The Crash has Already Begun

The Crash has Already Begun

Interview with Economist Eberhard Hamer

[This interview is translated from the German on the World Wide Web, http://www.goldseiten.de/ansichten/hamer-01.htm. Eberhard Hamer, born in 1932, was a professor of economics in Bielefeld, Germany up to 1994.]

Professor Hamer, what should we do before the crash?

Hamer: Be prepared. This may sound trite but as Gorbachev said “Life punishes everyone who is not prepared.” We titled our book “What happens when the crash comes?” to shake people and tear them from the dreams of the sham boom.

Is this an end of the world prophecy?

Hamer: I know, whoever predicts disaster is not always welcome. This was true in the time of Cassandra. But at the end the Trojans wished they had listened. With the book we want people in Germany to take seriously the danger and prepare for it. Whoever prepares in time will escape with the least injuries.

When will the crash come?

Hamer: The crash has already begun! Every crash comes in three steps, the stock market crash, the banking industry crash and finally the real crash, that is the collapse of the economy, businesses, jobs and the financial system. We have already had the stock market crash.

The collapse of the new market already occurred. The German stock index has reached a realistic and halfway stable level at 3000 points compared to the overvalued 7000 points. Is the crash or the great depression still imminent?

Hamer: A sham boom flowed into a depression in the so-called “golden twenties”. In the “golden nineties”, we had a similar sham boom. Many people regard the incredible glut of money as genuine prosperity but ignore that the volumes of the monetary sphere increased forty-fold in the last thirty years while the volumes of goods production only rose four-fold. Thus the financial world has separated from the world of real goods and propelled sham booms that are now inevitably fading. Thus the coming depression will be the correction of the mis-development of the past decades. One should not be lulled into a false sense of security by the brief calm after the first storm on the stock markets.

Was Marx right that capitalism is condemned to whirl from crisis to crisis?

Hamer: No, the cause lies in the uncontrolled expansion of the money supply, above all of the dollar, thus in a misuse of capitalism.

Are you speaking of the US budget- and balance of payments deficits?

Hamer: I speak of the policy of th4e Federal Reserve Bank, the US Central Bank that unlike the German Central Bank is a private bank and thus in principle can print as much money as it desires. This is obviously connected with the need of the US for money. As everybody knows, the US lives far above its means. This is exacerbated by its war policy since September 11, 2001. The system only functions because the whole world still accepts the “rotten” or unprotected dollar. Whoever refuses the dollar is counted in the axis of evil.

You predict that the depression will strike us with the shady-sides of globalization.

Hamer: The positive side of globalization was the increased prosperity through international trade and change. However the international interweaving per domino effect is now proving to be a disaster for many. The crisis is just as global as the past success. Only China will survive conditions halfway untouched thanks to its special situation and its policy that relies more on gold than on the dollar.

Is depression inevitable for Germany?

Hamer: No. Depression will come on account of homemade errors, not only global interdependence. All evil doesn’t come from America. All western states – except for Australia and Great Britain – have constantly run into debt without ever repaying anything. They have made excessive social promises and pursued sham booms.

Do you advise withdrawing German capital from the US?

Hamer: We can’t do that. Germany is ultimately no longer sovereign. With the project of the German Central Bank, we depend on a consensus in the European Central Bank that is closely allied with the Federal Reserve Bank. We cannot afford to “bust” the Americans. We are politically much too dependent and too small and economically too closely connected with them.

Should everyone play along in the comedy until it becomes a tragedy?

Hamer: Yes, until the budgets collapse and the social systems explode. Wages in the US fell 25 percent at the end of the last great depression in 1934. 30 percent of enterprises disappeared and 80 million Americans were without savings.

We cannot simply infer from the study of the 1929 worldwide economic crisis to the present. Haven’t many factors completely changed?

Hamer: That is true on first view. The great crisis at that time was partly caused by trade with derivative securities whose “value” reflected expected future profits. This trade was prohibited. In the meantime the Red-Green German government under pressure from the US financial world is allowing derivative trading again. In the US, derivative trading is already in fashion. A great crash could occur. For example, the US bank J.P. Morgan “planted” 34 times its own capital resources in derivative risks. Thus the same mistake is made again. Many things could be learned from the past. The assumption that we learned everything after the experience of 1929 to prevent the repetition of this development in the future was true for the generation that experienced the depression and took to heart its lessons. The present generation that has only known the security of the markets must make its own experiences.

What will the depression mean concretely for Germany?

Hamer: The middle class and the working class will be hit hardest, the middle class will lose its assets and the working class will lose its jobs. Indebted businesses will be wiped out. Branches offering long-term and non-essential products or services will be affected, the whole capital goods economy, the cultural sector, parts of the health market, luxury services, travel agencies, gastronomy and the market of durable goods like car manufacture, electronics or the furniture industry. The situation for that part of the population that lives from transfer payments, pension- and social security recipients, will be de-stabilized.

What can be done?

Hamer: Politics will fail or only run behind the crisis in toddler steps. Thus every individual must prepare his or her crisis strategy. Businesses must react by apologizing, reducing capacities and inventories and practicing promotion- and liquidity management. Private households must react by not investing in financial assets but in real assets like gold, land or property. With the right preparation and a portion of happiness, one can come through the depression economically unscathed and look up again after four or five years.

In view of this scenario, critics reproach you for pessimism and conspiracy theories.

Hamer: Obviously, politicians, banks etc. don’t like to hear these predictions. They have responsibility for development and only deserve to be called optimists when they sell financial investments.

In Germany, the theme pension security is discussed everywhere. However private pension insurance is on the rise in the US.

Hamer: A whole series of German insurance companies will go bankrupt when the dollar bubble bursts and they fail to “withdraw from the dollar” on time.

Germans are told they cannot rely on the state pension treasury and must insure themselves privately. Is this support being taken away now?

Hamer: I see the insurance companies altogether threatened with dying out or becoming extinct. Obviously there will be cuts here.
Are these challenges considered in the current discussion of reorganizing our insurance business?

Hamer: Unfortunately, not at all! Politicians don’t always look forward but yearningly to the “golden nineties”. They still dance around the golden calf. Problems of far different dimensions should be discussed. The crisis will shake Germany so forcefully that it will not be limited to the sector of the economy. Politics and society will be affected, both the party system and our single-culture.

Junge Freiheit (a German journal) has begun a series about the extended family as a social unit, a model from pre-industrial times. Do you predict a re3naissance of this model?

Hamer: At least we will develop a very new consciousness of family since no one helps in a crisis outside the family. Whoever is single or lives alone is abandoned. All those who cannot count on the support of a family fall into a personal crisis of meaning. This crisis encompasses ever-larger circles and ultimately seizes society, inner security and politics. The politicians who didn’t prevent this development may disappear together with their parties. Italy is an example.

Will survival depend on the formation of radical interest parties or a return of the popular community orientation in politics that has long fallen by the wayside?

Hamer: No one can predict this. Germany is badly prepared for the social crisis because we have no common ethical foundation in our country. The common Christian foundation and the national foundation have disappeared. The socialist solidarity in whose name the Christian and national solidarity were gradually destroyed since 1968 has never functioned. “Civil society” only glosses over the fact that society individualizes more and more. Only the claim foundation is recognized.

Will Germany collapse?

Hamer: Germany will probably not collapse but may become impoverished. Something new will come. The sham boom will burst and leave behind poverty, despair and rage toward the political class. The search begins for a new sustainable way leading out of the ruins of socialism and capitalism. Perhaps it will be that personal, small and medium-sized economy and society that all democrats and market economists have envisioned since time immemorial.