Great Depression to our Depression: Debt Deflation Doom Loop Lessons

We are now in the crosshairs of a mega debt deflationary bankruptcy phase.

Some of our sharpest forefathers left us illustrations to better understand how this cycle operates. It helps that many both actually lived through and studied the last one fresh off it happening. No not this fiat currency bifurcated ivory tower era thinking either ( not you bailout Bernanke).

Described as the last honest Federal Reserve governor, John Exter (1910 - 2006) believed by the early 1960s that the Federal Reserve was locking itself into currency expansionism it could not stop without disastrous outcomes and blowback.

He reportedly would say that the Fed was becoming a prisoner of its own currency stock and debt-based growth (effectively painting itself into a corner). Then a trend that risked a credit expansion reaching total US debt levels far in excess of the country's GDP (quaint times).

His was an envisionment of a major debt crisis ahead of his life, and he believed the crisis would then turn the economy down, to levels not seen since the Great Depression.

Exter warned the Fed would one day find itself unable to prevent a wide-scale deflationary depression.

Perhaps the man could never envision our current viral scapegoat or how this global economic shutdown would quicken into existence some of his worst economic predictions.

But by the late 1950s and early 1960s, our financial system was effectively already devolving into a debt-based, debt-driven economy. To illuminate its growing unstable structure, Exter devised an upside-down debt pyramid as this original illustration shows.

Within it, the former central banker presented the US debt pyramid and drew attention to the fact that all foreign economies also had debt pyramids too. The structures are always perched in an unstable manner which Exter believed was also true for the financial system generally.

His original inverted pyramid reads from the top riskiest to the bottom safest-haven asset classes.

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