45 Percent of World's Wealth Destroyed
By - March 14, 2009

Private equity company Blackstone Group LP (BX.N) CEO Stephen Schwarzman said on Tuesday that up to 45 percent of the world's wealth has been destroyed by the global credit crisis. "Between 40 and 45 percent of the world's wealth has been destroyed in little less than a year and a half," Schwarzman told an audience at the Japan Society. "This is absolutely unprecedented in our lifetime." But the U.S. government is committed to the preservation of financial institutions, he said, and will do whatever it takes to restart the economy. U.S. Treasury Secretary Timothy Geithner plans to unfreeze credit markets through a new program that will combine public and private capital in a fund that would buy bank toxic assets of up to $1 trillion. "In all likelihood, that will have the private sector buy troubled assets to clean the banks out in terms of providing leverage … so that we can get more money back into the banking system," Schwarzman said. He expects the private sector to end up making "some good money doing that," but added there were complex issues on how to price toxic assets. He put part of the blame for the financial crisis to credit rating agencies. "What's pretty clear is that, if you were looking for one culprit out of the many, many, many culprits, you have to point your finger at the rating agencies," he said. – Reuters

Dominant Social Theme: It's a bad time, but things will get better if we persevere.

Free-Market Analysis: We pointed out recently that while Bernard Madoff has become the poster child for the world's current economic downturn, the actual amount of wealth that has either evaporated in the recent crisis is in the tens of TRILLIONS.

Of course, most will hasten to point out that Madoff is personally responsible for his thievery while the larger wealth destruction is no one's fault in particular. But is that really so? Is the mechanism truly unknown?

There is plenty of evidence, in fact, that central bank monetary easement worldwide is the real culprit. The kind of money we have today is called fiat money, and unfortunately it offers destruction of massive proportion over time. The Chinese experienced so much of its destructive power that they apparently banned it formally in the 1800s.

Madoff is accused at best of embezzling around US$65 billion (though the figure is probably more likely US$15-$20 billion.) The analogy we used (one we thought apt) is that to compare Madoff's crimes to central-bank initiated fiat money destruction is to compare the sting of a mosquito to the bite of a shark.

So why is that many of the explanations in the financial press these days do not seem to include much information on the role that central banking and fiat money has played in this current bout of wealth destruction? We would venture to say that the mainstream media is hesitant to explore the connections we present because the mainstream media is too much intertwined with big-money interests that benefit from central bank wealth privileges.

In the meantime, alternative explanations keep coming. The other day, former Fed chairman Alan Greenspan wrote an article saying it was the high savings rates of Asia and China that caused the mortgage bubble and ultimate collapse of the world economy.

And here in this article, excerpted above, Blackstone's Schwarzman blames "ratings agencies."

No doubt other explanations are on the way, and eventually a flood of books as well. Almost none of them will point the finger directly at central banking. We can see the trend already. On US Capitol Hill, Republicans blame Democratic lawmakers and Democrats blame Wall Street and banking greed. Overseas, Europe's socialist leaders generally blame capitalism. Hardly a word about the monetary stimulation that started it all, except in passing.

After Thoughts

It is no wonder that history never seems to sort out the full truth. Those living through the Great Depression probably saw the problem full on, but to peer backward in time is to look through a very foggy glass. Will the same thing happen today? Will our children believe that Wall Street greed caused the current crisis? Or will they understand it was a combination of regulatory dislocation married to massive monetary stimulation? Will our children live in a globalized society under a paper money regime or will they have the benefit of honest money within a gold and silver market-based standard? Here's hoping the truth will out.

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