What is a recession? If you ask an economist, you won't get a straight answer. See this example. In school, they taught us that a recession was caused by a slow down in consumer spending...which...caused a slow down in business activity.
Why does consumer spending slow down? One word. Inflation. As this article points out, there are two things that make up "inflation."
Part One:
"An increase in the amount of currency in circulation, resulting in a relatively sharp and sudden fall in its value and rise in prices: it may be caused by an increase in the volume of paper money issued or of gold mined, or a relative increase in expenditures as when the supply of goods fails to meet the demand."
The recent hosuing bubble in the U.S. was made possible when too much credit was made available. The resulting spike in home prices had the net effect of putting too much currency in to the economy, which drive up the prices of many things.
Part Two:
2) "A persistent increase in the level of consumer prices or a persistent decline in the purchasing power of money, caused by an increase in available currency and credit beyond the proportion of available goods and services."
The recession we now face will be 'propelled' by this over abundance of credit and dollars. It won't go away unil the bad debts and excess credit have dried up and the dollar has increased in value enough to allow the average person to afford a stable and 'safe' lifestyle.
There are only two ways for the bad debts to go away. the major banks that own those debts could eat the losses, or; they can be bailed out by the U.S. taxpayer. The recent Bear-Stearns bail out indicates that the Federal Reserve intends to use taxpayer money to prevent these businesses from failing under the load of their bad debts.
Banks and speculators aren't the only people and institutions that will be hurt by the recession and depression that follows. Many ATS members have written quite a bit on the subject of predatory lending. I don't want to duplicate their work. I will say that the home loan failures and personal credit bankruptcies that result will play their part in this economic disaster.
Over the next two years, American consumers will have less spending power, which will mean they'll be buying a lot less. Entertainment budgets will go away so that the average family can keep paying their utilities and other bills that make it possible for them to keep their jobs...if...they keep their jobs.
As the economy fails, the Federal treasury will take in fewer tax dollars. that means they won't have as much money on hand for company bail outs. We should assume the Fed will resort to credit, as many consumers did. In the long run, Uncle Sam will be forced in to bankruptcy. When that happens, you'll begin to see the worst of a Depression that could last for ten years.
Under these worst-case conditions, we should expect the Federal government to do something drastic. The Federal Treasury may choose to default on its debts and issue a new currency. This could serve the interests of many corporations, which have since moved their headquarters to Dubai and other non-U.S. locales.
As many ATS members have pointed out, this would easily be the moment when the "Amero" is put in to service.
There is a school of thought among certain conspiracy theorists who believe that this crash is deliberate. They contend that this planned depression is going to pave the way for the creation of a North American Union. In purest political terms, this is possible when one considers that a shattered economy would be much easier to manipulate than one which is healthy and robust.
