Why This Is Unlike the Great Depression

1. Inflation rather than deflation.

The situation is more like the one in the 1940's. Back then, the Fed pegged the entire yield curve and bought enough treasuries of all durations to effectively shut down the free market.

The idea was to support the war effort through monetary policy. Today, there's another kind of war, but policy makers will use the same economic response.

The federal debt rose to just over 100% of GDP during WWII, but inflation in later decades took care of the problem. Translation: those who bought treasuries during that time paid the price later.

2. Debtor nation vs. creditor nation.

The US entered the Great Depression as a creditor nation. It enters this crisis as a debtor.

Most holders of treasuries are outside the country. Pegging the yield curve causes the dollar to fall and so they sell, putting further pressure on the Fed to keep the liquidity flowing by buying treasuries.

The upshot: nominal returns may do just fine. The stock market can make new highs without a problem. However, real returns will be hit hard. Look to foreign assets, gold, and silver as hedges.

But.. I can't help thinking about this:

> In 1933, United States put forth an executive order saying that all citizens must turn in their gold for payment at the prevailing rate, other than jewelry, and they made it illegal to own gold in bulk for the next few decades.

It's not inconceivable that something similar capital controls could be tried this time around.

Millionaires and billionaires to avoid $82bn in tax liabilities.

https://www.theguardian.com/world/2020/apr/15/tax-change-cor...

I think this is only the beginning. The quadrillion-dollar question is how much hyperinflation we're headed toward.