Crisis caused by the fixers:
Credit creates an artificial boom:
Today’s economic system needs credit growth to survive. Without credit growth it is going to collapse into a New Depression that will not be resolved in a couple of years. It will cause economic hardship and severe pain for many years to come.
The Austrian school of economics was right about credit creating an artificial boom. Things would definitely have been more stable if the monetary system had constantly remained on the gold standard. Once the link between the US dollar and gold was broken in 1971 by Richard Nixon, all the constraints on how much credit could be created were removed. That made the US dollar an impostor, while the old dollar was connected to gold at a fixed rate, and gold in turn was anchored in the real economy.
The abandonment of a gold-backed international trade regime fuelled an explosion of credit creation that has ultimately destabilized the entire global economy. The credit creation, backed only by paper dollar reserves, has led to a worldwide credit bubble, with economic overheating and severe asset price inflation. Subsequently, the credit creation that the dollar standard made possible, has led to over-investment on a massive scale in almost every industry. It is a system of tyranny, built on debt-based money and central banking that is enslaving humanity by design. – Soon however, the world will be seeing the end of this system. Gold is waiting in the wings ready to be declared the new king of the world’s monetary system.
“What this prevailing system is, under the guise of freedom, is a system of tyranny. It is debt tyranny. It is slavery using MONEY.”
Real money builds wealth:
Real money is essential to building real wealth. It’s what makes the economy operate smoothly. It helps us all decide when to buy and when to sell, when to invest and when to refrain from investing, and when and where to apply our scarce time and resources. Real money has real value. So, when people get more money, they have a claim on more real wealth.
But this new money is phony. Governments and banks could add as much of this new money as they wanted. But it did not create real wealth; it just took it away from those who rightfully owned it.
Each new bank loan created money that had not existed beforehand. Out of thin air. No additional wealth attached. Just credits. That’s why some call this system “Creditism.” Because this new money is no longer based on real wealth, but on credit. – Creditism has the theory that states; ‘the quantity of credit is a more important financial indicator for central banks to govern the economy, than the money supply or interest rates’.
The flip side of credit is debt. And here lies the problem. There’s no limit to how much real money can be made. In a world of real money: each additional currency unit represents additional wealth. But with credit or debt money it is different.
With credit, spending can be increased dramatically. But there is a limit to how much can be borrowed. Eventually, the point is reached where the cash flow dries up to service the interest on the debt. Then the system is insolvent, and broke.
Real money versus credit money:
With real money, the more you have, the richer you become. But as the quantity of credit money increases, the economy becomes more and more vulnerable to a turn in the credit cycle. As the quantity of debt increases, the quality decreases. And that’s what’s happening with debt now. And that’s what’s happening with debt now. There’s a very simple reason why the credit cycle has turned. Because the economic cycle has turned too. The back wind that was working for the markets from 2009 through mid-2015, has turned in a head wind and is now working against the cabal.
More tickets than seats:
The central banks cannot print real money. They can only issue more tickets for seats that don’t exist. So, they only make the underlying problem worse, by lending more money to more people who can’t pay it back. Most importantly – the wealthy are first in line when the counterfeit tickets are distributed. The result being when you go to the stadium, you find them sitting in your seats.
The first big crack in the credit money system came in 2008, when a giant fracture broke open between mortgage debt and the homeowners’ ability to pay for it. Home prices fell. One in 20 homes were in foreclosure by 2010, and the suicide rate had risen by 20%.
When the housing bubble popped, it is estimated that about $800 billion worth of homes went into foreclosure. Homes are real assets. When owners couldn’t pay, the homes went to the banks that had lent the ‘money’ against them.
These banks hadn’t built the houses. They never owned them. They never earned the money that they lent to buy them either. Nor did the money come from savers who had deposited their money in the bank. It was money that no one ever earned. It was fiction.
But this didn’t stop the banks from using this fake money to capture real wealth – people’s homes.
And this is precisely how the rich, concentrated in the financial sector, got richer, thanks to the new credit money system.
A huge shock to the markets would result in the sudden recognition that, in these very complacent financial markets,
everything is up for grabs. If, an elite outsider would come into power, this could signal a dramatic change in policy compared to that of the past 45-years, namely, Creditism being brought to an abrupt end.
An economy now dominated by governments, needs to be led by the market. Governments must ditch procedures for approving economic and market activities. It must stop interfering with market prices and transactions.
Today’s fake capitalism is executed by zombies, managed by incompetents, and regulated by bureaucrats, which cannot bring wealth. Real wages and salaries have been cut; no wonder people dislike capitalism.
When the crisis came in 2008, there was not enough equity – real shareholder value – to prevent bankruptcy. It was not a crisis of real capitalism. It was a problem of aged capitalism, a simple problem that real capitalism would have known how to fix. If, left to do its work, these banks would have gone out of business, as they should have.
Collapsing banks would have meant the collapse of many other things too, Greek debt, for example. The banks’ holdings would have been subject to fire-sale prices, driving down their own prices, and putting Greece and other major debtors into bankruptcy too.
The crisis is caused by the fixers:
This, of course, is just what the central banksters wanted to avoid. Now, about 8-years later, they’re still trying to prevent it. – Far more than merely illustrating ‘capitalism in crisis,’ this shows that the crisis is caused by the fixers themselves. If Mr. Market were allowed to fully express himself, the fixers would have got bankrupt banks. These bankrupt banks are kept in business by governments, who should be bankrupt too.
And since Mr. Market is side-lined, he cannot solve the real problem. The bankrupt institutions stay in business, shifting more and more real resources to zombie institutions, run by incompetent, highly paid managers.
And this conforms with the above statement:
“The Austrian school of economics was right, that credit creates an artificial boom. Things would certainly have been more stable if the monetary system had remained on the gold standard.”
Destabilised global economy:
The abandonment of a gold-backed international trade regime fuelled an explosion of credit creation that has ultimately destabilised the global economy. This credit creation, backed by nothing but paper dollar reserves, has led to a worldwide credit bubble, with economic overheating and severe asset price inflation. So the credit creation that the un-backed dollar standard made possible, has led to over-investment on a massive scale in almost every industry.
But the day will always come, as Mises reminds us; when credit cannot expand any further. That’s when the Depression begins, and that’s what started to occur in 2008, before the interventions.
The Threat of a New Depression
Richard Duncan explains: The explosion of credit that’s made America prosperous, threatens to take the entire economy down.