Bill Jencks

The Economy, And Why It's Taking So Long to Fix It

All these complex explanations...People seem to forget that economic problems and crises in different eras are all remarkably different. Currently we have a bad economic crisis - whose main unique characteristics are that it is a huge credit crisis which has gone massively global and currently - after a short period of inflation, we are now in a downward spiral and, possibly, in a liquidity trap. I say this because Bernanke has been pumping out the dollars with his printing press - trying to inflate the dollar - he's been doing this for some months now, but it isn't working. The M1, M2 and M3 money charts show this, and the CPI chart shows that inflation has stopped increasing, has turned and is moving vertically south right now. So despite plenty of money out there, the economy is in a rapid deflationary spiral at the moment - and Bernanke is furiously trying to inflate the dollar and is not succeeding - which could well mean that we are in a deflationary liquidity trap right now.

Currently Bernanke and the US govt. have tried tax cuts, buying up assets such as stocks, buying other currencies as well as printing mega-amounts of dollars in order to stimulate inflation. But this isn't working - institutions and US citizens are still not lending and hoarding cash. The velocity of money is at a standstill - there is no liquidity in the economy - so deflation is inevitable.

This is what has already happened and what will happen:

1. Inflation(already happened)
2. Deflation(happening now)
3. Hyperinflation(yet to happen)

Why AIG Had to Be Nationalized

There is a fairly simple reason why AIG had to be saved. China has bought billions of Treasuries from the US - and a large chunk of these were 'insured" and guaranteed by AIG using complex instruments like CDS etc. If AIG had fallen, China would have been hit by the nasty consequences. And since China is propping up America's debt, well I think you get the point.

That's why AIG really had to be saved.

AIG: Paulson's Folly

If you consider Paulson's actions in a wider context i.e. in terms of Wall Street's Investment Banks against the ordinary Mainstreet Banks (that's where American citizens put their life savings), then can anyone - off the top of their heads - think of any mainstreet US Banks that have been "saved" by Paulson's TARP fund. It seems to me this ratio is horrendously unfair.

What no one seems to mention here is the real reason that AIG was saved was because it sold, and was responsible for, about $800 billion in US Treasury debt to China. So if Paulson had let AIG fall - then China would have lost about $1 trillion dollars from her reserve. The Chinese Dragon, in anger, would have reared up and sold all her dollar reserves(currently standing at $2 trillion) as a result - and what would that do for the US economy ?

Good indicators for the collapse of the dollar and US economy are:

1.) If the derivative market implodes(CDS against CDO's) because of defaults.

2.)If GM, Ford or Chrysler go bankrupt.

3.)If the Dow/Gold ratio plummets even more than it has.