What is the problem?

By Daniel | October 4, 2008

I know everyone is very angry at the Bush administration for his actions that magnified and accelerated and exposed this problem. Yet, the problem was there for almost 100 years. It was an unusual problem in that it works and does good under some circumstance and not good under others.

Yet, when it does bad, due to lag factors and other things, it often is not blamed for the things going wrong. Instead, at that time the blame is usually laid on events going on at the time. Remember that even the Fed has admitted that their moves in overnight lending rates may take 9 months to over a year to take full effect.

What is the problem? It is a combination of monetary policy theories about fractional banking, the need for a standard that restricts money supply, and the use of debt to spur growth when debt exceeds productivity and comes from unsound lending standards.

Yes, even 90 years ago there were bad policies. Remember that the 20’s and credit expansion led to the the crash. Even before the market crash the economy was showing stress that helped make the crash and subsequent recession become a depression.

Yet, we never have questioned in enough numbers, the cause of that event, the 70’s, the 80’s the 2001 recession or this crisis. Only Ron Paul has gotten much attention, though a couple others have joined him in questioning the Federal Reserve as the ultimate cause of the crisis. It is not Bush or Clinton or Reagan or FDR.

It is a system that was flawed from the day it was created on Jekyll Island. It is a system that believes “easy money” can be controlled and spur growth with oversight that keeps it from creating bubbles. It is a system where you deposit $1,000 and get, if lucky, 2% for that deposit but, the bank can lend out $9,000 and collect 5, 6, 7% from loans on money that was created out of thin air due to fractional banking and they don’t even share the interest with the people who worked and saved to make that deposit.

Be angry and Bush for all the mistakes he made. Be angry at him for being a lousy communicator. Be angry at him for how he conducted war but, don’t blame this crisis on him. He is doing what the advisers to Presidents have told Presidents for almost 100 years and that is that the Federal Reserve and our monetary policies are necessary for growth and have to be protected at all cost. He, like all the rest have been told it was “Black Swans,” or corrupt bankers or unethical investors or people lying to get loans or the “normal business cycle,” and not the Fed’s money policies.

Remember the dollar was collapsing under Johson and under Nixon and only the 1971 deal with OPEC delayed it this long. It has been one delay after another, one crisis after another almost since the creation of the Federal Reserve act which was passed to “fix” a crisis the bankers caused deliberately in 1907.

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