Wednesday, June 13, 2012
Currency bubble to pop next?
We all know what caused the real estate bubble.. we may not agree whose fault it was, but we generally agree that easy money, easy credit, & low interest caused prices to escalate. Cheap, easy money drove prices up, as the demand exceeded the supply.
Prices rose, because of easy money & demand, then when a few dominoes started to fall, it brought them all down. A rash of buyers began to default, which triggered foreclosures, which closed down the easy loans, which killed demand, & the rest is history. But it was the ARTIFICIAL supply of easy money that caused the boom leading up to the bust. If money had been tight, & harder to borrow, demand would have stayed at a more moderate level, & prices would not have spiked.
I also think this was & is the source of all the grotesque profits.. it was mostly borrowed money. This money did not come from production or the real GDP of the nation, but was printed & loaned out cheap by the fed. All the money handlers skimmed some off, & dribbled the rest down. The financial sector lost a lot of money in the housing crash, & got bailed out, or reorganized, but they continue to make the big bucks. Why is that? I think it is because the same principles are at work. The easy money now is to the financial sector.. not the housing sector. They get the cheap loans, borrow a lot, skim a lot, & dribble some down to the rest of us. But this is another bubble in the making. It is a currency bubble, made by the fed, by artificially supplying money that has no backing in gdp numbers. The financial sector is in effect, 'house flipping' but they are using market segments, mostly financial markets. They swap money around, all taking a bite as the sandwich is handed around, & borrow more as the supply is depleted. It is propping up the stock market, & china is helping by buying up a lot of tbills. But just like the housing bubble, schemes like this will end. The dollar will have to make an adjustment, & we'll probably see a correction halfway through romney's first term. ok... just kidding .. won't really matter who is in there, it is bigger than a prez. This is somewhat simplistic, but sometimes the truth works that way. The most obvious explanation is often the right one.
If you look at a money supply chart you can see the current trend.. it looks like a spike getting ready to crash. The economy has not grown enough to justify the increase of the money supply.
Historians and economists are very good at creating and perpetuating myths that justify increasing the power placed in the hands of government. ~Reuven Brenner
The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. ~John Kenneth Galbraith