The credit crisis for dummies

First - that Powerpoint iPaper widget doesn't run under Linux Ubuntu (why would I expect it would, eh? I still prefer my opensource code, its cheap and legal!)

Second - the crisis started with the items in our economy that are most sensitive to a change in price. Like the canary in the mine, homeowners particularly CALIFORNIAN ones, felt the pinch first, but they DID NOT cause the pinch. Monetization of bad debt is happening in car loans, mall store cards, you name it they've got a debt they want to fawn off on "HENRYSLIST." The feeding frenzy of cheap credit was funded by the Fed, by attacking the dollar. We are no "wealthier" now than 10 years ago, we just have more dollars of lesser value.

The money multiplier that expands credit (creating commercial money ex nihilo, aka as counterfeit cash) and the Fed's "pris fixe" low interest rates are at work in ALL areas of the economy falsing inflating values, giving rise to erroneous cues to all kinds of capital investment decision making in industrial business and commercial interests to spend money on the WRONG things.

These funds are illusory (value = price so long as prices increase/inflate, value=evaporates when prices fall and folks default) and have been since Peel attempted to reform the British financial system with the erradication of collateral-backed currency (attempting to stem the tide of stock backed bubbles bursting as far back as the 1720s). The error from 1840s reforms was that specie (the bank notes secured by gold bullion at Threadneedle Street) is not the only "money" in a circulation - the depositors account balances and all checks written on it are money too, but they have no such backing, you gamble with them at your own risk emboldened with the government's FDIC unfunded liability (to turn a blind eye to the inherent vulnerability of fractional reserves even at a "low" leverage of 10-to-1 it shakes down the banks for a fee, which it DOES NOT SALT AWAY FOR THE DAY THEY CRASH but adds to the general funds to cover operating expenses, ie the money's been spent already! The reason all the pols look sick-to-their-stomach-green is that their is NO safeguard for a crash. Mr Bernancke HAS NOT LEARNED SQUAT from all his years spent studying the '29 aftermath. Ron Paul didn't start squaking his concerns when he ran in the primaries, he's been warning the Senate (and his fellow GOPler Phil Gramm) banking committee for 5 long years!

We who say let the chips fall must be prepared to watch 90% of the liquidity evaporate overnight or watch it move to foreign ownership and pray that they're friendly foreigners. This is a scandal of the highest magnitude but its been brewin' for centuries. It DID NOT start with affirmative active programs for minority home ownership (*) - it started with the slave trade and the South Sea Bubble.
___
* those that blame the weakest are scumbags in my book, naked opportunists out to make a cheap shot at their political opponents (we college-educated professional classes claim not to understand the vagaries of the finances we've been operating under for most of our lives and expect each other's sympathy, but a poor GED-less laborer and spouse are supposed to be guilty of high crimes and misdemeanors for not comprehending that "what goes up can come down"? Pulleeze!)

To really understand the credit crisis we need to understand how impotent the government is in preventing credit deflation. This requires us to first understand that most money is created as issues of credit from banks (even our local banks). I give a simple example of how this is done at my blog site (http://marketliberty.blogspot.com/).

Money is produced by confidence. It is destroyed by fear. The mass media harped on economic problems even while we were at full employment and the economy was experiencing steady growth. The constant drumbeat made money producers shy and to paraphrase Seinfeld, "There was shrinkage like a scared turtle."