Is it possible for America to go into a another Great Depression? Unfortunately, I believe that something like the Great Depression could happen again.

Most definitely. In fact we’re already well on our way there. To understand why you first have to understand how the original Great Depression occurred.

Before 1913 the US was on the gold standard. Banks would take your gold and give you bank notes in return. If you put your money in a savings account they would create bank notes from that and lend it out or invest it in the stock market, paying you interest in return.

Then the Federal Reserve was created. The Federal Reserve is a banking cartel. They said to the banks, “now you can lend out as many bank notes as you want, we’ve got your back”.

At first the banks were wary of doing anything risky. To a banker their bank is their life, and if it goes in the toilet they’d find themselves shirtless and living in a homeless shelter somewhere. However starting around 1920 the banks began to take the bait. They started creating bank notes for gold that they didn’t actually have, and lending them out and investing them in the stock market.

This drove up stock prices greatly. Everyone rejoiced at how great the economy was and how a new age of permanent prosperity was upon them. Everyone could get cheap credit and use it to buy superfluous junk.

However the banks also had to pay back their depositors the gold that was lent to them. Every bank note they printed that wasn’t backed by gold was thus leverage, or in other words ‘borrowed’ money. The more leverage the banks took on the fewer the losses it would take to wipe out their entire store of real gold, and many banks had insane leverage ratios. The more leverage they racked up the more cautious they became about adding more leverage.

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