Bank Failures

Large banks can fail, and they do, every time (technically).

Fannie and Freddie are a much a part of the banking system as the ATM in the grocery store is. This federal takeover is admission and evidence of the largest bank failure in history. The storm clouds on the horizon have just spawned a funnel cloud!

Central banking is price-fixing. It's a socialist concept. The price fixing is on interest rates. The money that gets invested is created out of nothing as soon as a borrower promises to pay, so all of the currency consists of evidence of debt. With an unlimited supply of money to lend, borrowing gets easier, more people borrow, and bid up prices in certain sectors far beyond the inflation that would numerically compute from all this creation of money. This happens because central banks can't properly fix prices, they can't know the future, and their only incentive is to keep creating money to keep collecting more interest. This price bidding war could be called the housing bubble, or it could be called what it was when this was all predicted long ago -- malinvestment, or the inevitable boom and bust cycle. When it all unwinds, it comes down like a house of cards.

And just as it has always been since currency debasement brought down the Roman empire, the rising prices and the collapse of markets gets blamed on honest merchants.

Every day, the confidence game is played in the press, as they announce that 'the bottom has been reached' in the housing market (it hasn't), your retirement money is safe in the market (it isn't), and the government takeover of these huge unconstitutional lending institutions guarantees that they won't fail (it doesn't).

The underlying problem is phony currency with nothing to back it up, underneath a fractional reserve banking system that lets money be created from a borrower's promise to pay, and the Communist seed that was planted with the creation of Fannie and Freddie in the first place (depression-era market intervention by government). The purpose and end result is inflation - lots and lots of it. With inflation, some create money and spend it, while everyone else has to create actual goods or services to get any. The system mathematically must continue to expand fast enough to keep borrowing in order to pay last year's interest, which won't even exist until it's borrowed into existence. Government helps fuel this expansion happily because it allows deficit spending - seemingly forever.

The side effect of the continued expansion of the money supply is rising prices (debasement of the currency). In recent decades, as we exported the productive capacity of our economy, foreign nations sucked up this newly created debt, delaying the fall in the value of the currency. Politicians, central bankers, and consumers came to believe that an entire economy can go on forever just by printing money and spending it, without producing anything. So that's what they did.

And now, the chickens are coming home to roost. The housing bubble was caused by expansion of the currency through artificially low prices in borrowing caused by Fannie and Freddie (huge inflation, running at 10 to 15% a year for over ten years). Foreign nations lapped up the repackaged debt. All was good until the effects of exporting our productive capacity started to be felt. As jobs leaked out, people started having problems. A trickle turned into a torrent, and now all that debt began to lose its luster. Soon, it turned into radioactive bad paper -- and everyone in the world wants to dump it. This is why all of the major banks and investment houses are insolvent. They are being propped up with direct infusions of cash from the main money creator itself -- the Federal Reserve Bank.

The problem now is that the looming storm caused by huge inflation of the currency approaches a system whose only tool to rescue itself is the creation of more money. This government takeover of Fannie and Freddie is bad, very bad. They cannot default on the toxic paper that was peddled to China and other countries. Their only recourse is to buy it back - with freshly printed dollars (digital dollars, actually). And this can only have one effect -- more inflation when what is desparately needed to save their house of cards is deflation.

So the next step in this implosion is that besides the debt instruments being found to be worthless, now the currency will be worthless. When foreign nations start dumping their dollar holdings, the currency could collapse overnight.

How far can this go? It WILL go until every dollar that was created in iniquity is accounted for. What does this mean for us? It means higher prices for everything, especially the things we need to survive and the materials we need to produce anything. As spending power goes down, businesses will suffer and fail, feeding the cycle. People will come begging for government to save them, and the government will 'do something'. Like strong-arming more taxes out of people (more business failures and personal bankruptcies), putting more people on welfare (with yet more printed money), or more 'control' (stronger communistic controls, which will fail). Usually, inflation is followed by recession, then recovery. The recovery happens because increases in productivity make up for the loss in value of the dollar that was skimmed off in the counterfeiting process. Usually, slowing the counterfeiting a little allows the productive sector to catch up, generating some base assets against which another shot of inflation can steal some value. This time, things are different. This time, we've destroyed the manufacturing base of our country. This time, besides the hundreds of thousands of ridiculous regulations that stifle business, and the constant devaluation of the currency, and the impoverishment of their customers, all of which serve to prevent anyone with an ounce of sense from starting a business here, the manufacturing base has been moved outside the jurisdiction of the army of parasites. And the construction sector has been decimated, too. That means, this time there is no engine for economic recovery.

THIS is what Ron Paul was talking about in the republican primary debates as he was called a loon. THIS is what he was proposing a workable solution for, and trying to warn everyone about. Nobody wants to hear this. They all want to promise welfare and wars. Well, they are going to get what they want. Welfare and wars, and the fate of the Roman empire and every empire since that financed welfare and wars through theft of the value of their own currency.

I hope you own your home outright (as much as is possible, that is), and I hope you have a substantial portion of your savings in some form that is not easily confiscated, taxed, or debased.

Sorry for the long rant. I hope this was useful to you.

by John Danforth (1 articles, 0 quicklinks, 4 diaries, 98 comments) on Tuesday, September 9, 2008 at 7:48:51 AM