Tucson & The Great Depression
This Is Not Your Normal Downturn
Darryl Robert Schoon
Apr 22, 2008
...Goldman Sachs recently
revised its forecast for the U.S. economy, predicting a recession
in 2008 (Reuters)...Of course, not all recessions are created
equal. Goldman doesn't predict a deep recession, but rather a
mild turndown, with modest recovery in 2009.
CFR.org, 1/18/08, Lee Hudson
Teslik, Assistant Editor and economics writer at CFR.org The
Council on Foreign Relations. Mr. Teslik is 26 years old.
Both my parents were born in
Tucson, so it was perhaps not that unusual when Martha and I
left San Francisco and moved to Tucson in 1999. In the late 1940s
as a young boy, I remember watching a woman with her pail of
still warm homemade tortillas slowly make her way up the alley
in Tucson's summer heat towards my grandmother's house in the
Armory Park area.
The smell, taste, and texture
of those wonderful warm flour tortillas wrapped around the beans
my grandmother had cooked are still with me today. But the Tucson
we returned to in 1999 was far different than what I remember
as a young boy. What is the same, however, is also familial,
but in a far different sense.
My father and mother had grown
up during the 1930s, the depression years, in Tucson. They had
both managed to graduate from college, no small feat especially
in those difficult times; but it was clear, even to me as a young
boy, that the Great Depression had left its indelible mark on
the way my parents viewed the world.
Today, Tucson is far different
from the Tucson of the 1930s. But, soon, not tomorrow, but perhaps
in the not too distant future, the economic suffering that characterized
the Great Depression may again be returning to the town and nation
of my parents' youth.
THIS IS WHY
In the 1990s, I had become
interested in the causes of the Great Depression, that unique
and catastrophic event that brought the world economy to a halt.
The depression had occurred after the 1920s stock market bubble
collapsed in 1929; and, when the dot.com bubble collapsed in
2000, I found disturbing parallels between the two eras and the
The 1990s upwards rise of the
stock market was similar to the upward rise of the Dow in the
1920s, driven then by the spread of radio much as the spread
of computers drove the NASDAQ to just as unrealistic highs in
Martha and I moved to Tucson
just before the dot.com bubble collapsed. The money pouring into
Silicon Valley had affected the entire bay area. Rents and housing
were far beyond the range of those who previously lived there,
and for that and other reasons, it was yet another sign that
we should consider the warmth of Arizona and the hospitality
of Tucson before the rest of our generation found it.
But when we arrived in Tucson,
we were to witness yet another extraordinary bubble, what was
to become the largest bubble in history - the US real estate
bubble of 2002-2006.
Because of my reading about
the economic events of the 1930s, I was well aware of what happens
when large speculative bubbles collapse, that the enormous levels
of debt left behind as a result of leveraged speculation could
plunge the nation and the world into another recession at best
and another depression at worst. Those then in charge of the
US economy, Alan Greenspan and others at the Fed, knew it too.
To prevent it from happening,
the Fed slashed interest rates from 5.25 % to 1 % and unleashed
a flood of cheap credit in the hopes of reversing the 2001 economic
downturn. But because of changes in financial packaging and the
repealing of the Glass-Steagall Act in 1999 which was enacted
in 1933 to prevent other depressions, the effect of cheap credit
in 2002 was to have an unexpected consequence - an enormous bubble
far larger than even the dot.com bubble.
Real estate mortgages, instead
of being held on the books of local banks, were now packaged
and sold by Wall Street investment banks to yield hungry buyers
around the world, buyers who had no way of knowing that the payments
on a $500,000 mortgage were to be made by a $9.00 per hour convenience
store clerk who had been sold a don't ask don't tell no-money
down adjustable-rate mortgage by a broker whose incentive was
the considerable up-front fees collected at the time of sale
made possible by the Fed's 1 % money.
WHERE WE ARE TODAY
In 2008, the convenience store
clerk hasn't made a payment in months, the mortgage is in default,
the house is in foreclosure, the yield hungry buyers (banks,
pension funds, and insurance companies) are now aware their investments
may never be repaid, mortgage brokers are looking for jobs, and
the Wall Street investment banks that bought, packaged, and sold
$1.5 trillion of subprime mortgages are themselves caught holding
billions of dollars of the highest tranches of subprime debt
once thought to be safe but are not.
The investment banks, however,
those who created subprime mortgages and profited from this bubble
are now being bailed out by their colleagues at the Federal Reserve.
The US Federal Reserve Bank, the private bank in charge of the
public's money, is now allowing global investment banks to trade
their suspect subprime investments for US Treasuries, gratis
of US taxpayers who also recently indemnified investment bank
JP Morgan Chase's purchase of investment bank Bear Stearns against
any loss, all upside accruing to the shareholders of JP Morgan
WHAT TOMORROW WILL BRING
While many in Tucson are now
aware that something is seriously wrong with the economy; that
their homes are going down in value while the price of gas is
going up, they, like most Americans, have no idea about the real
reasons for the downturn.
As I looked deeper into the
causes of what is about to happen, gold and silver, the role
of the Federal Reserve in issuing debt as money, and the complicit
duplicity between public government and private bankers have
become more important in understanding the reasons for the economic
collapse that is about to happen.
The gold and silver on-line
community has become the prized arena where far from the corporate
controlled media, the implications of central bank gold manipulation,
the distorted measures of inflation and unemployment issued by
the US government, and the disturbing denial of the populace
who will soon be affected by what they don't know are parsed
I wonder what Americans would
do if they truly understood the trouble they are in. I wonder
what they would do if they knew America's gold had been spent
by the military-industrial complex in 1950-1970. I wonder what
they would do if they knew about the dangers posed by investment
bank credit default swaps, CDSs, a $62 trillion unregulated market
that could destroy the global economy as quickly and as easily
as charged explosives brought down three towers at the World
Trade Center on 9/11 (regarding CDSs, I highly recommend Thomas
Tan's article Why Wall St. Needed Credit Default Swaps http://news.goldseek.com/GoldSeek/1208412360.php).
Today, the corporate controlled
US media diverts America's attention away from the real reasons
and instead fuels the fear that illegal immigration, China or
Iran are the reason for America's increasing problems. The truth,
however, is much simpler and much less sinister. The truth is
that we have brought this on ourselves.
A tale to tell that you
The truth of all of that we fear
That and which we hope to be
That and which we'll never see
A tale so old that it might be
Greece or Rome or Brittany
A tale of power you would know
Except you still deny it so
For once again we've gone astray
And once again we'll rue the day
By standing not for what is true
By standing not for what we knew
But let us now this tale be told
A tale new yet a tale old
The traveler spoke to us that day
Of a kingdom far away
He said the kingdom although young
Was watched by all in Christendom
For it was hoped that it would be
A beacon for the world to see
A light of justice a torch for peace
Opportunity within reach
How might this be a voice did ask
When such has never come to pass
That ever since man ruled man
The rule has been by iron hand
The traveler said it was to be
Ruled in ways quite differently
There was to be no king or queen
Nor any manner where it would seem
That one was better than the rest
It was to be a noble quest
It was to be a kingdom fair
Where all would be an equal there
Where every one would have a voice
Where everyone would have a choice
Those who governed would the people serve
Not themselves but those deserved
Such a kingdom it was to be
A kingdom where all would see
That man could rule not selfishly
But for the good of all and could then be
An example fair just and wise
No longer then would man devise
Ways to enslave his fellow man
Because he could because he can
From Canterbury Tales Redux,
The Traveler's Tale, Darryl Robert Schoon
The birth of the United States
was a unique event in history. No nation had ever declared so
boldly and eloquently the rights of man in its Declaration of
Independence. Nor had any nation so specifically set out to define
the rights of its citizenry as safe, distinct and sacrosanct
from the overriding power of government.
Those who crafted the Declaration
of Independence and the US Constitution were unusual men in unusual
times. The US was born in revolution and its founding fathers
were aware of the ever present dangers that could threaten its
fragile rights and freedoms, as history was but the story of
governmental tyranny in various guises.
Now, the words and warnings
of the founding fathers such as Thomas Jefferson have been lost
and hidden; and would certainly be denied today by those who
rule the nation founded by greater men than they. Caricatures
and charlatans have replaced the great thinkers and brave statesmen
who set this extraordinary experiment in motion in 1776, an experiment
now in mortal danger of failure and extinction.
Written two hundred years ago,
Thomas Jefferson's words today are irrefutable proof that our
founding fathers deepest fears have come true.
Thomas Jefferson on Money &
Thomas Jefferson to Thomas
Cooper, 1814. ME 14:61
Everything predicted by the enemies of banks, in the beginning,
is now coming to pass. We are to be ruined now by the deluge
of bank paper. It is cruel that such revolutions in private fortunes
should be at the mercy of avaricious adventurers, who, instead
of employing their capital, if any they have, in manufactures,
commerce, and other useful pursuits, make it an instrument to
burden all the interchanges of property with their swindling
profits, profits which are the price of no useful industry of
Thomas Jefferson to John
W. Eppes, 1813. ME 13:423
If the debt which the banking companies owe be a blessing to
anybody, it is to themselves alone, who are realizing a solid
interest of eight or ten per cent on it. As to the public, these
companies have banished all our gold and silver medium, which,
before their institution, we had without interest, which never
could have perished in our hands, and would have been our salvation
now in the hour of war; instead of which they have given us two
hundred million of froth and bubble, on which we are to pay them
heavy interest, until it shall vanish into air... We are warranted,
then, in affirming that this parody on the principle of 'a public
debt being a public blessing,' and its mutation into the blessing
of private instead of public debts, is as ridiculous as the original
principle itself. In both cases, the truth is, that capital may
be produced by industry, and accumulated by economy; but jugglers
only will propose to create it by legerdemain tricks with paper.
Thomas Jefferson on The Military
& the Militia:
Thomas Jefferson to David
Humphreys, 1789. ME 7:323
There are instruments so dangerous to the rights of the nation
and which place them so totally at the mercy of their governors
that those governors, whether legislative or executive, should
be restrained from keeping such instruments on foot but in well-defined
cases. Such an instrument is a standing army.
Thomas Jefferson: 6th Annual
Message, 1806. ME 3:424
Were armies to be raised whenever a speck of war is visible in
our horizon, we never should have been without them. Our resources
would have been exhausted on dangers which have never happened
instead of being reserved for what is really to take place.
FROM FREEDEOM TO TYRANNY
I am persuaded that in all
governments, whatever their nature may be, servility will cower
to force, and adulation will follow power. The only means of
preventing men from degrading themselves is to invest no one
with that unlimited authority which is the sure method of debasing
Alexis de Toqueville
Democracy In America 1840
In 1840, Alexis de Toqueville
published his classic work Democracy In America. In that
extraordinary thoughtful missive on America's experiment with
democracy, de Toqueville made a startling observation, that the
American experiment contained the seeds of a new kind of tyranny,
a tyranny of the majority; and, that a tyranny of the majority
is no less a tyranny than if only by one.
De Toqueville wrote:
If ever the free institutions of America are destroyed, that
event may be attributed to the omnipotence of the majority, which
may at some future time urge the minorities to desperation and
oblige them to have recourse to physical force. Anarchy will
then be the result, but it will have been brought about by despotism.
Today, opinion in America is
influenced primarily by its national media, controlled by corporate
and special interests intent on swaying public opinion for their
own gain and ends; and in America, where majority opinion is
accepted as the truth, dissent and differing opinion are derided
and dismissed - as if dissent and difference were themselves
unpatriotic and therefore de facto not true.
Questioning the opinion of
the majority in America is today an impossible task - and if
dissent and differing opinions are, in fact, true, then the truth
will out, but only with extreme difficulty. If America continues
to disbelieve and deny the cause of its economic problems, it
will consequently have to learn the truth the hard way - and
a depression is the hardest way of all.
We have come a long way from
1776 when our forefathers first began America's experiment with
democracy; but if we continue as we have, there will only be
a short distance to go.
The power of myth is extraordinary.
Correctly applied, the ignorant will believe themselves enlightened
and slaves will believe themselves free.
WAITING IN TUCSON
My parents were born in Tucson
almost 100 years ago. Tucson was then nothing like it is today.
In the intervening years, we as a nation have come to expect
that tomorrow will be better than today. Time is about to prove
that assumption wrong. It wasn't so in the 1930s. Soon, it will
not be so again.
My study of the causes of the
Great Depression have led me to believe that America has now
gone too far to go back, that Americans because of their foolishness,
the duplicity of their leaders, or a combination thereof are
today incapable or unwilling to understand what is now about
to occur. The lack of understanding, however, will not prevent
The tortillas are still good
in Tucson as are the green corn tamales and cheese crisps; and,
today, we wait for what summer will bring. This year, however,
I fear much more than Tucson's summer heat is on the way.
Invest in gold and silver.
Note: I will be speaking at Professor Antal E. Fekete's
Session IV of Gold Standard University Live (GSUL) July 3-6,
2008 in Szombathely, Hungary. If you are interested in monetary
matters and gold, the opportunity to hear Professor Fekete should
not be missed. A perusal of Professor Fekete's topics may convince
you to attend (see http://www.professorfekete.com/gsul.asp).Professor
Fekete, in my opinion, is a giant in a time of small men.
Darryl Robert Schoon
About Darryl Robert
I majored in political science with a focus on East Asia (B.A.
University of California at Davis, 1966). My in-depth study of
economics did not occur until much later.
In the 1990s,
I became curious about the Great Depression and in the course
of my study, I realized that most of my preconceptions about money
and the economy were just that - preconceptions. I, like most
others, did not really understand the nature of money and the
economy. Now, I have some insights and answers about these critical
In October 2005,
Marshall Thurber, a close friend from law school convened The
Positive Deviant Network (the PDN), a group of individuals whom
Marshall believed to be "out-of-the-box" thinkers and
I was asked to join. The PDN became a major catalyst in my writings
on economic issues.
When I discovered
others in the PDN shared my concerns about the US economy, I began
writing down my thoughts. In March 2007 I presented my findings
to the Positive Deviant Network in the form of an in-depth 148-page
analysis, "How to Survive the Crisis
and Prosper In The Process."
to my presentation, though controversial, generated a significant
amount of interest; and in May 2007, "How To Survive The
Crisis And Prosper In The Process" was made available at
www.survivethecrisis.com and I began writing
articles on economic issues.
in the book and my writings has been gratifying. During its first
two months, www.survivethecrisis.com was accessed by over 10,000
viewers from 93 countries. Clearly, we had struck a chord and
www.drschoon.com, has been created to
address this interest.