Evolving Global Financial Crisis, U.S. Dollar Heading Down Again

Currencies / US Dollar
Jul 28, 2010 - 06:42 AM

By: Bob_Chapman

As we long ago predicted, 2005 was the beginning of the collapse of the housing bubble. The result was financial chaos and a credit crisis that enveloped the US, Europe and eventually the world. Some would like us to believe that materialism and selfishness were the reasons for bubbles, but the causes go far deeper than that. US, UK and European central banks, due to their greed for power, and a desire for world government, allowed debt to get totally out of control.

America’s monetary problems began on August 15, 1971, when the country left the gold standard, although GATT, which became WTO in 1986, began the cycle of destruction in the early 1960s. The presidency of Ronald Reagan opened and initiated the floodgates of debt after cutting taxes far too much and then destroying upper income taxpayers with the 1986 Tax Reform Act, which thrust 8 million millionaires into bankruptcy. Reagan’s failure to cut spending set a precedent, which lives with us to this day. During his time in office debt doubled. The result was the economy came unglued in 1989 and didn’t recover until the beginning of 1994. His successors had the opportunity to purge the system of debt and malinvestment, but they and the Fed passed up that opportunity to again cover up the mess they created. A boom in the stock market followed in the late 1990s and economic failure by 2007.

After the collapse of 1987, it was decided that the economy and financial structure needed support and insurance and derivatives came on to the scene to replace productivity in the economy. Free trade, globalization, offshoring and outsourcing began its bite into the economy. After the collapse of 1987 in August 1988 the President’s Working Group on Financial markets appeared having been created by Mr. Reagan’s executive order to assist collapsing markets as Alan Greenspan flooded the economy with money and credit in an attempt to halt the severe correction in real estate and the market. That eventually worked after five years more of debt creation. A great opportunity to purge the system had been deliberately lost. This last opportunity began the failure of the middle class as wages versus inflation stagnated, buying power was decimated and debt accumulation by individuals began in an ever-widening cycle. During the 1980s deregulation was the watchword and we were treated to the criminal collapse of the savings and loan industry. We predicted a $500 billion collapse although to this day the government only admits to $300 billion. Every crook in the nation was involved, led by the Bush and Clinton crime families. As usual few heeded our warnings.

Over the past 30 years, as a result of lower purchasing power and debt, savings fell from 12% to minus 2%, finally recovering over the past two years to 3%. From 1990 on debt became a way of life, because purchasing power was falling every year. The banks were very happy to lend at 8% to 10%, as they created credit out of thin air. As we all now know lenders lent to anyone starting in 2002 and they knew better. These are professionals who are responsible for 80% of individual debt problems. Not only did they lend when they should not have been lending, but they encouraged debt along with the government, particularly for those unable to pay. Then came zero interest rates and market intervention by the Fed, which has kept all interest rates low. Even 10-year US T-rates are yielding 2.93%. Essentially all the rules have been thrown out the window. This is really a continuum of what we have seen since 2002.

We had the chance to fix the system in 1990 and again in 2000, but the Fed refused to do so. The Fed created one last fling. It was undecided whether to go ahead with the real estate and credit bubble. In June of 2003 they made the decision to go ahead knowing they couldn’t turn back after that time. The party is over and the unraveling has been going on for three years. The credit crisis is about to enter a second phase worse than the first phase. After two stimulus packages and $3 trillion, the economy has continued slightly higher to sideways at a terrific price. Now in addition we have a massive sovereign credit crisis that has only begun. The gravity of the fiscal and monetary madness has yet to be assisted. Over the next several months all the furies will break loose as pessimism deepens. Government deficits will worsen as will residential and commercial real estate and the stock market will finally again move lower, as the presidents, “Working Group on Financial Marketsâ€