Wednesday, March 08, 2006

Financial Fairy Tale -- #3 - Humpty Dumpty

The Humpty Dumpty story fits so many markets we need to start with a caution.

It was Mark Twain that said something like: "
History does not repeat - it rhymes."

It is easy, and many do take the easy path, to look at the last depression to predict the next.

there are similarities of the last depression to the coming greater depression - but it will be attitudes more than facts that rhyme.

The Federal Reserve was created in 1913 to maintain a stable currency. The business men and government officials were proud of their knowledge and modern tools that made recessions obsolete. You of course can read similar boasts in today's paper.

There was a recovery after the 1929 crash, the market was higher again just as the Dow Jones is back up today. Everyone patted themselves on the back and assumed that was the last crash ever.

Then the economy went from bumpy to broken eggs ugly.

The recovery came for America when Europe was kind enough to blow up all their manufacturing capabilities during World War Two. The socialist countries helped out by destroying initiative, only big well connected companies and well connected people prospered in much of the world for decades.

That has changed. China is capitalistic, Asia is very productive, and America is borrowing against our aging capital base to buy toys.

The ride is about to get bumpy.

We have a new Humpty Dumpty up on a very high pedestal today. We are assured by our leaders that we have the tools to control the economy.

  • sadly all the kings horses and all the kings men
  • are going to watch an omelet created again
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