THE GREAT DEPRESSION

The Coming Economic Earthquake
By Larry Burkett
Moody Press - Chicago - 1991
Chapter 2, pages 19-29

The following is a narrated description of the events that took place the week of October 24-30, 1929. The narration is my creation; the events are historical fact.

Due to one of those quirks of fate, the president of the New York Stock Exchange, Edward Simmons, was in Hawaii on his honeymoon the last week of October 1929. His vice president, Richard Whitney, was in charge. Whitney had a long history as a habitual gambler and was deeply indebted to the New York banking interests. He was appointed as the president of the New York Stock Exchange in 1930, but later he went to prison for "insider trading."

Richard Whitney sat looking out the window of his twelfth story office, trying to focus his mind on the current crisis but, no matter how hard he tried, he could not make any sense out of what was happening.

Can Bernard Baruch be right? he thought. No, it's impossible. There is simply no way the market can collapse. We're the strongest economy in the world. We sell our products to every other nation on Earth. Just the label "made in America" stands for quality. Sure, the market has taken a hit, but the companies are still sound.

He recalled the previous week when the whole of Wall Street had gone crazy. October 24 was a nightmare. As the buying frenzy hit the trading floor, Whitney saw something he would never forget as long as he lived, and he prayed to God he would never see again: nearly twelve million shares of common stocks traded in a single afternoon. No sooner had one level of trading been established than another ten thousand shares were offered. The men who had manipulated the sell-off were like sharks waiting for their victims to bleed to death. They refused to buy until the prices dropped to their predetermined level. Even AT&T, GE, and GM plummeted to dangerous lows as panic-stricken investors, fearing a market collapse, sold off shares.

Whitney would have closed the exchange, but he feared the resulting reaction would be even worse. Besides, he knew President Hoover would be very irritated if he intervened in the market. The president believed in a free market, where the buyers and sellers established the rules.

But I know the bankers are manipulating this market for their own benefit, Whitney thought grimly. They make more on their stock portfolios than they do on loans these days. They pump up a stock and then dump it on the unsuspecting little guys. The newspapers grovel at their feet and hype their stocks so that the whole country is in the market now.

It's like Baruch said at lunch last week: "When the shoeshine boy starts giving tips on hot stocks to buy, it's time to get out of the market."

I really fear what could happen if we don't get some control over these swings in prices, Whitney thought as he went back over the day's trading. We've lost almost $100 million in equity in the last week. Well, tomorrow is Friday. If we can weather this storm, maybe common sense will prevail by Monday, he told himself without any real conviction.

What Whitney didn't know was that since the big traders had sold out at top price on the 24th, they intended to drive the prices down even further by calling the loans of some of the margin traders who were stretched thin. If the bankers could force them to sell in the down market, prices would plummet. Then they would re-buy their original stocks and pocket the difference.

"A smart man makes his money with money," J.P. Morgan was often heard to say, and, "God wouldn't have made sheep if he didn't expect them to be sheared."

Although few men realized it at the time, the finances of America were in shambles, and the thin veneer of prosperity covered a festering wound. The industrialists and bankers had succeeded in getting laws passed by the federal government that profited them greatly while undermining the economy as a whole.

America was producing more than the country could consume internally. Through the use of high-interest loans, borrowers were transferring their wealth to the industrialists and bankers on a scale never witnessed before. The industrialists, with their political power, had been instrumental in getting Congress to pass restrictive trade laws limiting imports. As they lost more of their foreign markets due to retaliatory restrictions, inventories were backing up. Unemployment was becoming a chronic problem for the "underclass"; production was slowing down; and loans were becoming commonplace.

The bankers were making huge "paper" profits through loans that often carried interest rates of 20 percent or more. The competition for loans became so intense that bankers eased loan qualifications to attract more borrowers.

The average American watched the money merchants getting wealthy in the stock market and flocked to the market to "strike it rich." Lacking the capital to invest, they financed a large portion of their speculation with the bankers. With virtually no controls on market trading, any speculator could hold blocks of stocks with as little as 10 percent down. If that stock was then used as collateral for more loans, the ratio could easily be fifty-to-one.

It was a win-win situation for the lenders. They loaned the money for small investors to buy the very stocks they themselves were forcing up through manipulation. Then, when the prices fell, the small speculators would borrow more to cover their losses. It was one of the most massive transfers of wealth in the history of civilization. It was the era of "paper" prosperity--the Roaring Twenties, when America could do no wrong. The country was on a roll, and no one really thought it would come to an end.

There were those voices of "doom and gloom" who shook their fingers and clicked their tongues, but their ominous predicitons of calamity had not come true--yet.

On Monday, October 28, the New York Stock Exchange opened normally. Richard Whitney arrived at his Wall Street office at 7:00am, as was his custom. Inwardly he was full of apprehension, though he tried his best not to show it. He had spent the weekend calling in every favor he had accumulated over the past ten years. His greatest fear was a run on the market by nervous investors who had the entire weekend to discuss the previous week's losses with their barroom buddies. He knew many, if not most, were heavily leveraged and could scarcely afford any further losses.

Sunday evening he had called Charles Mitchell of the National City Bank. "Charles, I need your help," he said as he unconsciously fingered the phone wire. "What is it, Richard?" the banker asked, showing his irritation at being interrupted on the weekend. The all-day session on Saturday with his directors had been fatiguing enough. The bank's questionable debt list was growing at an alarming rate. That's justice, he thought. They pressure me to make loans, then wonder why we have a collection problem.

"I'm concerned that we may have a run tomorrow," Whitney said. "I want your guarantee that you and the others will support the market if necessary."

"Richard, there's not going to be any run on the market. Not tomorrow. Not ever. The country is doing just fine, and the market hasn't nearly reached its peak. We just pulled a little capital out. It will recover this week."

"I hope you're right." Whitney replied, with concern evident in his voice. "But I still want your word that you'll support the market if necessary. I don't want you pulling the plug on credit and sinking the whole ship."

"I guarantee that we'll support you, Richard. But I'm telling you, you're worrying too much. The country is sound, business is good, and we've got a president who understands how to keep the government off our backs. Now take it easy."

The traders were all assembled in the trading room of the exchange by eight o'clock that Monday morning. Each had a preset agenda for the trading he would do that day. Each would also try to hide his agenda until the others made a move. Promptly at nine o'clock, the bell rang and trading got underway. Richard Whitney watched from his glassed-in office to see what direction the market would follow. He almost called Mitchell again, but decided against it. No sense in panicking, he told himself.

The pace on the floor was frenzied as buyers and sellers jockeyed for position. The buyers were looking for bargains. The sellers were waiting in hopes that demand would drive the prices up. Shares began trading rapidly as cash-strapped smaller investors offered to sell some of their stocks.

By ten o'clock there was no definitive trend; the buyers and sellers were about even, with only a slight downward drift.

Whitney slumped back in his leather chair in relief. "That's fine," he said to the board auditor. "We can handle a drift downward. We dodged the bullet this time, he said mentally.

By the close of trading at four o'clock, the averages had dropped by twenty points. Not an abnormal trading loss for the market on any given down day, Whitney thought as he stuffed the latest trading reports into his briefcase and headed out the door. Normally he would have reviewed the reports before leaving, but he was mentally exhausted. The tension had kept him uptight for nearly a week now, and somehow he sensed it wasn't entirely over yet.

On Tuesday, October 29, the market opened just as it had for two decades. No one had any particular sense of apprehension or anxiety. Most of the major traders assumed that Monday had been the real test of the market's resiliency; and although it had not set any growth records, at least there were no major cracks either.

When the Exchange opened for business, the trading volume quickly reached the level of the previous day, except that virtually all the trades were sell orders. The market plunged as more sellers flooded the floor. Once the plunge started, it was like Whitney's worst nightmare. The radio carried the bad news to the American people and more sell orders flooded in from panic-stricken investors, fearful of losing their savings. It was like a gigantic economic snowball--as more sellers panicked, fewer buyers would step forward.

As the frenzied trading continued, even the veteran traders knew this was not just another down day on the market. It was a true sell-off of all stocks. Even the traditional "blue chippers" were being dumped.

By the ending bell, AT&T was down 100 points, General Motors down 150 points, General Electric down 90 points. More than 16 million shares were traded at a loss of $10 billion--twice the amount of currency in the entire country at that time. Whitney knew that without major support from the big banks, the market would continue the tumble when the bell sounded the next morning. Even with their support, he wasn't at all sure the selling could be halted.

The evening newspapers all carried the headline: "Wall Street Crashes." By the next morning, virtually every small investor in the country had issued a sell order, hoping to salvage something of their equity.

Panic ruled the market from that fateful Tuesday on. There were small rallies where determined investors attempted to support their portfolio of stocks. But those who did, quickly found themselves among the destitute. Millions of Americans lost their life savings, and thousands of millionaires became just more statistics in the growing ranks of the unemployed.

People who had grown up in the American enterprise system and thought it could not be defeated were swallowed up as banks, businesses, farms, and homes all fell victim to what would be called "The Great Depression."

One story in a New York newspaper told of a ship full of wealthy entrepreneurs who, on the return portion of their vacations, sailed from England the last week of October. The ship had been equipped with the latest telegraph equipment so the men could keep abreast of their stocks during the voyage. By the 30th of October, as the market plummeted, they could no longer place sell orders and expect them to be executed, and by the time they arrived in New York on the 4th of November, they owned little more than what they had with them on the ship.

One of the most publicized aspects of the Wall Street collapse was the specter of suicides by once-prominent traders. Men who had lost their entire fortunes often committed suicide by jumping from their offices high above Wall Street. But as alarming as this was, it paled when compared to the misery the average American worker and his family suffered over the succeeding decade.

By the end of the year, the Stock Market had lost the unbelievable sum of $40 billion in equity, taking with it hundreds of banks and millions of jobs. By 1932, the depth of the Depression, more than five thousand banks had closed their doors; leaving millions of depositors with nothing to show for their thrift. The national income plummeted from over $80 billion in 1929 to less than $40 billion by 1932. The promise of prosperity built on debt had tempted normally conservative Americans to risk all they owned. They lost.

In 1928 there was no venture too harebrained for a banker to fund, if the interest rate was high enough. By 1930 there was no legitimate venture, no matter what its merit, that could find an interested banker. Speculators, such as Bernard Baruch, who had withdrawn their assets from the market before the collapse, used their hard currency to buy land, businesses, and the lifetime efforts of others for a fraction of their actual worth. Even the "big banks" were on the ropes. The men who had manipulated the market for their own benefit found the pond rapidly drying up.

Hypocritically, most of those who had once insisted that the government should stay out of the regulating business now cried for government aid. Their cries fell on deak ears in the White House. Herbert Hoover had been elected because of his laissez faire policy, and he was not about to renege on what he believed. He did attempt a few government programs to help the unemployed and homeless, but most were aimed at easing poverty, not stimulating business. His philosophy was, "If business created the mess, business should repair it."

Most economists since the Depression have faulted Hoover for his nonintervention. Perhaps a good case can be made for the administration's lack of control prior to the Depression, but there had been several previous depressions in America from which the nation recovered without direct government intervention, so the president felt justified in following historical precedent.

Without a government bailout, using taxpayers' money, the Depression of 1837 had lasted but four years; the Depression of 1893, four years; and the panics (recessions) of 1904, 1907, and 1921 lasted less than two years each.

But with millions of voters out of work, and the big banks in trouble, Hoover could garner no support for his reelection. The nation was ready for a change: a "New Deal," as the Democratic party promised.

Their spokesman for this New Deal was an articulate aristocrat with a household family name: Roosevelt. Franklin Roosevelt was born to wealth, raised in wealth, and educated in wealth at Harvard, where he was exposed to the philosophies of Dr. John Maynard Keynes of England. Keynes, an avowed socialist, had long advocated the use of government control over banking and business to ensure prosperity for all. The philosophy was not new. Karl Marx had advocated essentially the same doctrine, only to a more radical group--the poor.

Keynes' economic theory had yet to be tested in a sizeable system. But, with America in depression, it was about to be implemented wholeheartedly. That now suited the bankers and industrialists perfectly because they desperately needed an infusion of capital to hold on to what they had siphoned out of the general public. The New Deal would forevermore change the average American's view of the role of their central government.

I have presented this brief overview of the Depression of 1929 because so few Americans are aware of how it began--or ended. Most of those who lived through the Depression were scarred for life. Most unemployed voters viewed Franklin Roosevelt as truly their economic "savior." And in fairness, President Roosevelt did what he believed was the right thing to do, in spite of the Supreme Court's view to the contrary. But so profoundly is the New Deal philosophy now ingrained in American politics that, in order to understand the coming "economic earthquake," it is critical to understand how our government functions monetarily.

What we accept as normal today, any generation prior to the Great Depression would have seen as unconstitutional. According to the Constitution, the central (federal) government is to have no powers except those specifically granted it by the Constitution. All other rights and powers not specifically granted the individual states are preserved for their citizens. That includes the right to succeed or fail according to one's own abilities, unrestrained by the government. So fearful were the founders of this country of a strong central government that they went to great lengths to ensure that its powers were severely limited. Basically, the central government could settle arguments between the states, organize an army to defend the nation's common cause, regulate interstate commerce, and negotiate foreign treaties. The federal government was allowed to raise its operating capital by charging an interstate tariff on goods only--period!

The Depression set the stage for the federal government to dominate American business, banking, commerce, and the economy as a whole. Franklin Roosevelt raised the status of the federal government to that of the "great provider." Whether or not you agree or disagree with the New Deal. no one can deny it changed American politics and the economy forever.

In my opinion, it also set the stage for an eventual economic disaster unparalleled in American history. As you will see, the events that led us to this point are not unique. Others have traveled this economic road before us. The major difference between us and them is our size and influence. It is my considered opinion that our nation has prospered because of a unique commitment to God's divine authority. We are now traveling a path that is almost totally contrary to that original commitment.

"With Americans mired in the bog of the deepest depression in history, the "New Deal" administration promised them strong leadership and a government handout. The long-term effects of the New Deal have outlasted the short-term benefits to the thirties generation. Nearly 80 percent of all Americans now draw some form of government subsidy."

"If we all join hands together and buy a new SUV, everything will be OK."
Robert McTeer - President of the Federal Reserve Bank of Dallas. - Source.

One afternoon in junior high electronics class, the instructor set up an experiment in parallel circuits.

Two bare copper wires ran from his desk, where they were connected to a hand-cranked generator. The ten of us in the class were asked to stand in a line, each student grabbing the two wires with their left and right hands.

The instructor slowly turned the crank on the generator, and we could all feel a mild tingling in our hands.

Then, he began to turn the crank faster. Within seconds, someone got scared and released their grasp, the electical current now flowing through nine students.

The teacher then turned the crack at full speed, and within 2 or three seconds five more let go, as the remaining students got the brunt of the charge.

It took two more seconds to shake off all but one, with the final classmate recieving the full, painful jolt of electricity.

"A smart man makes his money with money," J.P. Morgan was often heard to say, and, "God wouldn't have made sheep if he didn't expect them to be sheared."

I think I'm getting sheared and fleeced at the same time.

Thanks for the excellent post, Uncle Bill. Um, tomorrow is Tuesday isn't it?

Where's mancini?

Global Financial Collapse

About to explode.....The Real Corruption:
McCain And Lieberman

Derivatives are Collapsing the Global Economy

The Reasons for the U.S. economic collapse
The Financial Bubble

To understand the criminal "High Cabal's"global economic
exploitation of workers, American and world citizens must wake up to the
fact that we are at WAR against four enemies:

--the national governments - controlled and
manipulated by the multinational and
financial empires--the "High Cabal"

--the multinational corporations - pursuing
profits without concern for workers or
environments<p> --the Wall Street scam artists - bilking
heedless investors of millions of dollars

--the banks and financial institutions - funding only those corporations
which play hardball globalism

NAFTA was huckstered by Clinton and Congress as a way
to increase American jobs and benefit the great majority of
people both at home and abroad through its realization
of a free-market global capitalism.

My reading says that Winston Churchill was there the day the market crashed , so he could watch.

It is impossible to balance the budget or pay off the debt , regardless of its size.

When congress gave control of our economy over to the central bankers we became their economic slaves.

If our government originally borrowed $10,000 at 10% , the debt could never be paid back because the money to pay it back DOESN'T EXIST. In order for our government to keep operating it has to keep borrowing from the central bankers , promising that the American people will continue to pay on the debt.

Read the signs at the banks , they say "Backed by the faith of the U.S Government" those words don't even belong together.

What the privately owned central bank known as the federal reserve did , was allowed our government to grow uncontrolled by giving them an open checkbook with our names on it.

As far as I'm concerned it's extortion.

And before the next war starts and everyone thinks that the economy will be strong , it's just the opposite that happens. We keep digging our hole deeper and deeper , insuring that our grandchildrens children will still be owned by the bankster's.

That's a heck of a gift to give them.....

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