The Great Depression Online

Great Depression Online Archive Issue:

Debt Kills

Great Depression Online
Long Beach, CA
May 11, 2010

Inside This Issue You Will Discover…

*** Monumental Arrogance
*** Discourage Leverage
*** Debt Kills
*** And More

“Nay,” answered Monte Cristo, with the most gentlemanly air, “tis not for such trifling sums as these that your banking house is to be incommoded.  Then, you can let me have some money, can you not?” – Chapter 46 - Unlimited Credit, The Count of Monte Cristo by Alexandre Dumas.

Monumental Arrogance

Roger Lowenstein, if you didn’t know, has what the younger generation calls ‘street cred.’  His ‘street cred,’ however, was earned not by hustling the mean streets of urban cities, but by hustling Wall Street through numerous exposes of banking house fraud and folderol.

Last Friday, in a Bloomberg piece, Lowenstein challenged ongoing Congressional efforts to legislate new bank regulations.  Regardless of the regulation, Lowenstein points out, the regulator will fail.  Looking back to the origins of our current economic anguish, Lowenstein finds Greenspan culpable of magnificent mistakes…

“In a newly released transcript of a Federal Reserve Board meeting in March 2004, former Chairman Alan Greenspan argues against disclosing too much to the public lest the Fed ‘lose control of a process that only we fully understand.’

~~~~~~How To Prepare?~~~~~~

The shocking 1990 collapse of the Japanese Market.  The extraordinary U.S. economic boom of the ‘90s and early 2000s.  The devastating global recession that began in 2008.  These impacted everyone’s lives, investments, and fortunes.  The signs of their arrival were visible years and years in advance.  And yet…Almost No One Predicted Them.

The mainstream media didn’t.  The top economists didn’t.  The great financial advisers didn’t.  But One Man Did.

What’s coming Next?  When will it happen?  What should you do to Prepare for it?

Click Here for the Answers 


“This statement ranks as a sign of monumental arrogance.  It was Greenspan himself who didn’t understand -- much less ‘fully understand’-- that the Fed’s lax mortgage regulation and easy monetary policies were setting America up for a disastrous fall.

“Greenspan’s imperial presumptions remind us that no new law can prevent future regulators (or, for that matter, future bankers) from making mistakes.  And as Congress heads toward the final phase of legislating reform, it should drop the pretense that it can control the actions of government officials.”

Discourage Leverage

More Lowenstein…

“Democrats and Republicans have been squabbling for weeks over how to ensure that bailouts don’t happen in the future. Various bills would attempt to tie the government’s hands.

“This emphasis is misplaced.  We can’t hope to forecast the particular crises that will arise.  Much less can we prescribe how officials will respond.  Rather than dictating how government reacts to a financial disaster, we should aim to minimize the likelihood that one recurs, and limit the panic if it does.

“The best way to do that is to discourage leverage.  In other words, the federal government should make it expensive for banks to assume too much risk -- whether on or off the balance sheet.

“In a perfect world, markets would perform this function. Theoretically, a bank with too much debt would be punished by sharply higher borrowing costs (or by a cessation of credit altogether).  But in the just-ended economic cycle, lenders and investment banks were extended cheap credit as if the supply were limitless.

“…post-crash, when the International Monetary Fund looked for indicators that predicted which banks would fail, it found, lo and behold, that the ‘basic leverage ratio’ was the most reliable guide to a bank’s survival.  To paraphrase a warning from the drug culture, ‘debt kills.’”

Debt Kills

“Brevity is the soul of wit,” said Shakespeare.

We agree.  For here at the GDO we are simple minded simpletons.  We don’t deny it.  Nor do we apologize for it.  What’s more, we embrace it. 

When it comes down to it, if something doesn’t make sense after a head scratch or two…it’s likely bogus.  Here’s what we mean…

Tech stocks with zero earning selling for $100 per share.  Triple A rated mortgage backed securities loaded with no doc/neg am loans.  Buy and hold.  House prices only go up.  Nations can consume their way to wealth.  You can cure a depression caused by too much debt, with more debt.

These statements are all absurd, yet millions of people – and entire nations – have gone broke attempting to prove they aren’t.  Here’s the point…

The phrase ‘debt kills,’ is the sharpest, most accurate, assessment you’ll hear right now of the world around you.

Just look about.  The 2008 financial crisis.  What ultimately caused it?  Too much debt.

Greece SpainPortugalItaly.  Heck, all of Europe in 2010.  How did they get into their current impasse?  Too much debt.

And the United States in 2012.  What will have caused the hyperinflationary collapse?  Bernanke’s response to, you named it…  Too much debt.

Debt kills, you see.  Don’t forget it.


M.N. Gordon
Great Depression Online

P.S.  “We’ve seen the greatest credit bubble and greatest real estate bubble in modern history, which means we have inflated asset values and, more importantly, way too much debt in our system,” warned financial author and publisher Harry Dent recently to

Debt Kills

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