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Global Financial Crisis – What caused it, and what causes “BOON and BUST Cycles”.

February 8, 2016

Global Financial Crisis – What caused it, and what causes “BOOM and BUST Cycles”.

IN 2 WORDS: “Gresham’s Law”

ISSUANCE OF MONEY AS LOANS WITH AN INTEREST COMMITMENT, BY ANY ENTITY OTHER THAN A HONEST CENTRAL BANK-“Gresham’s Law: Bad money will drive good money out of circulation.” “Gresham’s Law: Bad money will drive good money out of circulation.”When a ‘Boom’ cycle finance by ‘bad’ money, can no longer continue
without attracting good money; it MUST ‘bust’.

Best example: Housing, residential and or commercial.

For a period of ten years, if there is a continuous increase in
production and sales, one can be assured, based upon
the present system that a bust will occur.

The boom portion:
The builders
… invest $3 trillion production cost.
… invest $3 trillion labor and sales cost
Resulting in a $12 trillion dollar GDP increase.
….an investment return of $6 trillion .

Business, labor,material vendors, lenders are all pleased.
SO where does it go wrong?
In order for all to receive these gains within the time period
the $12 trillion must be sold, turned in money.

Let’s say $2 trillion is sold by cash.
………….. $10 trillion is sold with an average of 10% down
with an average mortgage of 6% for 24 years.
We have a perfect circle…$12 trillion = $12 trillion

But, there is a problem, a major problem
the money issued must be returned and the interest must be paid.
The buyers need to earn at least $1 trillion a year for the next 10 years
to pay for this 10 year old “boom”.
The boom cycle can not continue to grow simply because the final securitization
of the GDP will always exceed its value even at more than DOUBLE. Independent of that ‘boom”, $9 trillion was finance by the private for profit banks; therefore it would require more than $18 trillion just to satisfy this ‘boom.’ That must be using todays money which becomes impossible to acquire if the ‘boom’ has reached a point the banks can no longer be fed.

can’t be extinguished by any other means than a “bust”.
Please note: IF,by chance a honest Central bank issued this money, it could make the circle perfect by “calling” the loans and restructure; as they did with “Savings and Loans Crises”.
Something that they could not do with the GFC because they could not “call” the loans and restructure them.Because there was more than one cause that would not allow the Fed to “call” the loans, its like asking ‘if a person in the hospital dies from a heart attack while undergoing surgery for a bullet wound, what would be the cause of death?
Repeal of the “Glass-Steagall” Act did allow banks to ‘invest in mortgages’ as well as allowed their massive credit allocation to the housing sector to form a “Boom and Bust” cycle.
Based upon the present economic system this is a “normal heart attack”. But ,how do we account for ‘abandonment of their fiduciary duty to protect the asset’ ? The “Fatal Bullet’ fatal bullet that would have caused
the ” systemic failure” or “monetary collapse” ? The Glass-Steagall Act could have prevented the meltdown, or really it could have controlled the extent of the damages via the Fed as in the “Saving and Loan Crisis”, if not for the contractual agreements given to the purchasers of the MBSs. The only thing the “GSA” would do would have been perhaps a means by which the banks could be civilly and criminally held accountable for their violation:
“The banks contractually giving up their rights; no, their  duty, to protect their assets.”
But that’s another story Read testimony of Sheila Bair, Henry Paulson, and Timothy Geithner…. BY, “Justaluckyfool” , .

One Comment
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