits, and it always has been.
How did the Federal Reserve come about? In 1913, John Pierpont Morgan, the third-generation head of the Morgan family, led 12 private banks and seven financial tycoons to launch the Federal Reserve Act, which was formally established after President Wilson signed it.
Among these seven chaebols, there are 13 families that are truly influential: the Morgan family, the Rockefeller family, the Chase Manhattan Bank, the Rothschild family, and the Schiff Banking Group. Including the Stillman family, who co-controlled Citibank with Rockefeller, there are four families. Add a few political families that were co-opted, such as the Adams and Kennedy families, and the US central bank was established.
Here we need to emphasize and remember the person named J.P. Morgan.
You can tell from the photo that he looks very domineering. In fact, he is a real boss. Subsequent major historical events are closely related to him. He took the lead in establishing the Federal Reserve. Why is Pierpont Morgan so famous? Just look at a few numbers to know his strength.
In 1907, when the US was in financial crisis, Pierpont raised $1.4 billion to rescue the market. What does this number mean? That year, the US fiscal revenue was $900 million, and the indemnity of the Boxer Protocol was 450 million taels of silver, which was equivalent to $500 million according to the international silver price at that time. It is not an exaggeration to say that he was rich enough to rival a country.
In the early 19th century, the Morgan family controlled two-thirds of the railroads in the United States, and bought the Carnegie Steel Group for $400 million, monopolizing steel and shipping. He also invested in General Electric, the one that Edison invested in.
It holds 38% of national financial institutions and 60% of insurance companies. In the early days, it accumulated a lot of wealth by accurately predicting the price of gold, buying low and selling high, and arbitrage the price difference, and was called the Gold Magician.
Well, back to our question, when the Fed acts as a faucet and pump for funds, it is the remote control of global asset prices. Cutting interest rates and releasing funds will create bubbles in asset prices, and raising interest rates will burst the bubbles.
When the actual controller of this remote control is also the biggest financial speculator in this market, holding the switch of the world's central bank, what will he do when the athlete and the referee are combined?
To maintain economic stability? Don't be ridiculous. There is no financier who works for nothing for the benefit of the people of the world, right?
There are many tricks here. Before each interest rate hike or cut, can these actual controllers know the next monetary policy earlier than the market? What will they do after knowing it?
It's a very simple truth. You can control the stock price when you trade stocks, so he will do the same thing as you would.
If anyone thinks it’s a conspiracy theory, they can take a look at the Great Depression of 1929 and see who the winners were after the economic crisis, and who the crisis was a danger to, and whose opportunity it was.
The Great Depression
Before the Great Depression in 1929, there was a great prosperity, because the First World War devastated Europe, and the United States watched from the other side of the earth. As the first industrial country, Europe's war demand boosted production capacity, and selling things made money. With the continuous inflow of gold, the Dow Jones Industrial Average in the United States tripled. Volkswagen's car ownership increased from 7 million to 28 million in a few years. One in five people had a car. Everyone thought that the stock market would always rise, and everyone thought that they would become richer and richer in the future. Then what proportion of consumer loans can be achieved in installments?
Cars can be financed at 90%, houses at 70%, and stocks at 90%. That means with 10% of your money, you can get 10 times the funding for stock trading with just one phone call.
What does this mean? It means that if the stock price drops by 10%, those who rely on margin trading, short selling, and leverage to trade stocks will go bankrupt.
When the bubble is blown big enough, fragile enough and thin enough, take a needle and tap it gently, and something magical will happen.
This needle is from 1928 to August 1929, when the Federal Reserve raised interest rates from 1.5 to 6%. The stock market prices could no longer hold on and exploded, and the crisis began.
Whose crisis is this? Consumers who borrowed money to invest in stocks, and industrial companies that borrowed money to expand, are now homeless and the streets are full of homeless people. The unemployment rate has been above 25%, stock prices have plummeted, companies have gone bankrupt, and 9,000 banks have closed down.
The Great Depression came. Did the Great Depression affect the rate hike? At that time, President Hoover declared that this was a normal cycle, the free market was very healthy, and he would not interfere with the operation. It was they who went bankrupt, lost everything, and went bankrupt.
What about the winners? In October 1939, the superhero appeared in the financial world, called the White Knight, Pierpont, who entered the market with $300 million to rescue the economy and finance and swallow up the assets after the crash. Discounted assets were everywhere, right?
After buying everything, the government intervened to cut interest rates and revive the economy. Roosevelt's New Deal came, and fame and fortune came. Then the U.S. stock market began to rise. But all this has nothing to do with those people, because they are out.
Looking back at the Great Depression, there are three paradoxical issues.
The first question: Who pushed the consumer loan and margin trading bubbles?
Answer: Private banking and shadow banking, stocks, trusts, investment management companies, and Wall Street.
The second question: Why do they have money to buy at the bottom after the money in the market is withdrawn due to the interest rate hike?
Answer: It must have landed first. Why? Because the duck knows first when the river water warms up in spring.
The third question: Why is it necessary to raise interest rates?
Answer: Only when the bubble bursts and most people go bankrupt will they sell at a low price. They will sell their children and assets, and only in this way can they copy to the bottom.
The subsequent economic crisis followed the same script, playing out in different regions and times.
During the 1997 Asia-Pacific financial crisis, South Korea's economy was crushed and the IMF, or the International Monetary Fund, offered a conditional loan.
What is a conditional loan? It means taking advantage of the situation, removing restrictions on foreign capital holdings, amending the Banking Law, and allowing free flow of foreign capital accounts.
The end result was that Daewoo went bankrupt and was directly acquired, most of Samsung's shares were acquired, and Wall Street became the major shareholder.
As of today, BlackRock's stake in South Korea's Samsung Group is probably twice as much as the combined stake of the Lee brothers and sisters.
It is obvious whether the US dollar tide created by the Federal Reserve is to prevent the Great Depression or to cooperate with the price manipulation of crops and arbitrage tools. This round of interest rate hikes has resulted in an inflation rate of 3.4% and an unemployment rate of 4%.
Some time ago, Fed Chairman Powell's speech was still creating tension. He said that although the data is good, confidence is still insufficient, so he has to hold back and continue not to cut interest rates. Why? Because there are not enough large economies to burst. After working hard for a long time, there are only Sri Lanka, Vietnam, and Egypt on the table. How can these side dishes be enough?
There is simply not enough for bargain hunting. Many countries are almost unable to hold on. After spending so much effort, how could he stop when these economies are in danger? Wouldn’t that mean all the efforts would be in vain?
Inflation rate and unemployment rate are never the reasons for the Federal Reserve’s monetary policy, they are just reasons.
Profits lead to depression, inflation leads to revival of war
The second topic is to use interests as clues to the Great Depression, inflation and revival wars.
Let's take a look at how depression, recovery, and war happened. From economic explosion to economic recovery, Germany after World War I is a typical example.
In World War I, Germany's industrial facilities were crippled and half destroyed. The Treaty of Versailles was signed, and Germany continued to bleed every year due to war reparations, shortages of supplies, and hyperinflation. 500,000 marks of bread, right?
The unemployment rate is 40%. How come there is no employment problem in a few years? The unemployment rate is 1.3.
40 million working population, more than 10 million people enjoy paid vacations, and many holiday resorts and sanatoriums have been built because of this. Where does the money come from?
From 1924 to 1931, Germany paid a total of 11 billion marks in war reparations, equivalent to 1.5 billion US dollars, using tariffs and industrial and commercial taxes as collateral. It was three Boxer Indemnities.
How can a defeated country, which even gave the right to raise taxes to other countries, recover its economy and afford the huge military expenditure? Expand the military and finally start World War II, just because a mustache was elected? So where does the money come from no matter how smart he is? A good cook cannot cook without rice, right?
Remember the family behind the Federal Reserve mentioned earlier? The story begins with the surrender of Germany in 1918, which marked the end of World War I.
The battle is over, and the next step is the post-match settlement.
The First World War drained the wealth of all European countries. The United States was far away on the other side, selling supplies to Europe while lending it war debts. The result of the war was the debts between the Allied Powers, plus the debts owed to the United States, totaling to $20 billion.
Although the Allied countries won the war, who could they expect to pay for their debts and post-war reconstruction? Of course, they could expect the defeated countries to pay reparations.
At the same time, in the European strategic landscape, once Germany surrendered, the main contradiction disappeared, and the Allies had their own ulterior motives and calculations on the distribution of interests, and their opinions were inconsistent again. France must have wanted to crush Germany and castrate it both economically and militarily.
After all, it is not good for him to have such a warlike neighbor, but from the strategic standpoint of Britain, in order to prevent Germany from becoming too weak and France from becoming the only superpower on the European continent and eventually threatening itself, it is more tolerant of Germany.
For American multinational financial capital, in order to protect its own creditor's rights and get its money back in the end, it is even more necessary to support Germany.
The inconsistency in the interests of various parties is the prerequisite for Germany to develop and survive.
History of Germany
In 1919, the Treaty of Versailles was signed, and Germany paid a compensation of 220 billion marks, which was equivalent to 32 billion US dollars based on the exchange rate at the time.
The debt must be repaid with the currency of the gold standard. If this shackle is put on and the treaty is strictly followed, Germany will be enslaved for three generations.
But in history, every time a dangerous moment comes, a great man will appear. I know who you are thinking of, it is not the little mustache, at least not him now.
This character is Yamal Schakht.
He is the director of the German Monetary Office, as well as the beard-wearing nobleman and godfather of the Fuhrer.
He was attracted by the mustache, otherwise the failed art student would have spent several years in prison and then run for election to a political party. Where did he get the funds for his activities?
There are bigwigs behind him who help him raise campaign funds on Wall Street.
In 1931, when Schacht was giving a speech at an American university, a female reporter asked him whether the Nazi Party would rule Germany in the future. Schacht answered:
No, they will not rule Germany, we will rule Germany through them.
At the same time, Schacht was also Morgan's man. His father worked in the trust company under Pierpont Morgan. In order to support Germany, after the Treaty of Versailles, Schacht and the American Dawes proposed the Dawes Plan.
What was the plan? To prevent Germany from collapsing and failing to repay the debt, Germany was given another 800 million marks, equivalent to $190 million, and Germany was helped to continue issuing bonds and borrowing money, including $1.5 billion in railway bonds and $700 million in industrial bonds.
Let's do some calculations. How much was the total reparations paid by Germany from 1934 to 1931? How much did Germany borrow from the 1.75 billion US dollars? 3 billion US dollars.
After these German government bonds were subscribed to by international financial capital, Germany's survival became tied to the interests of the financial giants. The defeated country went from losing money to having an extra 1.5 billion US dollars in its hands, but later still shouted that it had no money to pay back.
Later, the United States launched the Yanger Plan, which reduced Germany's war reparations by 30% and paid them off in 59 years. From this moment on, Germany completely got rid of the economic control of the Allies.
At the same time, Germany cleverly used debt to tie itself to the position of global financial capital. Otherwise, why would other countries turn a blind eye when it attacked Poland, Slovakia and the Czech Republic?
Appeasement policy
Because the debt relationship is the strongest, sometimes stronger than the husband-wife relationship. Your wife may not wish you well, but your creditor will definitely wish you well.
Cixi's actions were the opposite. She paid off the foreign debt before the Sino-Japanese War of 1894-1895. At that time, they were Japan's creditors, so of course they supported him and beat you.
Everyone knows what happened later. After the mustache man supported by Schacht came to power, Schacht was appointed German Minister of Economics and fulfilled his campaign promise to rapidly revive the German economy, expand armaments, build roads and infrastructure, and use work to stimulate the economy.
The Nazi Party established a social welfare security system, unemployment pensions, and mandatory paid vacations.
The military controlled the basic necessities of life, such as food and steel. By 1933, the unemployment rate had dropped to 1.3. The people who had received basic security had no worries, and their consumption was unleashed.
The released domestic demand has driven the German industry to create more jobs. Consumption has changed from buying a few pieces of bread to survive to becoming diversified.
Entertainment, vacation, recuperation, etc. Later, he ordered Volkswagen to produce a car that every household could afford.
Although they were defeated before they could realize their goals, you can see that the Nazi Party was not just bragging when it boasted that it had created an economic miracle. In fact, this policy experience was learned by the later US President Roosevelt and turned into the New Deal.
Some people say that the recovery was achieved through Keynesian money printing and money printing, but strictly speaking it was not achieved through monetary expansion alone.
After the Great Depression, Roosevelt's New Deal only increased the US money supply by one percentage point. What really worked was the social welfare security system and bankruptcy protection law to protect the grassroots.
Looking back at Germany's economic recovery, you will find that the Nazi Party solved two key problems:
The first is international financing through debt assetization, which earns twice as much U.S. dollars as compensation by selling bonds.
The role of money
What is money for? It is a tool for allocating world resources across regions. If you have money to purchase resources, there will be no shortage of imported materials, and inflation will naturally not be a problem.
The German government can borrow money in this way, but the currency for expansion must be money that can be circulated globally.
If it cannot be circulated, compare it to the Republic of China Central Bank Governor Kong Xiangxi who also engaged in monetary deficit. The economy would have collapsed. The money he created was not a global currency and could not be spent outside. It did not bring in additional resources, nor was it used for redistribution. A social security system was not established, but those who were not short of money got the most money.
The four big families used the money to continue hoarding supplies, driving up prices, exploiting the poor, and lending at high interest rates. Naturally, the economy imploded, and the banknotes became ghost money.
Therefore, simply flooding the market with money without considering the problem of proper distribution will definitely cause big trouble. Germany has managed to do this.
The second question is to physically eliminate those who profit from it, those who lend money at high interest rates and hoard supplies for speculation, right?
It's the You family. (Now it seems that they are breaking the law, so let's avoid it.)
In this way, money was raised from the international community, and those who lent money at high interest rates to the poor, speculated on prices, and hoarded goods to profit from them were eliminated, and economic vitality was boosted.
We all know what happened later. Success or failure is due to Xiao He. He cannot print the money he borrowed, so he has to pay it back. If everyone is on the same page, you can turn a blind eye to sending troops to Czechoslovakia, Austria, Slovakia, and Poland, because everyone has the same interests.
But when the company becomes big and no longer honors its contract and repays the money, friends become enemies.
The landmark event was Schacht's resignation as German Minister of Economics in 1939, which meant that he had completely fallen out with his financiers and refused to pay back a cent. German bonds corresponding to the Dawes and Young plans soon fell in value by more than half.
If the other party doesn't pay back the money, what's the value of this note? It's like a loud slap in the face of the financial backer. The boss is very angry, and the consequences are serious.
After conquering France in 1940, the Nazi Party seemed to be at its peak, but in fact it was already at the end of its strength.
He discovered that global capital and the communist camp had transcended ideological differences, formed an alliance, and blocked Germany's resource supply around the world.
You know, the military war requires a huge supply of resources to support it. If your neck is stuck, it will be a big trouble.
So later we saw the winter at the end of World War II when Germany was at war on all sides and even wanted to challenge the Soviet Union.
Some people analyzed that it was because of the excessive drug use while skating that caused a brain seizure, but it had nothing to do with that, because there was no way back and the resources were exhausted. At this time, the only way to survive was to occupy the southern Jiangsu area, get supplies, and obtain food, oil, and steel.
This is why we had to send troops to Kiev while attacking Moscow. If we gave it a try, there would be a glimmer of hope. Of course, we lost the gamble in the end.
Historical records show that the German troops under the city of Moscow did not even have down jackets. Germany's latitude is not much lower than that of Moscow, and the winter is also very cold.
The German army couldn't even get enough winter clothes, which showed that they were running out of energy and no longer had the money to make long-term plans.
Later, he colluded with Japan, which was also an agent in East Asia, and the East and the West rebelled together. After all, everyone had the dream of becoming the boss from an agent and getting rid of control, so they joined forces to cause trouble. This was the origin of the fascist alliance in World War II.
From an economic perspective, the context of this history becomes clearer.
There are two types of economic depression and prosperity. One is the debt-plus-deflation artificially created by financial forces, and the other depends on the resource map of the country's war zone, which depends on military strength and financial capabilities.
You can either rob or buy the basic survival guarantee. This is a problem of internal distribution. At this time, a group of people who are causing trouble in the middle must be cleared out, such as those dealt with by the man with a mustache..., right?
When currency cannot solve resource problems, foreign war becomes a necessary means. When distribution problems cannot be solved, internal conflicts will cause chaos.
Speaking of J.P. Morgan, Japan's Meiji Restoration, Russia's October Revolution, the establishment of the Soviet Union, and the subsequent Great Purge all have a close relationship with this person. I will talk to you in detail when I have the chance.
Talking about history is not just about telling stories, it is about building some economic common sense. A few final words.
The game of inflation and wealth redistribution.
The difference between now and the last century is that the previous currency was based on the gold standard, while the current currency is based on the air standard. All countries need to expand their currency to maintain economic operation, so it is meaningless to discuss whether inflation is good or not. This is an era of inflation. Inflation is not the point. The composition structure of inflation and where the inflation occurs are the key points of the game.
Who gets the benefit of the increase in the international price of a commodity? Is it mainly the suppliers of raw materials, industrial added value, labor, finance, or capital gains?
The game between these factors is not entirely a market mechanism. Inflation in oil and mineral raw materials is of course a good thing for Saudi Arabia and Australia, but of course a bad thing for China, Japan and South Korea.
Inflation in industrial added value, rising labor costs and wage increases are of course good things for industrial producing countries, because this is how a virtuous circle can be formed.
Lowering the price of labor to dump goods is equivalent to a disguised subsidy to other countries. The labor factor involves the most people, the most dispersed power, and the weakest bargaining power, so it is also the group that needs the most protection. These people are poorer than other parties, and under the pressure of survival, they have no pricing power for their own labor.
All oil-producing countries know that they need to form OPEC to cut oil production, right? Don't be so aggressive and raise the price of your own raw materials.
The technology industry protects its own rights and interests through patent restrictions, and international financial capital is above all others, manipulating prices and investments through tidal games and then harvesting labor.
Human resources are also a kind of resource. Labor is an important component of wealth. At the same time, they are also the most vulnerable group. Because they are weak and scattered and have no voice, most of the wealth created by this group of people is occupied by other parties. This is the unreasonable aspect of the wealth distribution game in inflation.
Therefore, it is unsustainable and prone to depression.
How can we balance the interests of several parties in the game of inflation redistribution and allow the economy to enter a virtuous cycle? This is the key to winning in modern economic competition and the greatest test of the wisdom of contemporary gamers.
