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Are We Heading Toward the Next Great Depression?

Updated: Mar 15


March 15, 2023


Regulatory authorities shut down New York's Signature Bank on Sunday March 12, 2023, marking the third largest banking failure in U.S. history. This occurred just two days after the closure of Silicon Valley Bank (SVB), which followed a bank run and left billions of dollars in customer deposits lost and beyond the amount the FDIC could insure.


On Monday, stock exchange trading was halted for several midsize and regional banks, such as PacWest Bancorp and First Republic Bank, while major financial institutions like Wells Fargo, Bank of America, and Capital One experienced significant declines in their stock prices. On Tuesday, Credit Suisse Bank saw what was a record-low drop in its stock level.


The evidence indicates that the blame strongly points in the direction of the extensive spending by the Biden administration and the Federal Reserve's chaotic monetary policy of excessive money printing, which led to high inflation and forced the Fed to implement the fastest increase in interest rates in decades.


Furthermore, poor bank management has also played a role, with SVB potentially being distracted by their focus on "woke" social issues. As a matter of fact, Silicon Valley Bank, donated more than $73 million to groups related to the Black Lives Matter movement. There appears to have been far too much focus on equity, diversity, and other left-winged dogma, instead of hiring people based on competence and qualifying skills.


Additionally, Treasury Secretary Janet Yellen, who appears to be in over her head, said Sunday that U.S. government would not bail out Silicon Valley Bank.


This all seems eerily similar to another time in history.


In chapter seven of their book, " A Monetary History of the United States 1867-1960", by Milton Friedman and Anna Jacobson Schwartz, the authors demonstrate that the Great Depression was caused by a combination of factors, but primarily by monetary contraction, which was the result of a decline in the money supply. This decline was largely due to the actions of the Federal Reserve, which failed to act as an effective lender of last resort and instead let banks fail, leading to a decline in the money supply and a contraction of credit.


For example, the authors point to the bank panic of 1930, where the failure of several banks led to a decline in the money supply, and the Federal Reserve's failure to provide adequate support to the banking system during this time. They also note the Federal Reserve's tightening of monetary policy in 1928 and 1929, which led to an increase in interest rates and reduced borrowing and spending, contributing to the contraction of the economy.


The authors also examined other contributing factors, such as the effects of the stock market crash of 1929, the Smoot-Hawley Tariff Act, and the collapse of international trade. However, they argue that these factors were secondary in importance to the monetary contraction caused by the Federal Reserve's actions.


Having sifted through historical federal reserve records and other such significant documents, the authors were able to bring to light the evidence that these actions by the Federal Reserve were the primary causes of the Great Depression, and that without these monetary contractions, the Great Depression could have been mild and brief, rather than the severe and prolonged economic contraction that it was.


This evidence is in stark contrast with the old Keynesian propaganda disseminated by FDR and the progressive democrats during that era who blamed greedy businessmen and capitalism, in general, which proved to be wrong and was little more than baseless theory and political rhetoric.


In fact, the bigger a role the government and it's central-planning bureaucrats play in trying to "fix" the economy, the more broken it becomes. It is better to let free-market capitalism run it's course and the economy will take care of itself.


To be clear, the Federal Reserve does play a role in the health of the economy. However, it's primary function is merely to control inflation and quell mass bank failures.


It is on those points that they are failing, big time.


The Silicone Valley Bank should have been saved. That is the purpose of the Federal Reserve. It should have been saved by having other central banks, in the reserve system, loan to the SVB to keep it solvent through the bank run. Instead, it seems the Biden/Yellen solution is to have the taxpayers foot the bill to pay back depositors, after letting the bank fail. This will lead to even higher inflation, more government debt, and lower consumer confidence. (Note: Government debt is taxpayer debt.)


The Biden Administration and the Federal Reserve need to learn from the Friedman school of economics, stop spending, and abandon their socialist agenda.


If history is repeating itself and we are heading toward a world wide depression, just remember, the last one lead up to a world war.

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