Sorry to be the bearer of bad news reader, but what we’re seeing right now is the anatomy of a Depression in full flow.

Remember how the policy makers and central bankers told you they “Wouldn’t repeat the mistakes of the Great Depression”? I remember those comments too.

Do you remember them saying, “Ben Bernanke is a student of the Great Depression, he knows what to do and what not to do.”? Yep, I remember that one as well.

Look, we both know the US economy is a basket case hurtling towards collapse. That’s a given. But what about the Australian economy, I mean all those positive economic numbers must be good news.

And what about the rising interest rates that indicate the economy is growing, perhaps a little too fast even. Well, the sad but true fact is that all - yes, all - the policies governments and central banks have followed are exactly the same policies governments implemented during the 1930s.

They stimulated an economy that didn’t want to be stimulated. And because the economy didn’t want to be stimulated the governments had to force it to be stimulated by increasing or maintaining government spending.

Naturally, early on the stimulation looks as though it’s working. Simply because it adds a quick jolt to the economy. The problem is that longer term it just isn’t sustainable.

If the government is continuously ripping money from taxpayers and borrowing in the taxpayer’s name, there is less money left over for the individual to use for themselves.

The individual will consider their priorities and spend or save accordingly. The individual may list food and shelter as their main priorities. Then perhaps travel so they can still go to work.

Then of course there are other essentials to pay for such as gas, electricity, water, etc.

Once the individual has spent their wages on those items there probably isn’t much left over. So perhaps they’ll choose to save it instead of spending it. “Saving for a rainy day” they used to say.

But that’s fine, saving is good. Saving isn’t to be demonized like the Keynesians claim.

The problem is that in an artificially stimulated economy those savings are misallocated. Governments are redistributing your hard earned cash left, right and centre. And businesses see these government ‘investments’ and gear themselves up to take advantage of them.

Why wouldn’t they, these projects will stimulate the economy and get things moving again. Besides, if they don’t go for it, their competitors will and they’ll miss out.

Only it doesn’t work that way. The government steals money from taxpayers to build new school gyms, new hospital wings and insulation for housing.

None of which would have been in demand if it wasn’t for the government’s interference.

Sure, the builder of the school gym gets paid more money, but it’s at the expense of someone else. The electrician who wires up the new hospital wing gets paid more money but that’s also at the expense of someone else.

And the housing insulation firms get a bumper payday, but yep, you’ve got it, at the expense of other firms who don’t specialize in home insulation.

So, what happens when the stimulus dollars stop flowing as they surely must? After all, the taxpayer is not a bottomless pit of cash to be constantly plundered at the whim of government.

That’s when the next phase of the Depression begins. The bumper payday for the chosen few in the economy ends. Businesses that invested in capital and goods soon realize that the signals from the economy were false.

There is no recovery. It was all funded by borrowed and stolen money. But they’ve already invested in products and capital that are no longer in demand. Those capital goods and products remain idle.

But even though they are idle, the firm still has to repay the debt to the bank which is now harder to repay due to the lack of increase in sales.

Even businesses that didn’t benefit from the splurge miss out.

Because all the money was spent on building hospitals and schools and insulating homes, there is less money for the banks to lend to shoe stores, pencil manufacturers or any other industry you can think of.

And because the individual was forced to pay inflated prices for other goods - because the government wouldn’t allow the economy and prices to deflate - and because the government didn’t reduce the individual’s tax liability, they were unable to save additional money for this ‘rainy day.’

And thus eventually everything grinds to a halt. The problem which the government and central bankers told you they were determined to avoid has just become a whole lot bigger.

But even if you forget about all that and look at it pure and simple. It just isn’t possible to solve a massive debt problem by increasing the debt burden.

The fact that the debt is from the government does not make this any less relevant. That’s because government debt isn’t the government’s debt at all, it’s your debt. It’s your debt which you’ll have to repay through higher taxation.

Unfortunately the bad news doesn’t end there. Because in week’s time the debt and tax burden could get a whole lot worse. In fact, now the government’s ETS is sure to get a free ride into legislation, individuals will be slugged with tax increases and cost increases just when they need it the least.

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