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To help end the new depression, we have to look back at the last major depression. As Spanish philosopher George Santayana put it best, "Those who cannot remember the past are condemned to repeat it".
In order for the world to find a say to end this new depression we find ourselves in, we need to take a look back through the history or credit creation as a start, so says Richard Duncan, Financial Analyst and Best-Selling Author of The Dollar Crisis : Causes, Consequences, Cures.
His most recent article, How To End The New Depression goes through the financial history dating back to 1968 when the USD was taken off the Golf Standard to now, and what three options we have moving forward to pull us out of the current crisis.
How To End The New Depression
by Richard Duncan
Governments must begin to invest in projects that can generate a lasting return.
A Financial Analyst and specialist author who predicted the current global economic crisis he has headed equity research departments for a number of international financial institutions. He paints a bleak picture of the past abuse of credit and borrowing that was used to financial consumption unsustainable from genuine financial resources. Borrowing to support imaginative investment in such projects as renewable energy, genetic engineering and new technology should be the only method of achieving a socially beneficial outcome and a way out of the current economic impasse. That must be the platform for future commercial concentration and ultimate progress.
When the United States removed the gold backing from the dollar in 1968, the nature of money changed. The result was a proliferation of credit that not only transformed the size and structure of the United States economy, but also brought about a transformation of the economic system itself. The production process ceased to be driven by saving and investment as it had been since before the Industrial Revolution.
Financial Analyst, Author of Bestselling 'The Dollar Crisis: Causes, Consequences, Cures'
Instead, borrowing and consumption began to drive the economic dynamic. Credit creation replaced capital accumulation as the vital force in the economic system. Total Credit in the US expanded 50 times between 1964 and 2007, from $1 trillion to $50 trillion. So long as it expanded, prosperity increased - in the United States and around the world. Asset prices rose. Jobs were created. Profits soared. Then, in 2008, the credit could not be repaid, and the economic system that was founded on and sustained by credit was hurled into crisis. It was then that the New Depression began.
There is a grave danger that the credit-based economic paradigm that has shaped the global economy for more than a generation will now collapse. The inability of the private sector to bear any additional debt strongly suggests that this paradigm has reached and exceeded its capacity to generate growth through further credit expansion. If credit contracts significantly and debt deflation takes hold, this economic system will breakdown in a scenario resembling the 1930s, a decade that began in economic disaster and ended in geopolitical catastrophe.
Economic crises of this magnitude become political crises. The societal bargains that have been struck since the late 1960s – the expansion of Medicare, Social Security, military spending and government-funded corporate welfare – have been financed on credit. If those promises can no longer be fulfilled, a convulsive political upheaval will occur.
Throughout human history, actions taken for reasons of economic exigency have always been justified on religious or ideological grounds. Napoleon's conquest of Europe grew out of the bankruptcy of the Ancient Regime and the monetary chaos of the French Revolution. Japan's invasion of Asia and Germany's occupation of Europe during the 1930s and 1940s resulted from the economic upheavals released by World War I and the Great Depression. If our credit-based economic system fails, a geopolitical cataclysm is sure to follow.
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