Credit Inflation

The root cause of the crash is the excessive inflation of bank credit. An entire nation cannot borrow for 50 years and then expect that all will be fine when the pay back time arrives. FED policies have inflated bank credit for decades. When we borrow, banks create new money. They do NOT lend existing money. Learn how banks create money out of thin air here.

Our entire money supply is borrowed money. When we borrowed, we promised to pay back principal + interest. The problem is the interest portion is not even created yet. The ponzi scheme must continue with even more borrowing so that principal + interest exists in the future so that people can earn it and pay it back.

Do you see the problem with this picture? What happens when borrowing stops? The expectation that principal + interest will be available to earn cannot be realized. People start having difficulty paying their debt. When people see this, they start saving. When banks see this, they stop lending. Deflation kicks in with full power. The deflating total bank credit is shown in a St. Louis FED chart on this page.

This is why government allowed sub-prime. So that borrowing could continue. They removed 20% down requirement so that more money could be borrowed. This is why the government offers 8K home credit, so that people borrow and inject new money into the economy. Learn how they used housing bubble to keep the ponzi scheme running here.

FED works for the banks. It was created by the banks. It is bailing out the banks at the expense of tax payer. Our financial sector is too large for the real economy to carry. Instead of letting the financial sector to shrink, they are letting the productive portion of the economy carry the burden of the crash. There will NOT be a recovery until we let the zombie banks go away or they will continue to suck the blood of the economy. All the money is going to the financial sector that cannot produce anything.

An entire population cannot get wealthy by trading paper, flipping homes, investing in granite counter tops. Everybody hopes to sell high in the stock market. That won’t happen. By definition, for every seller at the top, there is a buyer. This is a zero sum game. When we read the news, they say DOW is 10000 and wealth has increased. No, nothing has increased. Stock holders do not have money until they sell. And well they all sell, they are not going to get the price they hope for. We have not seen the stock market bottom in March 2009.

Borrowed money cannot make a recovery. What is a recovery? Recovery is when we produce a real product in 1 hour and exchange it with another product that another nation produced in a month! That is increase in wealth. That is productivity. We are going the opposite direction! Innovation is not happening in America. Giving banks free money is not recovery. It merely transfers wealth from tax payer / savers to the banks. And they pay big bonus to themselves. There is no recovery. There is only robbery!

Prepare yourself for the coming stock market crash. Economy is not as good as the stock market tells! The crash will go into history books. The root cause of the crash is not fixed. It is getting worse! Government debt is getting too big to sustain and future tax increases or money printing will not leave any disposable income for the consumer. That is not a recovery.