The Great Depression of 2008

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By Marc McDonald (about the author) Page 1 of 2 page(s)

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By MARC McDONALD

Until last week, most economists were divided on whether the U.S. was in a recession or not. Now, with the ailing mortgage agencies Fannie Mae and Freddie Mac on the ropes, it's clear that what's unfolding is far worse than any recession.

As Britain's normally staid The Telegraph newspaper notes, we could be on the verge of a new Great Depression. That might seem far-fetched until you consider that last month, the Dow suffered its worst June since 1930.

But The Telegraph is hardly alone in using such apocalyptic language these days. The "D" word is starting to be mentioned more and more in the business media, as well as by economic commentators. As David Bullock, managing director of investment fund Advent Capital Management, put it in a comment to The New York Times on Tuesday, "We are closer to the Depression scenario than not."

Yes, a real Depression, complete with tent cities now springing up in what once were prosperous suburbs.

This doom-and-gloom language in describing the U.S. economy first began to pick up steam after investment bank Bear Stearns had to be bailed out by the government in May. In describing the bailout, the Associated Press said that Bear Stearns was "On the verge of a collapse that could have shaken the very foundations of the U.S. financial system."

The current crisis with Fannie Mae and Freddie Mac is infinitely larger than Bear Stearns. The two companies either hold or guarantee a staggering $5.3 trillion worth of mortgages. Indeed, the investment magazine MoneyWeek has noted that the crisis is big enough to doom the dollar.

As MoneyWeek notes:

Fannie Mae and Freddie Mac might have been deemed too big to fail---but who's big enough to bail out the US? When investors start seriously asking themselves that question, expect the dollar to plunge.

Make no mistake, a catastrophic U.S. economic collapse is on the way. Such is the inevitable fate of any Ponzi scheme economy that has been running on nothing more than smoke and mirrors (and oceans of foreign capital) now for many years.

Of course, those who are poor or working class know first-hand that the U.S. economy has been in increasingly serious trouble since around 1980. Wages have been steadily declining for everyone but the very rich. And working class people now toil more hours for less pay than their counterparts in any other First World nation. (They have to, as a 40-hour workweek no longer is enough to put groceries on the table).

But as long as America had a tiny elite of prosperous super wealthy, we could always point to them and try to convince ourselves that our economy couldn't be all bad. After all, we would note, there are some people out there making a fortune. All it takes is hard work and ambition, right?

Today, with the stock market in the toilet, and the Fed having to step in to bail out the financial sector, it should be clear to anyone that the U.S. economy is in crisis.

If the U.S. economy actually produced anything of value, this would be nothing more than just another typical downturn in the economic cycle.

The problem is, the U.S. economy no longer produces anything of value. Our economic activity basically consists of importing trillions of dollars from central banks in East Asia---which we then use to prop up our Ponzi scheme economy. The ocean of foreign capital that flows into our nation daily is used to pay for the shopping habits of U.S. consumers.

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The creator of the progressive site, BeggarsCanBeChoosers.com, Marc McDonald is an award-winning journalist who worked for 15 years for several Texas (more...)

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