Understanding the Debt Cycle - The Depression of 1930
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Currency in paper form was devised because it was more convenient than having to carry around gold if you wanted to buy anything. Credit was devised because people wanted to trade or do business with one another. The original bankers were goldsmiths. They offered to keep your gold safely in their secure vaults for a fee. They wrote the promissory notes that we now know as cash. Then they stumbled on something else. It was money supply. They discovered they could write more promissory notes then they had gold available to back up their promises. They knew people would not all come calling on the same day to remove the gold, and yet the gold was still there in the vaults if anyone was to ask where it had gone. This is how the banking system came into being.
Money the lifeblood of commerce
If there was no money there would be no trade. The farmer would not be able to sell off his produce in the market (yes, he could barter but as things stand today barter would restrict trade to a very local level). If the farmer could not sell his foodstuff, there would be a shortage of food. If there was no money industry would have to cease. There would be no way of paying the workers, so they would be laid off. With no jobs and no money they would not be able to buy food even if they could get it and then they would start looting, anarchy would prevail and the government would most probably be violently overthrown. Something very similar happened in Russia in 1918.
Money does not exist, it is created
The Bankers create Money the lifeblood of industry. If we remove money we have a scenario similar to the one described above. If the bankers reduce the supply of money, there is less money in circulation. When there is less money in circulation people do not have the means to pay for things and so industry suffers. This is what happened in the Depression of 1930 and that is what is happening now!
What caused the Depression
If you look at the US prior to the Wall Street Crash of 1929, everything in the garden was rosy. The war was almost a decade in the past, industry was booming, communications were leaping ahead, in fact overall, all was well. However, investments took a big hit and many speculators lost their shirts. The Wall Street crash saw a massive downturn in the Stock Market in October 1929, and yet only 1% of the population held stocks and shares; the fall out was so severe that all of America and possibly the World suffered. Why?
Boom or Bust
The boom in stocks and shares prior to 1929 brought a lot of new players onto the stock market scene. When things began to go bad people panicked and began to sell shares. This caused further alarm and the general public began to fear for their savings held by the banks. There was a run on the banks. Naturally banks were never in a position to offer cash -back to all depositors; they had lent much more than they had in assets. In order to safeguard themselves, the banks held on to assets, by doing that, they were not in a position to create new money thus loans dried up. However, payments on existing loans still had to be made. This money had to come from standing cash supplies and thus less and less money was available for spending. People found they could not buy things and this had a knock on affect in industry.
Do you see any similarities with today?
Is something like this happening in response to the collapse of sub prime mortgage lending? I think so. The banks are safeguarding themselves. They are making credit more difficult to obtain and so the money supply recedes. As a result we see the increase in the price of food and natural commodities like oil and gas.
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