axelrod608

The Financial Crisis Explained

19 years ago, the most expensive real estate and stocks in the world were in Japan. Years of "irrational exuberance" and a flood of money had pumped up an enormous bubble. Perhaps not identical to 2008 USA, but very similar circumstances. !8 years ago, the bubble in Japan popped. Japanese banks and financial institutions were suddenly facing bankruptcy. Japan's leaders felt that the banks were too big, too important to fail, so the government stepped in, flooded them with money so they wouldn't fail. At the same time, the Nikkei stock exchange tanked. They"saved" the banks. But at what price ? Today, after 18 years, you can still buy real estate and stocks in Japan for half or less than you would have paid 19 years ago.

Was this an unusual outcome ? No. Economists at the World Bank studied all national financial crises for a 30 year period - over 100 events. Their conclusion was that in EVERY case, the amount of money the country poured in to fix the problem was directly proportional to the length and depth of the ensuing recession. So why are Bernanke, Paulson, the Fed, the Treasury all pouring massive amounts of money into a bunch of insolvent companies ?? One reason - the underlying assumption is that while individual companies are "too big to fail", the US government is not. The assumption is that our economy is unbreakable. Personally, I think it is very unwise to test that assumption.

At best, if the Japan experience hits us, and the World Bank study says it will, we will have a flat economy for the next decade or two, real estate prices will end up at about 50% of what they were in 2005 and we will have a bunch of inefficient, overstaffed, bureaucratic banks and financial institutions still run by the same irresponsible folks who got us into this mess. Worse, the financial sector will be run by the government which has proved for decades that it is incompetent at everything it touches.

What the US government is doing is nationalizing the financial sector of the economy. Bernanke and Paulson are protecting and rewarding their incompetent buddies on Wall Street with no regard for "we the people" on Main Street. Anyone who thinks this is all going to work out swell had best take off the rose colored glasses. We are on the yellow brick road to ruin led by people who are going to repeat the disasters that history predicts for those who are paying attention. Our "leaders" just are not paying attention.

I hope I'm wrong. But if I were betting my money on it - and we all are - I'm buying gold.


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