posted on Oct, 11 2008 @ 02:30 PM
My humble greetings.
Here are some random thoughts I’ve been having regarding the credit crunch. I’ve only recently started taking interest into finances so please go
easy on me. I might be completely wrong on everything, so I urge you --the reader-- to correct my fault and teach me something new.
The entire thing could and, in my humble opinion, most probably was manufactured. I do not, for a second, believe that the bad credit / insurance
issue has been going on for so long without anyone knowing about it. Someone definitely knew about it and allowed it to happen, making huge profits,
When it got out and the game was seemingly up, what did the government do? It borrowed ( at interest ) $700 bn US from the Fed and dumped it into
saving bad credit the banks had on their books, without even knowing how much bad credit anyone actually has. The way the fractional reserve banking
works, banks can from the rescue package create about nine times more money. That’s 6.3 trillion dollars being added to the overall money supply,
effectively decreasing the value of existing money.
So in the last two weeks we’ve seen how people are starting not to trust banks with their savings and deciding instead to not deposit with them,
making silent bank runs in order to ensure their saving are returned to them. Due to fractional reserve banking, the banks will never have enough
money to pay out all their deposits and inevitably go bankrupt.
This reflects on the stock market as people loose confidence in the financial companies, which are now also reluctant to give out credit as they: 1)
never know when it will be their turn to start repaying deposits/debt and 2) don’t trust other banks as they also don’t know how much bad credit
the competitor has. So financial stocks go down and due to lack of credit people and companies that otherwise would invest in the market are unable to
do so. It’s almost like the perfect storm.
This has some potentially very bad consequences for the effected markets.
1. Their stock value goes down on a daily basis becoming easy pray for those who have money to invest, not needing huge credits. Any of the OPEC
countries, with vast amounts of surplus dollars and stockpiles of gold come to mind. This would potentially explain why the price of gold seems to be
going the opposite way it usually does when markets start to go bad. China is also probably sitting on a huge pile of dollars due to their
long-lasting trade sufecit(sic) with the US.
2. Devaluation of the dollar. With new money in form of dollars being invented every day in order to “remedy” the markets, it’s value is being
pounded into the ground. The dollar isn’t backed by anything other than the US military and as such is a valid currency for only as long as other
nations are prepared to take them on as national reserve currency. This is only made worse by other nations buying cheap stock from dollars they’ve
been keeping, adding them into circulation as a result of their purchase.
3. Quality of live. Ultimately the US taxpayers will be billed with the $700bn US, moreover their existing money value will take a much harder hit due
to money inventing required to accommodate for ever expanding credit. Inflation is a certainty, unless foreign nations are prepared to ensure a
shortage of dollars. My guess is that they are more and more reluctant to do this.
4. Depression, job-less-ness, etc.