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A couple days ago, Ben Bernanke testifying before Congress stated that the bank failures of the Great Depression caused the economic failures of the system and quoted the study upon which his research was based.
The bank failures of the Depression were the “result of,” not the “cause of”. He has it backwards. And, we can see it in the situation we are confronting now which mirrors the system failure of the 1929 – 30’s.
Excessive speculation which created a “false and counterfeit money supply” is the dominant factor that undermined the banks, stock values, company assets, wealth and the overall economy just as it is doing now.
For the same reason that we have laws against counterfeit currencies and false securities being created to flood into the market, these speculative products were not an innovation – they were a crime. That experts couldn’t tell the difference between innovation and crime speaks to the distance that our educated professionals have from the living lessons of the Depression.
The reason we don’t allow counterfeit money to be printed randomly and sent into the economy is because it devalues all the asset and currency values that relate throughout the economy.
When “structured investment vehicles” (SIVs), “credit derivatives” (CDOs) and other exotic financial derivatives were created, they were not secured, not regulated, not collateralized properly, and not based on real substance as other currencies and securities. These are a counterfeit form of currency.
Just as a bunch of $20 dollar bills printed up and sent into the marketplace distorts the money supply and the national / global monetary values, so has this extensive pool of falsely premised investment products (now considered, toxic assets) done the same thing.
Entire companies, banks, investment firms, national treasuries and whole industries have been completely destroyed by this already, individual lives decimated, families and communities wiped out, and it is continuing to do so day by day, week by week, month after month.
By re-packaging and re-selling these unrealistically valued investment / financial products as if they were a valid substantial asset, a total pool of money came to exist that does not in fact exist in reality. This speculative process has undermined every balance sheet it has touched from national treasuries across the world, to states’ budgets, and corporate asset values to the actual values of property, buying power, currency values and bank insolvencies.
The specific reason that credit cannot be used as a basis of any strong, healthy economy is exhibited by the entire quantitative and qualitative experience we have now.
Not only does it subject the broad spectrum of individuals and businesses to its inhumane strains of idiocy in decision-making, it also leaves everyone at the mercy of its continuing desire for profits at the exclusion of all else.
Some of its drawbacks include that interest rates and borrowing conditions can be set without limit or common sense. Credit based economy commonly is responsible for the undermining of good healthy business models which occurs in every industry and business type. It insulates its decision-makers from the marketplace and from the direct consequences of their actions and it re-values assets, growth, possibilities and opportunities unnaturally with no basis in reality. It also represents a monetary supply whose currency is not valued by any responsible, prudent nor sensible authority.
Each day and in every life threatening situation that is being caused by the insistence of the US financial community to set our foundation of economic value on credit rather than on fiscal responsibility and real currency, we are literally experiencing what happens when credit is that basis. This is what was learned from living experiences in the Great Depression that gave us the programs, laws, protections, agencies and initiatives which evolved from it.
Many of those individual initiatives to protect our economy from excessive leverage, from excessive unbridled speculation, from the creation of false and counterfeit securities and currencies, and from the many and varied uses of money to manipulate property values, to manipulate corporate asset values and to undermine the real economy have been removed.
So, here we are experiencing a failing economy with every indication it is a Great Depression with a greater magnitude than the last one in America and greater than every other such event across the world’s history.
And, that is what the efforts of the last thirty years of our government’s decisions and our banker’s lobbying, our brilliant analysts and economists, our hedge fund managers and Wall Street investment banks have given us.
The chances are very low that these people, all of whom profited from this and have lived in the luxury of kings and queens for all of this time and still do, are going to be in any part, the makers of solutions to this crisis. The more likely thing they will do is to find a way to continue this game until each and every person alive is using credit as the only currency of value so that money can continue to be harvested from the movement of money.
Unfortunately, that means other real solutions will not be applied and other real solutions will not be sought and other real values will continue to be distorted and undermined until it all crumbles. Then the economy and its foundation must be rebuilt from a much more difficult position and after many, many, many business losses and depletion of resources have occurred. It is what is unfolding before us right now.
– cricketdiane, 02-12-09