Sunday, September 13, 2009

When does it all collapse

The United States has gone to pot. Most people my age don't realize the US has gone to pot. Recently I was at a school reunion, being my 35th year out of high school. One of the guys I played golf with was a local business man. Another was a guy that is a wheeler dealer who made a lot of money out of real estate in Florida. The wheeler dealer agreed with me, though he was a liberal. His brother is more down my line and spoke to me about this mess that is brewing in the US. The business guy, who is buying more stores in a currently growing area of the Metroplex refused to believe the government wasn't going to fix this stuff.

There are only 2 type people that believe we are going to get out of this mess by spending and lending more money, morons and those that haven't studied it. Most of the experts we hear on television and are pushed forward by the Nobel Prize in economics committee propose that we spend even more, which means they are either paid liars or miseducated. Being the central bankers of the world have dictated economic education for the past 100 years, it isn't surprising that many could be miseducated in finance, economics and money in general.

Worst yet is that economics in general is nothing more than an extention of politics. The constitution of the United States set the political tone, but the Constitution no longer prevails. I have seen copies where the preamble of the Constitution had a word changed from ensure domestic to insure. One mean to help bring about and the other means to sell insurance. That is what socialism is and the economics of the day are structured to bring about the end of the original intent of the document with its guarantees of private property and limits on government in favor of a rule of necessity and constant war and bankruptcy.

Thus it is the political persuasion of intelligencia that dictates the mainstream and not fact. Because I tended toward the conservative side of politics, I happen to be able to see what has occurred that has precipitated this crisis. This leaning along with a degree in finance which led me to a sound conclusion that assets were massively overvalued clued me into the idea that something was amiss.

Austrian economics is a free market economics. The counter economics of Keynes and the Chicago school are government and banking manipulation economics and when problems like this arise, they blame the free market and the lack of regulation. This is a failure of the capacity to see that it wasn't the market, but the presense of government and quasi government organizations like the Federal Reserve, state chartered fractional reserve banking and international banking organizations that actually provided the platform for this disaster. Thus, the solution is to give over more power to these organizations that pushed the world to the brink of collapse to push us closer to the edge. The fix is the problem.

Hopefully the American population has had enough and the stomach to go through the long term solution. But, we have a problem in that the culprits of the creation of this mess are those that hold the power in US government, along with the bulk of the media. Instead of free markets, most banks of size are socialist organizations, the Federal Reserve being an idea of Marx and J.P. Morgan. Though Morgan was a capitalist, his idea of the Federal Reserve was straight from Marx. Also, Morgan was engaged in fractional reserve banking, which was the source of the problems faced in 1907 and in the 1890's.

Fatal mistakes were made by the Federal Reserve and government sponsored enterprises like Fannie Mae, Sallie Mae and Freddie Mac. The result was a John Law type fiasco that destroyed Ameican production in favor of American credit and set the country up in a debt bubble that has no solution other than painful deflation. But, being those that have bankrupted the system and themselves in the process hold titles of nobility and the governmental power itself hostage, there is no solution presented other than to bail them out. Being there isn't enough money in the world to reflate a debt bubble, more debt to create more money is going to lead to economic and financial collapse of those entities that attempt such solution.

Currently I am watching the Japan solution applied to the United States. For several years I heard these Wall Street types point fingers at Japan knowing they were going to not have any other solution than what Japan was using. The US banks are just as entrenched in the political power structure as the Japanese banks and Federal Reserve money created off US government debt does nothing more than bankrupt the country while sliding down the black hole of compound deflation. The system is bankrupt from the top down.

Being the system is bankrupt from the top down, the unwinding is going to eventually occur from the top down. This means the government itself is going to suffer a debt crisis. I don't know when this is coming, but I do believe that the US treasury market is going to be the next step down the road of collapse and to save itself, the government is going to have to abandon the saving of the too big to fail system. With this, the entire world will fall into a depression of epic proportions.

It is hard to envision saving this mess without at least a semi socialist solution. What I would propose is a plan to reorganize the debt system while putting together a plan to feed and house the population on a temporary basis. The Fed should be abolished and fractional reserve banking outlawed and replaced with a dual system. If the government has a position in the economy, it might be to serve as the holder of the bank deposits, while all lending at interest is done out of a pure capital at risk with no fractional reserve leverage allowed. The fact is that there isn't any such thing as supportable compound interest money, which is what fractional reserve banking eventually leads to and there isn't a such thing as a government guarantee of deposits.

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