Parallels in Bankers 1930s – 2020s


Armstrong Economics Blog/ECM Re-Posted Jun 24, 2021 by Martin Armstrong

COMMENT: Marty,

You have written much about the period 1927-1929 dominated by the relationship between Monatgue Norman and Benjamin Strong; how pressure from Britain to keep rates in the US lower was intended to relieve pressure from Europeans fleeing for the US, attracted by our faster growth.

It seems eerily similar today, the conditions now with the US, first to restart after the lockdown, and Europe, which can’t get out of its own way. Stuck.

You remarked on the blog money is positioning now ready to make a move….as you have stated, higher rates are bullish…confirming strength in the economy, demand increasing, all bullish for stocks. What is missing is the Fed raising rates, or rather this time, the Fed having to follow, or worse, lose control of rates, which seems implied today…

Marty, if this is a replay, are we in 1927, 28…I assume 1929 is a long way off….

MS

REPLY: It seems to be close to the same timing of about two years, which would bring us to 2023. We can easily see that rates moved up from 3.5% to 6% at the Fed in hopes of stopping inflation. They have NEVER understood the markets or economy because they have relied on academics who only read books and have never traded.

My biggest problem here is that everything is upside down. To get such a crash in the stock market this time requires capital controls or a complete collapse in government and the financial system. During the Great Depression, sovereign defaults began in Europe. This pushed the dollar higher but not the US share market.  Note that the dollar rose in value during World War I, the 1931 Sovereign Debt Crisis, and again for World War II. During those waves of capital flows, the bulk of that capital always moved into government bonds.

We are facing a collapse in public confidence in government. How will capital move this time around when capital is moving away from governments? Will we see it move into the private sector exclusively, or will there be a capital flight to China as it becomes the USA of the 1930s?

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