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Thread: weekend commentary - US in 2007 = UK in 1929

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    Default weekend commentary - US in 2007 = UK in 1929

    from an investor board ...

    (snip)"China being the largest holder of FRNs [US Federal Reserve Notes - sic] makes it the world's de facto Central Bank [today - sic].

    In 1929 the rookie (16 year old) FED held over 50% of the planets monetary reserves and was the world's Central Bank.

    In the 20's the uS flooded the world and the uS economy with liquidity to hold down the $ and prop the BritPound.

    In the last 10 years, China has flooded the world and the chinese economy with liquidity to hold down the Renminbi and prop the $.

    In 1929,faced with internal hyperinflation and remembering what happened to the Germans in '24....the adolescent FED chose deflation.

    In 2007, faced with internal hyperinflation, and remembering the Chinese hyperinflation and revolution of 1949.... the adolescent Chinese will choose deflation.

    The US, now being in the position of the Britain of 1929, will have no choice."(snip)


    (snip)"also, like the Fed in the run-up to the 1929 crash, the Chinese Central Bank is methodically raising its interest rates and reserve requirements."(snip)


    (snip)"Demand for short term US private sector bank credit continues to drop, bringing short term rates down, while suppliers of long term debt to the .gov are getting harder and harder to find, which is forcing long term rates up.

    The Brit CB in '29 could not defend it's set interest rate for bank credit, as credit demand collapsed and default and redemption increased.

    It had to follow short term rates down, while rates demanded for new govt. debt continued to go up.....

    The die for a Brit hyperdeflationary meltdown [in '29- sic] had been cast by the actions of the US FED."(snip)

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    Default Re: weekend commentary - US in 2007 = UK in 1929

    and to provide even more perspective on this interesting analogy, consider the implicit point that China in 2007 = the US in 1929 as well as the US in 2007 = the UK in 1929 ...

    [in the years leading up to 1929 - sic]
    (snip)"To make this leap backward to $4.86 viable, Britain would have had to deflate its economy so as to bring about lower prices and wages and make its exports once again inexpensive abroad. But it wasn’t willing to deflate since that would have meant a bitter confrontation with Britain’s now powerful unions. Ever since the imposition of an extensive unemployment insurance system, wages in Britain were no longer flexible downward as they had been before the war. In fact, rather than deflate, the British government wanted the freedom to keep inflating, in order to raise prices, do an end run around union wage rates, and ensure cheap credit for business.

    The British authorities had boxed themselves in: They insisted on several axioms. One was to go back to gold at the old prewar par of $4.86. This would have made deflation necessary, except that a second axiom was that the British continue to pursue a cheap credit, inflationary policy rather than deflation. How to square the circle? What the British tried was political pressure and arm-twisting on other countries, to try to induce or force them to inflate too. If other countries would also inflate, the pound would remain stable in relation to other currencies; Britain would not keep losing gold to other nations, which endangered its own jerry-built monetary structure.

    On the defeated and small new countries of Europe, Britain’s pressure was notably successful. Using their dominance in the League of Nations and especially in its Financial Committee, the British forced country after country not only to return to gold, but to do so at overvalued rates, thereby endangering those nations’ exports and stimulating imports from Britain. And the British also flummoxed these countries into adopting a new form of gold "exchange" standard, in which they kept their reserves not in gold, as before, but in sterling balances in London. In this way, the British could continue to inflate, and pounds, instead of being redeemed in gold, were used by other countries as reserves on which to pyramid their own paper inflation. The only stubborn resistance to the new order came from France, which had a hard-money policy into the late l920s. It was French resistance to the new British monetary order that was ultimately fatal to the house of cards the British attempted to construct in the 1920s.

    The United States was a different situation altogether. Britain could not coerce the United States into inflating in order to save the misbegotten pound, but it could cajole and persuade. In particular, it had a staunch ally in [US Federal Reserve chairman - sic] Benjamin Strong, who could always be relied on to be a willing servitor of British interests. By repeatedly agreeing to inflate the dollar at British urging, Benjamin Strong won the plaudits of the British financial press as the best friend of Great Britain since Ambassador Walter Hines Page, who had played a key role in inducing the U.S. to enter the war on the British side.

    Why did Strong do it? We know that he formed a close friendship with British financial autocrat Montagu Norman, longtime head of the Bank of England. Norman would make secret visits to the United States, checking in at a Saratoga Springs resort under an assumed name, and Strong would join him there for the weekend, also incognito, there to agree on yet another inflationary coup de whiskey to the [American stock - sic] market"

    from


    the 'connect the dots' conclusion is that, despite recent attempts by US treasury officials to cajole and convince them otherwise, Chinese central bankers do not have a similar outlook as US Fed chairman Strong did ... that the Chinese are only going to play along to a limited degree in manipulating the Yuan to support the US dollar, and that therefore the Chinese stock market is overdue for a precipitous crash, which will act as a catalyst to tank stock markets, banks and whole economies on a global scale.
    Last edited by Melonie; 05-26-2007 at 08:55 PM.

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    Default Re: weekend commentary - US in 2007 = UK in 1929

    Indeed...

    How to square the circle? What the British tried was political pressure and arm-twisting on other countries, to try to induce or force them to inflate too. If other countries would also inflate, the pound would remain stable in relation to other currencies

    ...sounds familiar.

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    Default Re: weekend commentary - US in 2007 = UK in 1929

    ^^^ yes but ultimately, once US Fed chairman Strong died in 1927 and the new Fed Chairman refused to continue propping the UK pound at the expense of the US dollar, the UK Pound started tumbling in relative value. Arguably, the Chinese gov't / central bankers are in a similar position today re floating the Yuan and tanking the US dollar, the Chinese are in a similar position today vis a vis being the lower cost producer running a huge trade surplus from exports, plus holding a huge pile of US gov't debt (although now the Chinese are holding US T bonds / Agencies versus the US holding the UK's WW1 debts in 1929), etc. Eerie analogy if you ask me.

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