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Hi Dan,
You are absolutely correct when you say that the 1929 crash began
with falling commodity prices, however it goes further than just that. The
commodes that where falling at that time where agricultural. Farms where
being rapidly mechanized, tractors, harvesters, trucks, completion of the
rail system, etc.. Efficiency increased hundreds of times and so did
production. I think the weather was also unusually CO-operative thru most
of the 1910's and early 20's. During this time Agar-business was invented
and the family farm began to disappear. Naturally with this flood of
product, prices fell, however Agar-business and small farmers mistakenly
blamed foreign imports for low prices. They lobbied for protective tariffs,
and Congress was happy to oblige.
This alone may not have been enough to trigger the crash and
following depression, however, the U.S. and the world was rapidly
industrializing and every industry from steel to shoes demanded protection.
Again Congress was happy to oblige. Naturally, every country upon which
tariffs where imposed retaliated with devastating effect on American
industry and agriculture and, of course, stock prices. Historians now
consider the passage of a huge tariff bill (the name of which eludes me) as
the start of the Great Depression.
At exactly this moment the Fed made the stupidest mistake of all
time! Instead of adding liquidity they tightened, causing the failure of
the banking system at this critical juncture.
As for today, oil prices are dropping (the case can be made that
they are just returning to "normal" after the artificial inflation caused by
OPEC), but even Clinton doesn't have the balls to tariff imported oil.
Steel and other smoke stack industries are another matter entirely. With
Clinton living in the back pocket of the unions (and kissing the nearest
orifice) , we can expect to hear more and more demands for protection.
Thank God for Treasury Secretary Robert Ruben, who today announced he
opposed such tariffs in the face of union demands.
Personally at the first sign that any such tariff will pass, I will
short everything I can and with the rest go to hard cash. Money in the
mattress and a loaded .44 Mag will be king.
Good luck and good trading,
Ray Raffurty
P.S. Don't get me wrong, I think this is a very unlikely scenario, but I
remember my father building a bomb shelter during the Cuban missal crisis
and he worked for Boing.
-----Original Message-----
From: TheGonch <Daniel.Goncharoff@xxxxxxxxxxxxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxxxx>
Date: Tuesday, January 26, 1999 3:27 AM
Subject: Re: Deflation
>I am beginning to feel a bit out of my depth in this discussion, but
>I'll try to keep a hand in.
>
>Both Bruce and Stuart have (IMO) done a great job of describing where we
>are, ie, why the wheelbarrows full of money coming out of the Fed have
>not led (yet) to a deterioration of the US$ -- the $ has become a store
>of wealth in country after country experiencing a 'flight to quality' of
>huge proportions.
>
>Looking ahead, however, raises the issue of how (and when) does this
>unusual situation revert to normal. I am made nervous by the experience
>of history -- the events of 1929 were started by a fall in commodity
>prices rocking the economies of producers like Australia, S. American
>countries, etc. It was followed on by more developed countries (Germany)
>mismanaging their finances.
>
>Today the commodity is oil, and the economy is Japan (or Russia or
>Brazil or ...) And I remain unconvinced that pumping US$s into the
>global economy is anything more than triage. And worried that the
>patient cannot, in the long run (yes, I know, in the long run we are all
>dead, but economies linger on) be saved.
>
>JMHO
>
>Dan Goncharoff
>
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