This is part of the classic money and credit cycle that has happened for as long as there has been recorded history
and that I will explain in the money and credit cycles chapter. More specifically, a credit collapse that happened
because there was too much debt so the central government had to spend a lot of money it didn’t have and make it
easier for debtors to pay their debt. To do that, the central bank had to print money and liberally provide credit—
like they are doing now. When credit collapsed, spending collapsed with it so they had to print money. In that case
the debt bust was the natural extension of the Roaring ‘20s boom that became a debt-financed bubble that popped
in 1929. Almost all debt busts, including the one we are now in, come about for basically the same reason of
extrapolating the uptrend forward and over-borrowing to bet heavily on things going up and being hurt when they
go down.
Back then, the popping of the bubble and the resulting economic bust were the biggest influences on the 1930-45
period’s internal and external fight for wealth and power. Then, like now and like in most other cases, there were
large wealth gaps, which when heightened by debt/economic collapses led to revolutionary changes in social and
economic programs and big wealth transfers that were manifest in different systems in different places. Clashes
and wars developed over which of these systems was best and as different people and countries fought to get their
share. The popular systems that were fought over included communism (which supported dividing most wealth
pretty much equally), fascism (which was autocratic state-controlled capitalism), and socialized democracy (which
redistributed a lot of wealth while maintaining democracy and a more free-market capitalism—though often in a
more autocratic form during the war years). There are always arguments or fights between those who want to make
big redistributions of wealth and those who don’t. In the US in the 1930s, Mother Nature also gave us a painful
drought.
Looking over the whole of the cases I examined, I’d say that past economic and market declines each lasted about
three years until they were reversed through a big restructuring process that included restructuring of the debt and
the monetary and credit system, fiscal policies of taxation and spending, and changes in political power. The
quicker the printing of money to fill the debt holes, the quicker the closing of the deflationary depression and the
sooner the worrying about the value of money begins. In the 1930s US case, the stock market and the economy
bottomed the day that newly elected President Roosevelt announced that he would default on the government’s
promise to let people turn in their money for gold, and that the government would create enough money and credit
so that people could get their money out of banks and others could get money and credit to buy things and invest.
As shown in the previous chart, that created a big improvement but not a full recovery. Then came the war, which
resulted from fighting over wealth and power as the emerging powers of Germany and Japan challenged the
existing leading world powers of Great Britain, France, and eventually the US (which was dragged into the war).
The war period raised economic output of things that were used in war, but it would be a misnomer to call the war
years a “productive period”—even though when measured in output per person, it was—because there was so
much destruction. At the end of the war, global GDP per capita had fallen by about 12%, much of which was
driven by declines in the economies of countries that lost the war. The stress test that these years represented wiped
out a lot, made clear who the winners and losers were, and led to a new beginning and a new world order in 1945.
Classically that was followed by a lengthy period of peace and prosperity that became overextended so that all
countries are now, 75 years later, being stress tested again.
Most cycles in history happened for basically the same reasons. For example, the 1907-19 period began with the
Panic of 1907, which, like the 1929-32 money and credit crisis following the Roaring ‘20s, was the result of boom
periods (the Gilded Age in the US, the Belle Époque in continental Europe, and the Victorian era in Great Britain)
becoming debt-financed bubbles that led to economic and market declines. These declines also happened when
there were large wealth gaps that led to big wealth redistributions and a world war. The wealth redistributions, like
those in the 1930-45 period, came about through large increases in taxes and government spending, big deficits,
and big changes in monetary policies that monetized the deficits. Then Mother Nature brought about a pandemic
(the Spanish flu) that intensified the stress test and the resulting restructuring process. This stress test and global
economic and geopolitical restructuring led to a new world order in 1919, which was expressed in the Treaty of
Versailles. That ushered in the 1920s debt-financed boom, which led to the 1930-45 period and the same things
happening again.
Basically these periods of destruction/reconstruction cleaned out the weak, made clear who the powerful were, and
established revolutionary new approaches to doing things that set the stage for periods of reconstruction and
prosperity that became overextended as debt bubbles with large wealth gaps and led to debt busts that produced