The Great Devaluation

22Back to the Future—Part II

The reality is that we are trying to learn from history. Ben Bernanke was chosen to be the Fed chairman in 2006 for this very reason. Bernanke was one of the foremost experts in the world on the Great Depression. He has gone on record as stating that the Fed actually had learned from the mistakes of their past and would not make the same mistakes again. I believe he was wrong.

While the mechanism was different then, the problems remain the same. We sit inside an even bigger debt bubble today. Populism and wealth inequality are raging at the extremes, and rather than argue about how we got here and who's to blame, it makes far more sense to think through what's coming next. Central bankers in the 1930s tried to remain true to some semblance of sound money. Being responsible hurts. The problem then was exactly the same as today. Back then, the world was suffering through a massive debt crisis. Back then, the United States was the only solvent nation. The gold holdings of the Treasury equaled over 20,000 tonnes, and roughly 85 percent of the world's gold supply.

So while the 2020s will play out differently than the 1930s, there will be a few incredibly important similar takeaways that investors can learn from. Back then, markets suffered deep pain as institutions failed, leverage imploded, prices dropped dramatically, and the dollar depreciated against the real money of gold. The solution that allowed for things to reflate only came after FDR was elected ...