The Economy to Fail, Recovery is a Scam! , page 2

Originally posted by liveandletlive
reply to post by SaturnFX

I used to think that the economy could only go up and down. I believed that the U.S. was "too big to fail". Im sure most average people think the same way. The problem is history!

"In a fiat monetary system, there is no restrain on the amount of money that can be created. This allows unlimited credit creation. Initially, a rapid growth in the availability of credit is often mistaken for economic growth, as spending and business profits grow and frequently there is a rapid growth in equity prices. In the long run, however, the economy tends to suffer much more by the following contraction than it gained from the expansion in credit. This expansion in credit can be seen in the Debt/GDP ratio.

In most cases, a fiat monetary system comes into existence as a result of excessive public debt. When the government is unable to repay all its debt in gold or silver, the temptation to remove physical backing rather than to default becomes irresistible. This was the case in 18th century France during the Law scheme, as well as in the 70s in the US, when Nixon removed the last link between the dollar and gold which is still in effect today.

Hyper-inflation is the terminal stage of any fiat currency. In hyper-inflation, money looses most of its value practically overnight. Hyper-inflation is often the result of increasing regular inflation to the point where all confidence in money is lost. In a fiat monetary system, the value of money is based on confidence, and once that confidence is gone, money irreversibly becomes worthless, regardless of its scarcity. Gold has replaced every fiat currency for the past 3000 years."

Its the fact that no fiat system has ever suvived coupled with the fact that it would be the U.S. dollar that would fail that scares me. Other currencies would keep going and the world wouldnt "end". Just our world! The U.S. has had a nice run. A lot of people in this country are to young to remember that we are capable of suffering. Just because we havent done it lately doesnt mean we wont.

[edit on 20-10-2009 by liveandletlive]

Spot on, spot on I totally agree with you. There hasn't been one instance of a fiat currency surviving long without the backing of gold or silver or some commodity. Even in Rome they where shaving the amount of gold and silver in coins down and/or adding more brass (this is the same as printing money in their time) in order to have more gold and eventually the gold and silver coins got to a point that they weren't able to be called gold or silver. Then people start to lose interest in accepting roman gold or silver coins because the quality is so poor as to be worthless, same thing is happening to the dollar. Also our economy is exactly as the first poster put it, it's being held up by overseas profits and cuts in expensive labor here in the US. We see the market go up and profits from the companies and think that everything is back to normal, but it's not. We still have unemployment going up and housing has spiked hire in forclosures because many of the programs have ended in getting what people they can to modify there mortgages. Also banks are having to finally put these houses on the market because they need to sell these houses in order to get out from under them. And also those "modifications" didn't help as much as it should because it would require a change in the mortgage bond clause that was sold to the investors and they don't want any changes, they just want their money.

Our economy isn't doing well, it's just being pumped as much as it can through the stock market and "company earnings". What will be a strong tell is when the holidays come around. If they have a dismal showing and/or have to cut prices from the get go, many businesses will go kaput taking their loans into bankruptcy and starting another wave of economic issues like last year around this time in 2008. Also everybody and I mean everybody should be following CIT bank. It's the largest lender to small businesses and retailers across america and possibly in the world. They are on the brink of bankruptcy and are trying to get bondholders to adjust their contracts on their bonds in order to lower the bond prices and/or time to pay out on those bonds from CIT. This company has passed over 2 deadlines trying to entice bondholders and after each one they have sweetened the deal in order to get them to agree and not go into a regular bankrkuptcy but a "pre-packaged" one.

Now since many vendors and businesses get 70% of their money during this time of the year, they are in trouble and vice versa for the businesses and vendors. If CIT goes into bankruptcy, then it cuts off the credit and any loans to these vendors and businesses to keep stock and sell their wares during the holiday season, so in a nutshell we see businesses going out before christmas. If the don't make any sales or have low sales then we will start to see these businesses and vendors collapsing or going into default on loans and lines of credit to CIT, which will push it into bankruptcy guaranteed. I think that CIT and other banks know that it will be a bad christmas (layoffs, credit being closed on people, no more refinancing etc. etc.) so CIT is wanting to restructure before these businesses start hurting their bottom line like a torpedo slamming into a ship.

Watch CIT.