The next economic recession will be like no other in
history. It will be much worse than the Great Recession of 2007, and it may be
worse than the Great Depression of the 1930's. How was this conclusion reached?
The amount of monetary inflation in the economy is beyond belief; it has become
a super-sized bubble waiting to burst. When the inflation bubble finally
bursts, the Federal Reserve will scramble to find enough cash to keep the
banking system "liquid". During the 2007 Recession, Congress stepped
in and put hundreds of billions of dollars in to the system in order to keep it
moving. Basically, taxpayer money was used to prop up privately owned
businesses. The taxpayers will never see that money again; it has disappeared
into the TARP program. Over the past ten years, the Federal Reserve has pushed
Trillions of dollars into the economy hoping it would stimulate a bit of
economic growth. Their plan failed.
In his book "The Road to Ruin", author James
Rickards discusses several facets of the financial markets, the Treasury
Department, and the Federal Reserve. The author spent many years working on
Wall Street, specifically in hedge funds, and thus acquired inside knowledge of
the derivative market. Derivatives are a best described literally as a form of financial
gambling. The system can be explained using football terminology which is
familiar to everyone. Company A bets Company B that the Redskins will beat the
Cowboys next week. They agree to make a bet worth billions, using margin
accounts and being financed by large banks. However, in order to hedge their
bet, Company A makes another bet with Company C that the Cowboys will score at
least one touchdown, thus protecting themselves in case the Redskins lose. But,
Company B also wants to hedge their bet, so they make a bet with Company D that
the Redskins will score at least one touchdown. And Company C hedges against
their bet with Company A, with Company E, and it goes on and on with all the
above named companies. All of these bets are worth billions, all are on margin,
and all are financed by the same big banks. If just one of these companies
defaults on their bets, and has their margin called, the entire system will
collapse. The hedge fund companies will scramble to borrow money in order to
satisfy their margin requirements, and the banks will scramble to find enough
capital to keep operating while billions of dollars’ worth of unpaid hedge
funds debt starts piling up. The derivative market is currently valued at over
$100Trillion dollars, if that would suddenly collapse the results would be
catastrophic. During the recession of 2007, the system almost collapsed. Wall
Street had invested billions of dollars into mortgage derivatives, and as soon
as the mortgage industry started taking losses from homeowners that defaulted
on their mortgages, the Federal Government was forced to take action to keep
the system from collapsing. This time however, the derivative market has grown
even larger, and the Government does not have enough money to mount a rescue attempt.
Moving beyond the financial markets, the banks will be in
terrible jeopardy. The Federal Reserve will not be able to lend the banks the
Trillions of dollars needed to keep them afloat. Therefore, the banks will take
whatever cash they can find. Money in bank deposits accounts, 401k and IRA
accounts, investment accounts, or any other type of account will be confiscated
by the banking system with the full support of the US government. In the
January-February issue of "Foreign Affairs" magazine, Timothy
Geithner the former Secretary of the US Treasury and former governor of the
Federal Reserve Bank of New York uses language that reconciles to the exact
terminology used by author James Rickards. Secretary Geithner describes how the
Federal Government and the banking system led by the Federal Reserve have been
given the authority to take drastic action during the next financial crises.
That drastic action will be to take the public's hard earned money, and use it
to save the sharks on Wall Street from their own stupidity.