Banking Crisis

99 Years and counting down…

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So, tomorrow is a VERY special birthday. The Fed set up by a cartel of banking families, in total secrecy is 100 years old tomorrow.

The Fed grew out of a crisis that occurred in 1908. The whole story would take far too long to describe fully here, but suffice to say, the financial crisis we’ve just experienced, is widely accepted to have been as a direct result of excessive lending on property which in a market that was growing due largely due to demographics, but also because spurts in population growth occur at regular intervals.

If you have access to that data, you can time your entry to the market with precision, or even take advantage of the panic when it occurs.

Of course when you are a Bank, and you have personal data on birth-dates on hundreds of millions of accounts, that data can prove invaluable. You can agree to lend, driving up house prices, then when they begin to rise, you can relax your lending, giving 4, 6, 8 or 10 times current incomes, driving prices up even more. Then as house price inflation rears its head (as it inevitably must) you can raise interest rates driving hundreds of thousands into negative equity, as property prices become depressed.  Of course only a conspiracy theorist, would think they would do that… Wouldn’t they?

The 1908 Banking Crisis

The crisis of 2008 had several outcomes. Property prices would crash, many would lose their jobs, and politicians would agree to more spending. All (they say) to overcome the further progression into recession – depression even. 

Exactly a hundred years ago, a similar crisis occurred. Are we to believe we have learned nothing? Are we to believe that our leaders have not read anything on Political economy, have not read any Economic History, have no advisers who have? Or are they only concerned with their own political futures?

To see, we need to go back a hundred years, perhaps even a little further. to find the cause of the crisis.

The turn of the century ushered in the era of the Oil revolution. A second wave of the industrial revolution, that was originally brought about by the use of coal in steam engines. OIl would enable greater productivity, and usher in the era of the motor-car. Yes, oil had been found before, and was in widespread use since 1859, oil had been used in oil lamps for lighting, given away by Standard Oil – the baby of the Rockefellers.

But in 1901, a new well in Texas spudded. On January 10th, 1901, Spindletop oil well in Texas gushed forth, reaching peak production of over 100,000 barrels of oil per day. It took over a week to bring it under control. Over the next few years over a hundred oil companies would be formed, and thousands of new wells drilled. The wealth created spread out into the wider economy, and the Bankers who had loaned these new corporations the capital made hundreds of millions in new profits. Then, just as now, people speculated on these corporations, and bankers pay became the stuff of legend.

F. Scott Fitzgerald, who would later write the great novel – “The Great Gatsby” would bring this world to a wider audience, but in 1906, a crack in the world – along the San Andreas fault would usher in a period of tumult. 

An earthquake at just after 5:10 am on April 18th, measured by various estimates as between 7.7 and 8.25 on the Richter scale shook San-Francisco and the state. The Newspapers all wrote a collective piece the following day headlined: “The City that was”, as almost 300,000 of the 400,000 inhabitants were left homeless. Barely a building was left untouched.

The epicenter of the quake was reportedly two miles off-shore, but it radiated up to almost 300 miles away, as its effects were felt as far north as Oregon, and as far east as Nevada. The loss of output from San-Francisco, and the disbursements laid out by insurance companies, who had to collect on their own insurance through the re-insurance markets led ultimately to a shortage of capital which helped precipitate the shortage of funds in the markets for speculative purposes.

And that caused the crisis. but its what happened next that matters.

To be continued…