SOTA News November 2010
The World Economy
It’s been two years since the financial crisis rocked the world with the news that major banks were threatened with closure in September 2008. Since that time major news media and government leaders assure us the world economy is recovering. Is the world economy recovering?
We are not economists so let’s keep this simple. Here goes. Hold your nose as the evidence smells of corruption and the decay of honest government and corporate practices.
What Created the Financial Collapse?
Real estates prices suddenly plummeted. This is widely broadcast as the cause of the economic or financial collapse that was felt around the world. The seeds for the collapse started when banks and mortgage companies set aside the usual common-sense safeguards for issuing mortgages. Mortgages were issued to increasing numbers of individuals with high-risk credit ratings—individuals committed beyond their ability to pay and were likely to default with any change in interest rates, real estate values or employment. Many individuals, who would not otherwise be able to do so, purchased a home or purchased a more costly home than they normally would. Because of the increased risk of default, these mortgages were dubbed “sub-prime.”
To share the known risk, Wall Street in the form of investment houses such as Goldman Sachs, purchased these sub-prime mortgages and packaged or hid them within investments based on lower risk mortgages called mortgage-backed securities. Despite the inclusion of these sub-prime mortgages, bond-rating agencies gave the mortgage-backed securities high ratings to indicate they were safe, low-risk investments. Banks and investors around the world purchased these securities.
For a fascinating look at how the financial collapse was created, check an interview with Michael Lewis, an investigative journalist with a knack for making complicated, mind boggling material simple to understand. He explains how some of Wall Street’s finest minds managed to destroy $1.75 trillion of wealth.
And here is a brief article by Michael J. Burry, a hedge-fund manager who, after examining the mortgage-backed securities, predicted the economic collapse of 2008, early in 2004. Michael Burry is also featured in the CBS interview above.
Do We Need More Government Regulation to Protect Us?
Most mainstream media report the economic downtown is proof of the failure of capitalism and call for more government regulations to protect us. Is this the answer?
If government knows best, why did they bail out the firms who caused the crisis in the first place? Michael Lewis reports in the CBS interview “Inside the Collapse,” how the people who were most instrumental in creating the collapse, made fortunes. Now government considers them too big to fail so they continue to receive taxpayers’ money in the form of bailouts! Government is trying to solve a debt driven crisis with more debt. Given the track record of government decisions, should we trust government to create regulations to further control the economy?
The Wall Street Journal featured an article that explains how existing government regulations created the economic melt down.
Was the Financial Crisis Deliberately Engineered?
The following article offers material that quickly and shockingly paints the broader picture that set up the financial crisis, including the role of government. This article also touches on the manipulation of the stock market as well as the price of gold and silver.
In Confessions of an Economic Hit Man, economist John Perkins, author, describes his inside experience as he worked to lure less developed countries into accepting multibillion dollar loans—geared to keep them in the pockets of political and commercial interests. His message tells us that at this point it doesn’t matter what political party forms the government. Change will not happen until we are ready to support those who work for the common good.
Predictions for the Next Financial Meltdown
Mainstream economists continue to predict the economy is recovering.
Economist, Paul Craig Roberts, a former editor of the Wall Street Journal and former Assistant Secretary of the US Treasury, is among those who predict a much bigger economic crash is coming. Roberts describes how the fact that manufacturing has been shifted to developing countries means there is no immediate solution for growing unemployment. Coupled with looming inflation, the economy will collapse again rather than limp along. “Policies used to fight inflation are the opposite of those used to fight unemployment. Thus, there is no known solution to the economic dilemma …”
||And motivational speaker, Tony Robbins, has also issued a warning as he has clients with intimate knowledge of economic trends.
For more insights from economists that ask questions rather than rubber-stamping government policies, this European-produced documentary explains the global financial crisis, and why the way it’s been dealt with has set the stage for the next crisis.
|Watch Video – Overdose: The Next Financial Crisis
Newsletters about the economy that we have gained insights from over the years are:
Insights on the Change Needed
Debt–government, business and personal debt—is keeping our limping economy afloat. Government leaders know this, so they encourage us to ‘spend’ in order to delay the inevitable consequences of our debt-ridden society. Without government bailouts, correcting the economy would have been a tough pill to swallow. There would have been hardship, yet there would also have been creative ideas that would put our finances on a sound footing. The delay, as a result of the bailouts, overspending and printing money, will eventually lead to an even tougher pill to swallow with painful experiences for many.
The blossoming of creative and pioneering ideas during an economic crunch is reported in the September 27th edition of the Agora Financial e-news. Ray Blanco who tracks technology trends, reports, “The most recent extended period of economic depression occurred in the 1930s… yet technologies pioneered in that down decade set the stage for the torrid growth of the postwar era. Of course, this did not seem obvious to the people of that time.”
For more insights on the role of government and our media, check our “Be the Change” articles. They are posted in the Learning Center of the SOTA Community:
The following 3-minute video, produced by youth, illustrates how government bailouts harm us and how we can create a more prosperous society to live our dreams.
Creating Our Future
A vision for governments:
Would it not be best for the whole if we allowed the ‘too big to fail’ to fail? As a nation, when we support businesses based on the idea they are too big to fail, we weaken our nation and set it up for failure.
A vision for us as individuals:
Would it not be better to live within our means and not rely on government spending? If we are self-reliant, then we can personally help those who are in need fostering the idea of people helping people.