So earlier today I was reading the G-20 statement after they had their Pittsburgh meeting in September. I couldn't help chuckle at how they act like this financial 'crisis' was a big surprise. I mean, these people are pretty much beyond the smartest kids in class. Their entire life is economics and studying its history. So, they obviously know that every boom is followed by a bust. They know that it is inevitable to have a depression when growth is fueled by debt. There is no other way to do it. People get into debt, then have to pay it off. The paying off period is the depression.

Here's the quote that got me:

Global output was contracting at pace not seen since the 1930s. Trade was plummeting. Jobs were disappearing rapidly. Our people worried that the world was on the edge of a depression.

On the surface, nothing is shocking about that statement. But when you realize that the people writing this and discussing this were probably some of the most intelligent people in the world, it sounds a bit funny. They weren't worried about a depression! A depression is supposed to come because that's what comes after a time of prosperity. So they weren't surprised about this financial panic. And this is what they say about themselves:

Our forceful response helped stop the dangerous, sharp decline in global activity and stabilize financial markets. Industrial output is now rising in nearly all our economies. International trade is starting to recover. Our financial institutions are raising needed capital, financial markets are showing a willingness to invest and lend, and confidence has improved.

They avoided the coming depression for now only to have a worse one come on us later - probably in just a few years. There's always a reason, so I can only wonder what the reasons are. Think of yourself as a little part of a giant mess called humanity. Humanity is screwed up. Humanity, without guidance, will be directionless and useless. These smart people at the top know our greed and know how we'll act as a whole when loans are offered and interest rates are low. They know that we'll just get ourselves right back into debt, which is what drives "growth." That's how they avoided the depression. A depression is a time where we are supposed to learn how to live within our means. Instead of a depression, they offered the loans and we fell for it once again. Only this time, there is no way to get the rates lower. So the next crash will come and there won't be a way to avoid it. It'll happen probably in less than five years this time and it'll be nuts.

Just to show you that none of this is new and it wasn't new in 1929 either, here's a newspaper article from January 4, 1902. That's right. It's from over 100 years ago. It has a reprint of a speech made in 1897 called, "Panics and Booms." You'll see that financial panics have happened five times in the 1800's!

Here are a couple of quotes. Remember, this was said in 1897:

This rule also applies to people dealing in real estate. The country is growing; money is easy; the times are good; business is prosperous and therefore speculation is favored. A man worth $5000 can buy four times that amount of property by using his credit, and sometimes he buys ten times that amount or more. While prices are advancing he not only gets the benefits of the advance in the price of the property represented by the capital furnished by himself, but also on the capital furnished by his credit.

Sounds a little like what was happening just prior to this "financial crisis." And then what happens after the credit boom? Check it:

When the people arrive at a point where their credit limit is reached there is necessarily a decrease in the demand for goods and property, and soon the supply becomes greater than the demand and prices begin to decline. This stops speculation. Thousands of people engaged in manufacturing or producing articles of general use are thus thrown out of employment, and this causes a still further decrease in the demand for goods, and hence a further decline in prices. Those who have purchased on credit find themselves subjected to heavy losses because they are compelled to sustain the depreciation on goods they do not own -- that is, goods bought on credit. Because of this decrease in valuations all are compelled to economize in order to adjust their expenses to the new order of things, they being compelled to pay off the accumulated indebtedness with the decreased income. This economy of the masses still further decreases the demand for goods and property and this still further increases the supply over the demand and decreases the prices, throwing more people out of employment and increasing the depressed condition of business.

Sounds like what happened over the past year, doesn't it? And this guy was not writing about this after the Great Depression. He was referring to 'financial panics' from the years 1819, 1837, 1857, 1873, and 1892. So it was nothing new then and it is nothing new now. You can read the whole article here: Panics and Booms.

It was written after a financial panic where banks went bankrupt and unemployment was high. It was at a stage similar to the one we are in. He has this to say to us today, about 112 years ago:

It is a difficult matter to make the people believe that our country is now entering upon another period of prosperity. Each one has a remedy for hard times. And each one sticks firmly to the proposition that better times cannot come again until his remedy has been applied. These remedies are mostly of a political nature. One man believes that a high protective tariff is all that is necessary to restore prosperity to the country, and another thinks the free coinage of silver and gold on a basis of 16 to 1 without making any suggestions to any other nation about the matter would bring good times. There is no question but the legislation on both these questions or either of them would affect the main proposition. Wise legislation will always assist in bringing prosperity, and unwise legislation will always retard the coming of better times, but no legislation, no matter what it be, can prevent the incoming tide any more than the little child on the sandy beach with its little shovel can, by piling up a ridge of sand, stay the incoming surf.

Right now, they're debating on television whether we're recovering or not. I say we are going to have a quick boom fueled by the easy credit, but we'll have a much stronger depression than if we had just gone through with it now.