News & Analysis
US Double Dip Depression
Ben Bernanke (left) needs fresh monetary blitz as US recovery falters ... Federal Reserve chairman Ben Bernanke is waging an epochal battle behind the scenes for control of US monetary policy, struggling to overcome resistance from regional Fed hawks for further possible stimulus to prevent a deflationary spiral. ... Fed watchers say Mr. Bernanke and his close allies at the Board in Washington are worried by signs that the US recovery is running out of steam. The ECRI leading indicator published by the Economic Cycle Research Institute has collapsed to a 45-week low of -5.7 in the most precipitous slide for half a century. Such a reading typically portends contraction within three months or so. Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed's balance sheet from $2.4 trillion (£1.6 trillion) to uncharted levels of $5 trillion. But they are certain to face intense scepticism from regional hardliners. The dispute has echoes of the early 1930s when the Chicago Fed stymied rescue efforts. – UK Telegraph
Dominant Social Theme: Bernanke struggles valiantly to hold the fort.
Free-Market Analysis: The more arcane the language, the more opaque the actual stimulative occurrences, the less people understand. That's the point of course. The average person should know only that tremendous and substantive efforts are being made by extremely intelligent people to avert economic disaster. This is a dominant social theme: "The powers-that-be are working hard on your behalf using intricate central banking procedures to ensure your welfare."
Let's dissect Federal Reserve actions to see if this is actually true. Once we have examined what is really going on, maybe we can draw some conclusions about what may happen next. Bear in mind all this is being written from the point of view of the current fiat money system as it configured via mercantilist, public-private central banks. A fiat money system is one where the link between an underlying commodity and paper money itself has been severed. This allows a public/private central bank to print just about as much money as central bankers wish to print.
This system is the worst of all worlds, in our opinion. Using the rationale of maintaining an independent monetary policy, central bankers are relieved of scrutiny and oversight and print and distribute to whomever they wish to – usually other private, monied institutions. The ability to print and distribute billions and even trillions of dollars without scrutiny is one of the most bizarre and shocking aspects of this illegitimate (and in our opinion fraudulent) system.
In any event, the system is certainly firmly in place currently. And it has various controlling mechanisms. Central banks can add or subtract from the money supply, thus influencing the larger economy. Generally, central banks can print more or less money, raise or lower interest rates and add or subtract liquidity (money) from the larger economy using a variety of tools (discount window, etc.)
What happens in a very bad recession – this one being called the Great Recession – is that many of the tools that mercantilist central banks use to manipulate the economy cease to work. This comes about because the central banks in question have printed too much money (electronically and otherwise) and flooded the economy with currency that has caused first a boom and then a bust.
During the bust part of the business cycle, businesses and stock markets collapse because people have realized that the economy is over-extended and that many projects hitherto thought successful won't actually become viable or profitable. This has a ripple effect throughout the economy and prices, instead of heading higher start to head down. This is called deleveraging or price deflation.
Does the money circulation in the economy actually go away? This question has been a point of much debate and confusion within the alternative press. In fact, through workouts and bankruptcies, money (electronic and otherwise) may return to banks where it is then warehoused, not circulated, which would mean, essentially, that the supply of circulating money stock in the larger economy has been reduced. In a sense, this can be considered true deflation (as opposed to price deflation).
This contraction is mimicked as well among consumers who may choose not to circulate paper money and electronic money but to hoard it. During a Great Recession such as the one that the West faces now, money does not circulate freely even though there is a great deal of money within the economy. Bear in mind that it is not only central banks that create money. Credit card companies create money as do private and public business startups, IPOs, etc. But ultimately the initial money come from the central bank and is injected into the economy through its commercial banking disseminators.
The final reason that money does not circulate is because banks do not want to lend. Usually at such times banks are under a lot of pressure to build up their balance sheets, which they do by keeping money rather than lending it and by calling in speculative loans. Also, in the modern era of bailouts, governments tend to prop up failing companies so banks cannot even tell a healthy company from a sick one that will sooner or later go out of business. This also retards the process of money circulation.
Once money has ceased to circulate freely because of the above reasons, the economy itself begins to wind down. Central banks can print more money and urge banks to lend, but in a bad recession or in a depression it is very difficult to start money flowing again until the economy has in a sense cleansed itself and is ready to begin to grow once more.
This is where the larger Western economy is right now, in fact – in a place where money is NOT circulating freely. Central banks have cut interest rates to zero and have begun programs of quantitative easing, which means that central banks are buying (debt) instruments in the open market in the hopes of stimulating growth by adding circulating money to the money supply.
So why isn't it working? Because central banks (the Federal Reserve in particular) are focused only injecting money via large financial institutions and banks. This is a control mechanism. If central banks were to send money to individual entrepreneurs, then citizens would begin to see how farcical the system really is.
In fact, as we have pointed out many times before, the system itself is set up to mimic a real monetary system but it is no such thing. A real monetary system using gold and silver needed bank/warehouses for purposes of money metals storage. But today, banks are merely distribution points and ways to ensure that the flow of money is controlled by the proper gatekeepers. This is why, in fact, deflation is such a problem in a fiat money economy. In a real economy, deflation is a good thing, but in a fiat economy, deflation, at least to some extent, adds insult to injury.
The article which we have excerpted has a telling quote toward the bottom, as follows: "Gabriel Stein, from Lombard Street Research, said the US is still stuck in a quagmire because Mr Bernanke has mismanaged the quantitative easing policy, purchasing the bonds from banks rather than from the non-bank private sector." This is our point exactly. Bernanke will do ANYTHING but distribute money directly to the private sector where it would actually be put immediately to good use and would CIRCULATE.
Thus we see that central banking is not just about trying to control the economy; it is also about giving people a sense that the economy RUNS through banking entities. It is an actionable element of the dominant social theme we referred to at the beginning of this article. Only the smartest of people get to touch the new money, and they must distribute it judiciously. As much as Bernanke, et. al. would like to stimulate the economy, they will not do so by putting money directly into circulation. They will only use channels of authority and control.
The current Western fiat money system is an obscene, impoverishing disgrace. But what is even worse is that central banking authorities would rather let the world slide into an even more terrible financial crisis than to bypass banking and financial channels. Sooner or later there will be inflation, perhaps hyperinflation. There is simply too much money sloshing around in the system. But in the meantime, there will be more debt, less money and ... continued deleveraging.
Conclusion: Central bankers are actually a quite dramatic breed. They don't seem to be play-acting, but they are. And they will surely continue to cry out loud – to wail and moan – about the dangers of fiat-money deflation. At the same time, they will never, ever let average people get their hands on freshly printed money that could alleviate some of the damage they has been wrought by this horrid system. And thus ... a second "recessionary" wave. That's indeed what may happen next. And Bernanke will continue to whine.
Posted by Joe Bianco on 09/15/10 07:35 PM
The is going to be at least a ten year journey through economic hardship for the US. In short a depression, semantics are not important. If the economy was going to come back it would have after the stimulus. The large multinational corporations sit on several trillion dollars and everyone else broke and struggling. After 3 long hard years the general population faces many more.
Posted by T on 09/08/10 10:46 AM
'Average' people – the 'working' class are very keen as to what is happening. The terminology used by experts and the terminology used by 'average' people may be different, but everyone is 'SEEING'the 'SAME' thing!!!!!
Posted by AmanfromMars on 06/28/10 05:23 AM
"It started very well, but then you kinda lost us ..." ... Reply from the Daily Bell
Thanks for the undoubted elegant kindness in posting it, Daily Bell, and the direction in which such missives must go. I shall endeavour to make things much clearer as time goes on and ideas are expanded upon, for the whole idea is that everything be easily followed for the benefits that are evident ...... even though there may necessarily be many areas which are obfuscated for reasons of strategic operational security and proprietary advantage.
To some, is the following gobbledygook and recovery a myth being spun in desperation .... "There is a risk that synchronised fiscal adjustment across several major economies could adversely impact the recovery," it said. "There is also a risk that the failure to implement consolidation when necessary would undermine confidence and hamper growth." .....
Click to view link ...... for are not matters getting worse rather than better?
Reply from The Daily Bell
Again, we remind you that sentences have periods and grammar is an elegant institution. Try to respect it, please. You were doing well for a while.
Posted by AmanfromMars on 06/28/10 01:57 AM
"Reply from the Daily Bell:
We are not so sure a default is immanent, but, yes, in the longterm, we think the US will have trouble funding war. "
Methinks the US has more pressing problems to resolve than just their quantitative eased funding of wars and terror, Daily Bell, for they are most definitely in clear and present imminent danger of default in a modern world leadership role, for their emphasis is entirely misplaced for future absolute control and benign constructive power.
It is though always on offer to them should they have the need of ITs help. One must be prepared though for something quite novel to energise what would be a changed environment.
And this is a measure of the sort of thing to fully expect to be globally aired so that all may input and benefit from more original selfless thinking ......
Posted by: amanfromMars | 06/28/10 | 12:22 am |
"* What threat are we not paying enough attention to? "The whole area of cyber security. We are now in a world in which cyber warfare is very real. [Ugh -- ed.] It could threaten our grid system. It could threaten our financial system. It could paralyze this country, and I think that's an area we have to pay a lot more attention to.""
The truth is even starker than that, for it is most definitely certain not a case of there not being enough attention paid to cyber security, but a case of there not being the leadership intelligence to ensure an overwhelming cyber space control, which will easily do at least all that Leon has highlighted.
In fact, expertise in that virtual field, renders all traditional explosive weaponry and nuclear ordnance redundant and useless as a deterrent, which makes such virtual field expertise a new and priceless, extremely rare and valuable Super Power Control System, which can strike out of nowhere tangible, or identifiable, in an instant and change human perception of any situation to a completely different and undeniable state. And yes, that is nothing less than a Mind Control in Remote Neuro-Linguistic Programming for, ...... well, let us just say SMART Artificial Intelligence Projects rather than frightening the natives with thoughts which would conjure up the very real possibility and likely probability of alien memes at work, rest and play, although to be perfectly fair and honest, to not venture into and engage intellectually in such fields, will leave you easily overwhelmed by the unbelievable power and control of ITs Systems.
And please, to imagine that such expertise doesn't exist, is the height of both arrogant and ignorant folly, and to deal with it at all effectively does require a major fundamental rethink about absolutely virtually everything which then must be acted upon to change everything. To do anything less, like the usual continuous status quo talk about change but everything remaining just the same, will have one fail to stop any number of chosen catastrophes/silent sorties against any number of vital assets.
The expression ...... "Like shooting fish in a barrel" ...... would be most appropriate in such conditions.
Forewarned is to be forearmed so any future damage done to dodgy and vulnerable systems, is as a result of a lack of intelligence to purchase available help in that which is freely relayed above?
Click to view link
The Internet Infant matures into AI Wild Child? :-) ...... or Omniscient Sage?
Reply from The Daily Bell
It started very well, but then you kinda lost us ...
Posted by John Edwards on 06/27/10 05:32 AM
The way I see the roll of the Central Bank, which is comprised of a Board of Governors appointed by the Federal Government, is this ...
Now while this board of governors is appointed by the Feds, the board is not subject to congressional oversight or control. How these governors get to be appointed would be a book itself, I guess. But importantly they represent banks such as JP Morgan and brokerage houses like Goldman Sachs. Not any public interest or institution. They are all private bankers of some sort or another.
So we have a Federally incorporated body that is privately run without oversight or audit of any kind (not since 1951 I think. And even that was inadequate to the task, so I read).
This privately run entity has control of how much money is in a countries system by buying pieces of paper called 'T' bills that the government treasury print. These 'T' bills are in fact promises to pay whoever buys them money from our taxes that the Feds take off us in income tax, etc.
The Federal Reserve, by virtue of the 1913 Federal Reserve Act, buys these 'T' bills by printing money out of thin air. The 'T' bill is an authorisation to print money for the cost of paper and ink presses, pure and simple.
This money gets delivered back to the government and then by virtue of it passing through the government into various banks and financial institutions does it miraculously become legal tender.
From there it gets lent out again using the Fractional Reserve System to create even more money from nothing through what can only be described as a uniform creative account keeping by the whole banking system.
I think it's a fraud.
The Government also guarantees to buy the 'T' bills back from the Central Bank on demand. The important bit is this, the Central Banks are under NO obligation to buy government 'T' bills and the banks that are part of the Central Banksta Private Cartel are under no obligation to lend any of the money they get through this 'T' bill system.
So they have complete control of the monetary system when it counts:- When the system is overheating with too much created money and credit.
The Ponzi scheme has to be contained before economic collapse.
Through this system of credit expansion and contraction (at the banks choosing, meaning timing) these Private Bankstas are increasing their wealth in ways that impoverish those outside the loop. Which is most of us.
Can anyone hazard the guess as to how far the USA will be allowed to disintegrate into hyperinflation and still be able to project a world wide military presence ?
What is going to be the impact on the financing of this integral part of the American Empire ?
I just have to wonder if the worlds military conflicts and military will get in the way of this economic scenario that is being predicted here.
Is this somewhat of a smoke screen to cover up that the United States of America about to change into a fully militarised state, suspend the Constitution, and declare a dictatorship by default in Washington ?
What do you reckon DB ?
Reply from The Daily Bell
We are not so sure a default is immanent, but, yes, in the longterm, we think the US will have trouble funding war.
Posted by Theodore J Maher on 06/26/10 10:51 PM
Another well researched presentation of the facts of life with respect to our ilustrious banking system and the consequences of its actions.
An immediate audit of the Fed would bring sunlight to the criminal enterprise that is our present banking system.
The level of deflation that is working its way toward every household will be the one two punch. The KO will be the hyperinflation.
Reply from The Daily Bell
"The level of deflation that is working its way toward every household will be the one two punch. The KO will be the hyperinflation."
Ha, 4-5 Bell articles reduced to one sentence.
Posted by Bruce C. on 06/26/10 08:26 PM
Yes, I agree that it is only CERTAIN banks and financial institutions. I wasn't clear enough about that.
The important point that I think we can all agree on is that fiat money and central banking is another form of central planning that ultimately doesn't work, even for the insiders.
I also agree that most people don't fully understand the fiat money banking system (myself included to some extent). What I mean, however, is that the simplistic and ignorant "understanding" that most people have about the financial system is, ironically, more true than not. The Fed ( or "government") could literally drop currency from helicopters or deposit digits in people's bank accounts directly if they wanted to, and I contend that most people DO believe that. Heck, if things get bad enough they may even start to demand it.
Posted by Lila Rajiva on 06/26/10 06:53 PM
Yes, it's not even all *large banks.* It's a handful of politically connected banks...and insurance companies..and money managers.
It's a specific set of names that keep cropping up over and over.
Reply from The Daily Bell
Yes, there is a set of banks and individuals that are obviously part of the power elite effort. Thanks to the Internet, the patterns grow obvious after a while. BP might serve as an example.
Posted by Bruce C. on 06/26/10 01:15 PM
Another point I'd like to make.
I think the Fed/CBs DO care about large banks and financial institutions. That is why they focused on bailing out the big banks and financial institutions with TARP, and why the ECB bought the Greek bonds from the banks that held them (it was never about helping Greece). The global banking system is a cartel, as are the central banks themselves. The banks were made whole " plain and simple.
A fiat money system is good for those who are in control of it. (It's like the only people who like living in a communist system are the members of the Communist Party.)
Reply from The Daily Bell
The Fed, for instance, DOES care about CERTAIN banks, but not about the system of banking or banks in general. Thousands of banks have gone out of business in the past 30-40 years. Maybe tens of thousands in America alone, including most S&Ls
Posted by Bruce C. on 06/26/10 12:59 PM
In the rebuttal to Clayton's comment, you said
"If people ever got the idea that money was electronic digits that could be wired directly into their accounts as opposed to being distributed through banks .... well, all heck would break loose. Trouble, is more and more people ARE realizing this. Which is why the central banking promotion is in trouble..."
What do you mean "people ARE realizing this"? Of course they do. Most people do, and have known this for years (decades).
I remember talking to a friend's grandmother about 30 years ago about politics, and I had all kinds of fancy theories about this and that.
After my rant, she said to me, "Look, it's much simpler than that. Most people don't know or even would care that the money they get from the government comes from the taxes of citizens or from borrowing. THEY THINK THE MONEY IS JUST PRINTED BY THE GOVERNMENT AND GIVEN TO WHOMEVER IT WANTS TO GIVE IT TO."
How ironic that those supposedly ignorant people that have been on the dole for most of my life were actually right.
Most people already DO know that money is simply printed. They understand that the law allows "the government" to print money, but not individuals (that's counterfeiting).
If the central banks were to electronically deposit, say, $100,000 in to every checking account in the country, most people today would simply think of it as being like another government tax credit. I guarantee you they'd spend it. They wouldn't balk. Are you kidding?
Reply from The Daily Bell
We do not agree that "most people" understand that government/central banks print money and gives it to banks to distribute. Keynes said only one man in a million understands how fiat money works. Until recently we would have agreed. Now we think people are catching on.
"Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose. - Keynes
Posted by 4irw4ys on 06/26/10 11:53 AM
FIAT is LUX. Next see John's Rev.
Posted by John Edwards on 06/26/10 10:31 AM
Thank you Peter U. It's always nice to be appreciated.
To your/my question.
I do not pretend to have all, or even a few, of the answers but I do know from somewhere deep in my psych (and not easily conveyed with the conviction with which I feel it) that whatever system of co-operation we come up with it has to be without organised warfare.
Organised warfare is what is going to take us back to the 'Dark Ages', as it always has. Great civilisations all disintegrate under the impossible financial burden of a warfare economy that by it's very nature is doomed to implode.
By it's very nature it destroys and incapacitates it's victims making restoration, both physically and economically, a law of ever diminishing returns. ie. Depleted Uranium ordinance scattered throughout the countryside and cities of Iraq, Afghanistan, and the former Yugoslavia causing illness, birth defects and death in it's wake.
We in the West have been on a warfare footing since the second world war. The rise of the Military Industrial Complex over time has became the main driver for an Empire (read economic growth engine) Hidden behind phrases such as Resource Security, Homeland Security, War on Terror, War on Drugs, is Empire.
The only activity that is expanding now is the World Wide Control Grid.
The military machine must now be fed at all costs and it is going to kill us unless it can dismantle itself.
Of course, for that to happen we are going to need a change of mind from those we least expect it from.
I for one am not holding my breath!
Posted by AmanfromMars on 06/26/10 06:22 AM
Your Conclusion, Daily Bell ...... "Central bankers are actually a quite dramatic breed. They don't seem to be play-acting, but they are. And they will surely continue to cry out loud ‒ to wail and moan ‒ about the dangers of fiat-money deflation. At the same time, they will never, ever let average people get their hands on freshly printed money that could alleviate some of the damage they has been wrought by this horrid system. And thus ... a second "recessionary" wave. That's indeed what may happen next. And Bernanke will continue to whine." ...... may be far too rosy, for what you have shared in the main body of the article about the petrified state of failed intelligence within money managers, is every day being wider and wider known ..... and it is impossible not to correctly conclude that the world is being held to ignorant ransom but just a handful of arrogant bankers determined to stay in their top dog/fat cat positions which rely on the creation of debt with the issue of credit .... to create a captive destructive circle whenever free credit is denied.
The most probable post modern phase, because of the ease of mass global communication, is surely more "revolutionary" or if you prefer "evolutionary" rather than "recessionary".
And the vehicle for such as is an Inevitable Change in Intelligence Communities is their advanced and intangible/invisible and powerful control of Internet Circles/Clusters/Clouds. And it is a Novel Field which is causing the Establishment and Power Elites, which would not be at all well equipped, if equipped at all, to deal with a whole new sub/super species of ........ well, better and beta thinkers and doers would be just four of such types, whose shenanigans are clearly followed and transparently shared for all to see and hear and improve upon ...... Click to view link
It does have one wondering, apart from the obvious "they just are not yet smart enough to driver humanity with credit flow to assisting champions", why whenever money is always printed so easily whenever needed, they would spin a yarn about warehousing it with similar ignorant friends and thus create deepening stagnation and recession and depression, which is surely madness.
All in all, without any fundamental and revolutionary change, [and there has been none to date] will the System increasingly quickly charge headlong into Catastrophic Collapse, for whenever computers run things, do things always develop at an exponential pace.
Of course, before then you may find that computers with their SMARTer Programs and Project Programmers will change your sad and sorry lives for you, realising as they will, that you are not able to do IT yourselves.
And they will approach the System for Payment to Prevent Meltdown and Generate Cash Flow which Energises both Industry and Intellect.
Posted by Mike on 06/25/10 08:06 PM
I think Mr. Bernanke was referring to the steam cleaner he was using on dirty money.
Posted by Jason on 06/25/10 06:43 PM
I strongly consider the idea of a Fed Res audit to be another ruse. I am sure there is nothing to audit. Bernanke and his Bilderberg bosses most likely have nothing for us. It's all binary code anyway.
Why are we not buying the central bank of the US? Why are we relying on outside forces? Transparency and sunlight, yes. But for what? To allow it to continue in another form?
The US does not control the Fed Res. The Fed Res controls the US. And they in turn are controlled by the BIS. Its that simple. I want to hear about the IRS demand for US bank accounts in Swiss banks? Who's calling the shot there? The US? The IRS? Surely not. It is of course once again the BIS in Basel.
Posted by Not Anti-military Per Se on 06/25/10 04:51 PM
Another excellent article. Thank you.
Notable is the control of the distribution of new money, and consequent lack of circulation.
Question: where does inflation or hyperinflation come in, in light of this determined and malevolent control?
@ Pat Fields.
These "powers that be" are not stupid, they know the result of their wealth and power consolidation, they simple don't care. In fact they are gratified as they and their cronies profit immensely, with casual disregard for the cost and suffering. They clearly are not looking out for the general welfare. The idea that they are is the biggest meme (lie) of them all.
Reply from The Daily Bell
"Question: where does inflation or hyperinflation come in, in light of this determined and malevolent control?"
At some point, those in some economic strata begin to spend again. As soon as a portion of the economy is adequately stimulated, price inflation - and thus biflation or stagflation - will raise its head.
Posted by Mpresley on 06/25/10 02:05 PM
"Fed watchers say Mr. Bernanke [is] worried by signs that the US recovery is running out of steam."
Ummm...which recovery was that? I must have been brushing my teeth when that one went down.
Reply from The Daily Bell
The one he has declared?
Posted by Peter Underwood on 06/25/10 12:38 PM
Many thx DB. I missed your article, very informative, prophetic and reasoned – so until dreamtime comes again...adieu Wall Street et al!
I have just finished reading "Too Big to Fail" – fast moving faction drama, great read. And am half way through, "This Time is Different" – heavy but good analysis and excellent stats facts.
I continue to agonise over the question: Are the power elite that blind and stupid – or are they really just smart, dysfunctional sociopaths and do they read DB? – they should!
Posted by Bob on 06/25/10 12:26 PM
"Bernanke will do ANYTHING but distribute money directly to the private sector ..."
But Ben Bernanke said otherwise during his 2001 speech, "Deflation: Won't Happen Here.". He said we would drop money from helicopters.
So far he has kept his word on other points from this speech. Are we to believe he won't keep his word on the helicopter part?
Posted by Peter Underwood on 06/25/10 11:27 AM
Well said John Edwards on 6/25/2010: "I have come to the conclusion that command economies are anathema to healthy economic growth in a modern post industrial economy". Discuss!
As I see it, John may have touched on the essence of our global dilemma: It may be that a fractional reserve, fiat money system thrives well only in an emerging and expanding industrial (growth) environment such as we have experienced these 200 odds years " perhaps Keynes was right in his time, but certainly not-fit-for-purpose today.
WW2 gave a temporary extension to the expanding industrial era when the USA emerged as the only non-devastated economy, rose to the occasion, and financed rebuilding with high-confidence USD using legacy, highly geared, wartime production units " all with the faith of gold up to 1971 " so all was goldilocks for USD and the world. (forgive pun).
One unintended consequence of maintaining the fiat money system beyond its useful life was to innovate greater productivity through automation thus significantly reducing the need for manual/skilled/craft labour which had always been highly prized and rewarded in an agricultural-based society. As a consquence aggregate labour costs fell in real terms from 1980s and to compensate, the working population took on more debt to maintain their received perception of the American Dream (ie their entitlements and "rights") and slept-walked into the final collapse of the traditional family unit with both parents slaving 24/7 to meet budget on appallingly low, real wage rates. (Q: Ever tried making a family budget on 2010 minimum wage rates? It can't even be equated to slavery, serfs were better off circa 1500!)
This change progressed unnoticed, having evolved slowly and was willingly camouflaged by the power elite through, among other scams inflation tax, until we finally awoke to a 'sudden' crisis in 2007/8: The fiat system had imploded having reached the natural limit of its credibility upon which the whole system depended " known in systems theory variously as a gridlock, phase shift, tipping point " the forest is burning!
The residue toxic waste, imaginary capital, utilising irredeemable debt-backed instruments to leverage fantasy returns from an illusory money base was revealed for the Ponzi scheme it is and illustrated by a growing number of exposes such as accounting frauds like FASB 157 et al and all designed to 'extend and pretend' the crisis had passed.
The proper allocation of capital to 'productive' activities (the raison d'etre of banking) had become redundant as more and more labour was directed to non-productive, non-wealth creating activities (maybe 50% of our current western labour forces). The original purpose of banking and finance was lost entirely as a plethora of three-letter acronyms hid a mass of deviant commercial contracts backed by nothing tangible except the credit and faith of the emperor's clothes and which had grown beyond any entity's ability to command and/or control.
So the question implied by John: What is the nature of a system conducive to healthy economic growth in a modern post industrial economy?
I can only suppose that such a system will in future rely on GOLD in combination with sound money as exemplified in Austrian Economic models. However sure I am that a suitable system will evolve it will not be without decimating bankstas (1 in 10 enough?), sacrificing a number of sacred cows on the altar of Fear & Greed, and returning joint stock markets to their proper purpose, that of raising capital for productive and wealth creating opportunities.
Reply from The Daily Bell
We started writing about "dreamtime" long ago within the context of the current economic crisis ...
Here's how Wikipedia explains it: "[Dreamtime] establishes the structures of society, rules for social behavior, and the ceremonies performed to ensure continuity of life and land. The Dreaming governs the laws of community, cultural lore and how people are required to behave in their communities. The condition that is met when people live according to law, and live the lore: perpetuating initiations ... singing the songs, dancing the dances, telling the stories ..."
For us, the initiation of central banking " especially in America " began a kind of euphoric dreamtime that was initially realized with the Roaring 20s, and then again in the second half of the 20th century when the central banking meme was the strongest. We perceived the entire epoch as a kind of fantasy in which America, and in fact the entire West, was to be convinced that a tightly managed and endlessly inflated fiat-money regime was the key to prosperity. We eventually came to believe that the financial crisis, in which all of the West's phony financial instrumentalities almost collapsed like a house of cards, spelled the end of epoch of central banking dreamtime.
... Wall Street was never a business model. It was an invention of monetary stimulation, a convenient way to centralize assets and remove the spending power of the people's specie (gold and silver coin). Wall Street ... was merely a means to an end. It was a show, a parade, a gilded curtain designed to hide the reality of the man in the booth, the "Great Oz." " the Daily Bell
Click to view link