History Says: “Rising Interest Rates Might Trigger A Depression!”

It is quite possible that the Fed’s current efforts to raise interest rates could trigger a credit collapse, ushering in deflation and a New Great Depression.

1. Default
   • Credit Default, which happens when individuals, corporations, and countries can no longer sustain the debt they have assumed on a scale that overwhelms ordinary financial and market activity…
   • Bank Failures, which happen when banks violate the reserve requirements set by the Federal Reserve and are unable to meet the ongoing demand for money from their customers…
   • Asset Price Collapse…which includes all assets denominated in dollars and includes stocks, bonds, commodities, and real estate. We are currently in the early stages of another asset price collapse.
   • Any single one, or combination, of the three types of default (credit default, bank failures, asset price collapse) can result in deflation. This happens because of the huge sums of money involved which are subsequently wiped out.
2. Deflation
   • Deflation is the opposite of inflation; it is a contraction in the supply of money and credit…resulting in fewer currency units (dollars) in circulation and an increase in purchasing power of the remaining units. In other words, your dollars will buy more – not less…
3. Depression
   • A depression is a severe and prolonged downturn in economic activity…which is…the result of a flip-flop in Federal Reserve policy. During the Roaring Twenties, the Fed pursued a generous approach to loans and interest rates [but,] because of concern about the rampant stock speculation fueled by their own generosity -sound familiar], the Fed became more restrictive and economic activity slowed. This slowdown in economic activity was underway before the stock market crash in October 1929.

Conclusion

It is quite possible that the Fed’s current efforts to raise interest rates could trigger a credit collapse, ushering in deflation and a New Great Depression. (see A Depression for the 21st Century)

The above article by Lorimer Wilson is an edited [ ] and abridged […] version of the original by Kelsey Williams of kelseywilliamsgold.com.