If The Future’s So Bright How Come I Don’t Need Shades?
Depression.
I will keep this part short, but if you really want to understand how we got into this mess, and where the housing bubble and all those other bubbles came from, you have to take note of a few historical events that have led us to where we are. To keep it simple I’m just going to throw a short bulleted list at you embedded with web links for those who wish to learn more or check my facts. Read this though… it’s pretty interesting.
Mid-1800s: American corporations are granted the status of legal “person”, which over time garners the corporation certain rights that limit legal remedies against it, in so far as a ‘corporation’ cannot be put in jail. The corporation obtains the right to place generating profits for its shareholders above all other interests. Some corporations take advantage of this legal architecture to evolve themselves into institutions of pure greed, with no legal, moral, or social obligations, making them some of the most powerful and dangerous entities on the planet (no, I’m not a liberal. rent the movie ‘The Corporation’.
1913: The Federal Reserve Act is passed by Congress. In effect, this law transfers control of the Nation’s money supply from public/government hands into the hands of private bankers, who from then on have the power to create money vis-à-vis the Fractional Reserve System, which basically allows dollars to be created “out of thin air”.
1933-34: In 1933 President Franklin D. Roosevelt signs an Executive Order that takes America off the (domestic) gold standard. US citizens can no longer redeem paper currency for gold. On January 30th, 1934 the Gold Reserve Act is passed, which calls for all gold held by Federal Reserve banks to be seized by the Treasury, as well as most all gold owned by private citizens. A pre-existing international gold standard agreement is left intact. The following day though FDR devalues the dollar by changing the dollar’s fixed rate of exchange to gold from .67oz to oz. The devaluation effectively wipes out a huge portion of America’s national debt. These measures are all designed to pull the country out of depression. Additionally, the Glass-Steagal Act is passed as a means to prevent a depression from ever occurring again, by restraining banks from making risky investments.
1971: President Richard Nixon signs an Executive Order that closes the ‘gold window’ to foreigners. America will no longer redeem US dollars for gold. The connection between the US dollar and gold is now fully severed, leaving nothing of material substance backing the dollar. Meaning, there is now no restriction other than the Federal Reserve’s self-control on how many dollars can be printed.
Since the 1913 Federal Reserve Act was passed, and later exacerbated by the 1933 act that killed the gold standard, and further aggravated by the 1971 closing of the ‘gold window’, the value of the US dollar has lost 97% of its purchasing power to date.
1999: Under the Clinton administration the Glass-Steagal Act of 1934, the law designed to prevent another depression, is repealed. Certain banks –vis-à-vis the unregulated derivatives markets– have a field day as these financial institutions are freed to delve into previously forbidden high risk investments.
2001: After years of stock prices being pushed beyond rational value, the dot-com tech bubble bursts, which should have headed us into an overdue recession. But due to a sharp drop in mortgage rates, coupled with other monetary policy shifts such as significantly relaxed lending standards, a housing bubble is commenced and the stock market bubble is re-inflated, forestalling the expected recession. There is good reason to believe the housing bubble was specifically contrived to avoid the expected dot-com recession. Along with the housing bubble comes the credit bubble, a far reaching phenomenon that powers every kind of spending binge from unqualified home loans to credit cards excesses. Federal deficit spending also ramps up.
2007: The housing bubble bursts as a slight drop in home prices initiates a chain of events leading to a cascade of defaults in leveraged mortgages. The country starts into the recession averted in 2001. Few acknowledge it’s a recession at this point though.
2008: The credit bubble bursts as home prices trend downward, interest rates tick upward, and more buyers fail to repay loans… adding momentum to the recession snowball. The Federal government steps in to re-inflate the bubbles by lowering short-term interest rates to near zero. The government also commences to replace the deflated private debt bubble with a public debt bubble vis-à-vis bailouts, handouts, stimulus plans, and various other programs. The plans fail to produce the desired results, and