The Collapse of The American Dream Explained in Animation
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Posted 10/18/12 , edited 10/19/12
Besides some certain people in this part of CR ....

I do believe there are smarter, better people here who can break down each segment of this argument much better than I can. The second half of this video seems straight out of "Ancient Aliens" logic but the first half has me concerned.

Even though I am slightly proficient in math and logical deduction, this video doesn't seem to make sense.

Is (our) Federal Bank really not Federal at all? Is there no oversight on the banking practices? Does the first 10 minutes of this video actually make sense?

I'd really appreciate a logical deconstruction of each part of this video and give how true or not true it is.
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As far as I know, this cartoon is pretty truthful. (This is just my opinion...I'm by no means an expert). I would suggest reading up some more on the issue yourself. Reading the Federal Reserve Act of 1913 to start. You can also read up on the Federal Reserve bank at their website. IF you want to play devil's advocate, you can also watch It has some truth in it, but it also has a lot of conspiracy theory. But I find it's always nice to consider such things, as it gets you asking more questions!


You're first question asks if our Federal Bank is in deed federal. Let me answer you by asking you a question...what is your definition of federal? Is a Federal Bank, a bank that is controlled by the Federal Government? Is a Federal Bank, a bank that was established by our federal government? Or is a federal bank, simply a central bank that handles all of the nations money? As you can see, the answer to your question depends on the actual definition of what is a federal bank?

In any case:
In 1913 Congress passed the Federal Reserve Act to establish the "Federal Reserve Bank" which would be a central bank that would handle all the nation's money. It was also given the authority to issue out paper money (dollars) as legal currency. The federal reserve bank has several board members which are appointed by the President and by the Senate. The board members are the only governmental control over the bank. And we all know how trustworthy and constitutional politicians are.

It is also true that all banks make money off of debt. There are many ways and methods for the banks to get money, so I will just list a simple method.

1. If you have a credit card and you miss your monthly payment. The bank charges you interest because you didn't pay your bill in a timely manner. That money is profit to that bank because it is money not originally owed. Interest is merely a Fee that the bank charges you...or you can also think of it as a tax. You eventually pay off your credit card, so the bank gets the original amount owed, plus all the interest you had to pay. IF you don't your either keep paying interest (possibly more than the original amount owed)...or if you don't pay, the bank takes your property...and sales it. In any case, the bank gets the money owed to it and extra.

20-30 years ago it was very difficult for a person to obtain a credit card. You had to have perfect credit, a good job, and even then you could be turned down. Well the banks found out that Debt = Money. So if you're a bank...would you keep giving credit cards to responsible adults who always pay their bills? As a would never collect any interest! So the banks started giving credit cards to financial irresponsible people who never pay the full amount and who are constantly owing the bank money! Student Loans...what a wonderful source of income....the banks know its practically impossible to pay them they can count on you paying you're loan back for years and years. That keeps them in business!

When everyone is in debt...and owe everything to a bank....society as a whole suffers.
Posted 10/19/12 , edited 10/20/12

erlauna wrote:

As far as I know, this cartoon is pretty truthful. (This is just my opinion...I'm by no means an expert). I would suggest reading up some more on the issue yourself. Reading the Federal Reserve Act of 1913 to start. You can also read up on the Federal Reserve bank at their website. IF you want to play devil's advocate, you can also watch It has some truth in it, but it also has a lot of conspiracy theory. But I find it's always nice to consider such things, as it gets you asking more questions!


You're first question asks if our Federal Bank is in deed federal. Let me answer you by asking you a question...what is your definition of federal? Is a Federal Bank, a bank that is controlled by the Federal Government? Is a Federal Bank, a bank that was established by our federal government? Or is a federal bank, simply a central bank that handles all of the nations money? As you can see, the answer to your question depends on the actual definition of what is a federal bank?

In any case:
In 1913 Congress passed the Federal Reserve Act to establish the "Federal Reserve Bank" which would be a central bank that would handle all the nation's money. It was also given the authority to issue out paper money (dollars) as legal currency. The federal reserve bank has several board members which are appointed by the President and by the Senate. The board members are the only governmental control over the bank. And we all know how trustworthy and constitutional politicians are.

It is also true that all banks make money off of debt. There are many ways and methods for the banks to get money, so I will just list a simple method.

1. If you have a credit card and you miss your monthly payment. The bank charges you interest because you didn't pay your bill in a timely manner. That money is profit to that bank because it is money not originally owed. Interest is merely a Fee that the bank charges you...or you can also think of it as a tax. You eventually pay off your credit card, so the bank gets the original amount owed, plus all the interest you had to pay. IF you don't your either keep paying interest (possibly more than the original amount owed)...or if you don't pay, the bank takes your property...and sales it. In any case, the bank gets the money owed to it and extra.

20-30 years ago it was very difficult for a person to obtain a credit card. You had to have perfect credit, a good job, and even then you could be turned down. Well the banks found out that Debt = Money. So if you're a bank...would you keep giving credit cards to responsible adults who always pay their bills? As a would never collect any interest! So the banks started giving credit cards to financial irresponsible people who never pay the full amount and who are constantly owing the bank money! Student Loans...what a wonderful source of income....the banks know its practically impossible to pay them they can count on you paying you're loan back for years and years. That keeps them in business!

When everyone is in debt...and owe everything to a bank....society as a whole suffers.
That only covers the micro level, as in the credit swap between private banks and the general public. We need to look into the macro level, as in the central bank and the government, in order for ourselves to understand how hyperinflation is a mathematical certainty all throughout the known history, due to the feature of exponential growth function.

Crash Course Chapter 3: Exponential Growth
Here’s a classic chart displaying exponential growth – a chart pattern that is often called a “hockey stick.” We are charting an amount of something over time. The only requirement for a graph to end up looking like this is that the thing being measured grows by some percentage over each increment of time.

The slower the percentage rate of growth, the greater the length of time we’d need to chart in order to visually see this hockey stick shape.

Another thing I want you to take away from this chart is that once an exponential function “turns the corner,” even though the percentage rate of growth might remain constant and possibly quite low, the amounts do not. They pile up faster and faster.

In this particular case, you are looking at a chart of something that historically grew at less than 1% per year. It is world population, and because it is only growing at roughly 1% per year, we need to look at several thousands of years to detect this hockey stick shape. The green is history and the red is the most recent UN projection of population growth for just the next 42 years.

Certainly by now, math-minded folks might be starting to get a little uncomfortable here, because they might feel that I am not presenting this information in a classical or even accurate way.

Where mathematicians have been trained to define exponential growth in terms of the rate of change, we are going to focus on the amount of change. Both are valid; it’s just one way is easier to express as a formula and the other is easier for most people to intuitively grasp.

Unlike the rate of change, the amount of change is not constant; it grows larger and larger with every passing unit of time, and that’s why it is more important for us to appreciate than the rate. This is such an important concept that I will dedicate the next chapter to illustrating it.

Also, mathematicians would say that there is no “turn the corner” stage of an exponential chart, because this is just an artifact of where we draw the left hand scale. That is, an exponential chart always looks like a hockey stick at every moment in time, as long as we adjust the left axis properly.

But if you know the limits, or boundaries, of what you are measuring, then you can fix the left axis, and the “turn the corner” stage is absolutely real and vitally important.

This is a crucial distinction, and our future depends on more of us appreciating this.

For example, the total carrying capacity of the earth for humans is thought to be somewhere in this zone, give or take a few billion. Because of this, the “turn the corner” stage is very real, of immense importance to us, and not an artifact of graphical trickery.

The critical take-away for exponential functions, the one thing I want you to recall, relates to the concept of “speeding up.”

You can think of the key feature of exponential growth either as the AMOUNT that is added growing larger over each additional unit of time, oryou can think of it as the TIME shrinking between each additional unit of amount added. Either way, the theme is “speeding up.”

To illustrate this using population: If we started with 1 million people and set the growth rate to a measly 1% per year, we’d find that it would take 694 years before we achieved a billion people. But we’d be at 2 billion people after only 100 more years, while the third billion would require just 41 more years. Then 29 years, then 22, and then finally only 18 years to add another, to bring us to 6 billion people. That is, each additional billion people took a shorter and shorter amount of time to achieve. Here we can see the theme of speeding up.

This next chart is of oil consumption, perhaps the most important resource of them all, which has been growing at the much faster rate of nearly 3% per year. So we can detect the ‘hockey-stick’ shape over the course of just one hundred and fifty years. And here, too, we can fix the left axis, because we know with reasonable accuracy how much oil the world can maximally produce. So, again, having “turned the corner” is extremely relevant and important to us.

And here’s the US money supply, which has been compounding at incredible rates, ranging between 5% and 18% per year. So this chart only needs to be a few decades long to see the hockey stick effect.

And here’s world-wide water use, species extinction, fisheries exploited, and forest cover lost. Each one of these is a finite resource, as are many other critical resources, and quite a few are approaching their limits.

And here is the world you live in. If it seems like the pace of change is speeding up, well, that’s because it is. You happen to live at a time when humans will finally have to confront the fact that our exponential money system and resource use will encounter hard, physical limits.

And behind all of this, driving every bit of every graph is the number of people on the surface of the planet.

Taken one at a time, any one of these charts could command the full attention of every earnest person on the face of the planet, but we need to understand that they are, in fact, all related and connected. They are all compound graphs, and they are being driven by compounding forces.

To try and solve one, you’d need to understand how it relates to the other ones that you see, as well as others not displayed here, because they all intersect and overlap.

The fact that you live here, in the presence of multiple exponential graphs relating to everything from money to population to species extinction, has powerful implications for your life and the lives of those who will follow you.

It deserves your very highest attention.

Crash Course Chapter 4: Compounding is the Problem
The purpose of this mini-presentation is to help you understand the power of compounding. If something, such as a population, oil demand, a money supply, or anything, steadily increases in size in some proportion to its current size, and you graph it over time, the graph will look like a hockey stick.

Said more simply, if something is increasing over time on a percentage basis, it is growing exponentially.

Using an example drawn from a magnificent paper by Dr. Albert Bartlett, let me illustrate the power of compounding for you.

Suppose I had a magic eye dropper and I placed a single drop of water in the middle of your left hand. The magic part is that this drop of water is going to double in size every minute.

At first nothing seems to be happening, but by the end of a minute, that tiny drop is now the size of two tiny drops.

After another minute, you now have a little pool of water that is slightly smaller in diameter than a dime sitting in your hand.

After six minutes, you have a blob of water that would fill a thimble.

Now suppose we take our magic eye dropper to Fenway Park, and, right at 12:00 p.m. in the afternoon, we place a magic drop way down there on the pitcher’s mound.

To make this really interesting, suppose that the park is watertight and that you are handcuffed to one of the very highest bleacher seats.

My question to you is, “How long do you have to escape from the handcuffs?” When would it be completely filled? In days? Weeks? Months? Years? How long would that take?

I’ll give you a few seconds to think about it.

The answer is, you have until 12:49 on that same day to figure out how you are going to get out of those handcuffs. In less than 50 minutes, our modest little drop of water has managed to completely fill Fenway Park.

Now let me ask you this – at what time of the day would Fenway Park still be 93% empty space, and how many of you would realize the severity of your predicament?

Any guesses? The answer is 12:45. If you were squirming in your bleacher seat waiting for help to arrive, by the time the field is covered with less than 5 feet of water, you would now have less than 4 minutes left to get free.

And that, right there, illustrates one of the key features of compound growth…the one thing I want you take away from all this. With exponential functions, the action really only heats up in the last few moments.

We sat in our seats for 45 minutes and nothing much seemed to be happening, and then in four minutes – bang! – the whole place was full.

This example was loosely based on a wonderful paper by Dr. Albert Bartlett that clearly and cleanly describes this process of compounding, which you can find in our Essential Reading section. Dr. Bartlett said, “The greatest shortcoming of the human race is the inability to understand the exponential function.” And he’s absolutely right.

With this understanding, you’ll begin to understand the urgency I feel – there’s simply not a lot of maneuvering room once you hop on the vertical portion of a compound graph. Time gets short.

This makes compounding the first Key Concept of the Crash Course.
So that's the mathematical dynamic of exponential growth due to compounding of interest. But that's just a part of the bigger mechanism of "fiat money" creation.

Crash Course Chapter 6: What Is Money?
Money is something that we live with so intimately on a daily basis that it probably has escaped our close attention.

Money is an essential human creation, and, were all money to disappear, a new form of money would spontaneously arise in its place, such as cows, tobacco, bread, a certain type of nut husk, perhaps, or even nautilus shells.

Without money, the complex job specializations that we have today would not exist, because barter is so cumbersome and constraining. More importantly, though, is the concept that each type of money system has its pros and cons – each will enforce its own peculiar outcomes by promoting some behaviors while suppressing others.

Now, if we crack open a textbook, we’ll find that money should possess three characteristics. The first is that it should be a store of value. Gold and silver filled this role perfectly, because they were rare, took a lot of human energy to mine, and did not corrode or rust. By contrast, the US dollar pretty much constantly loses value over time – a feature which punishes savers and enforces the need to speculate and/or invest.

A second feature is that money needs to be accepted as a medium of exchange, meaning that it is widely accepted within a population as an intermediary, within and across all economic transactions.

And the third feature is that money needs to be a unit of account, meaning that the money must be divisible and each unit must be equivalent. The US “unit of account” is the dollar. Diamonds have much value, but are not good at being ‘money,’ because they are not perfectly equivalent to each other and dividing them causes them to lose value. That is, they fail at being a unit of account.

Blah blah blah….so what is money, really? I believe in a very simple definition.

Money is a claim on human labor.

With a very few minor exceptions, pretty much anything you can think of that you might spend your money on will involve human labor to bring it there. I say it’s a claim rather than a store, because the human labor in question might have happened in the past, or it might not have happened yet.

The concept of money being a claim on human labor is important, and we’ll be building on it later, especially when we get to debt.

As implied in the picture series earlier, literally anything can be considered money – cows, bread, shells, tobacco. A US dollar, like all modern currencies, however, is an example of a type of money called fiat money. “Fiat” is a Latin word meaning “let it be done,” and fiat money has value because a government decrees that it does.

And this brings us to the key question: What exactly is a US dollar?

Once, a dollar was backed by a known weight of silver or gold of intrinsic value. In this example, we can see that the dollar came from the US Treasury and was backed by a given amount of silver that was payable to the bearer on demand.

Of course, that was back in the 1930’s, and those days are long gone. Now dollars are the liability of the Federal Reserve, a private entity entrusted to manage the US money supply and empowered by the Federal Reserve Act of 1913 to perform this function.

You’ll note that modern dollars have no language entitling the bearer to anything, and that’s because they are no longer backed by anything tangible. Rather, the ‘value’ of the dollar comes from this language right here: The fact that it is illegal to refuse to accept dollars for payment and that they are the only acceptable form of payment for taxes.

It is crucially important that a nation’s money supply is carefully managed, for if it is not, the monetary unit can be destroyed by inflation. In fact, there are over 3,800 past examples of paper currencies that no longer exist. There are numerous examples from the United States, which may have some collector value but no longer possess any monetary value. Of course, I could just as easily display beautiful but no longer functional examples from Argentina, Bolivia, and Columbia, and a hundred other places

How does a hyperinflationary destruction of a currency happen?

Here’s a relatively recent example that comes from Yugoslavia between the years 1988 and 1995. Pre-1990, the Yugoslavian dinar had measurable value: You could actually buy something with one. However, throughout the 1980’s, the Yugoslavian government ran a persistent budget deficit and printed money to make up the shortfall. By the early 1990’s, the government had used up all its own hard currency reserves, and they proceeded to loot the private accounts of citizens. In order to keep things moving along, successively larger bills had to be printed, finally culminating in this stunning example – a 500 billion dinar note. At its height, inflation in Yugoslavia was running at over 37% per day. This means prices were doubling every 48 hours or so.

Let me see if I can make that more concrete for you. Suppose that on January 1, 2007, you had a penny and could find something to purchase with it. At 37% per day inflation, by April 3, 2007 you’d need one of these – a billion dollar bill – to purchase the very same item. In reverse, if you’d had a billion dollars on January 1st stuffed in a suitcase, by April 3rd you’d have had a penny’s worth of purchasing power left.

Clearly, if you’d attempted to save money during this period of time, you’d have lost it all, so we can safely state that inflationary money regimes impose a penalty on savers. The opposite side of this is that inflationary money regimes promote spending and require that money be invested or speculated, so as to at least have the chance of keeping pace with inflation. Of course, investing and speculating involve risks, so we can broaden this statement to include the claim that inflationary monetary systems require the citizens living within them to subject their hard-earned savings to risk.

That is worth pondering for a minute or two.

Even more importantly, since history shows how common it is for currencies to be mismanaged, we need to keep a careful eye on the stewards of our money to make sure they are not being irresponsible by creating too much money out of thin air and thereby destroying our savings, culture, and institutions by the process of inflation.

Wait a minute. Did I just say ‘creating money out of thin air’?

Yes. Yes, I did.

This is such an important process to your, our, my future that we’re going to spend the next two sections learning about how money is created.
Since you've already covered the money creation scam on the micro level, I'll skip right to the macro level.

Crash Course Chapter 8: The Fed - Money Creation
Suppose Congress needs more money than it has. I know, that’s a stretch! Perhaps it has done something really historically foolish, like cutting taxes while conducting two wars at the same time. Now, Congress doesn’t actually have any money, so the request for additional spending gets passed over to the Treasury Department.

You may be surprised, or dismayed, or perhaps neither, to learn that the Treasury Department lives hand-to-mouth and rarely has more than a couple of weeks’ of cash on hand, if that.

So the Treasury Department, in order to raise cash, will print up a stack of Treasury bonds, which are the means by which the US government borrows money. A bond has a ‘face value,’ which is the amount it will be sold for, and it has a stated rate of interest that it will pay the holder. So if you bought a bond with $100 face value and that paid a rate of interest of 5%, then you’d pay $100 for this bond and get $105 back in a year.

Treasury bonds are sold in regularly scheduled auctions, and it is safe to say that the majority of these bonds are bought by big banks, such as those of China and Japan recently. At auction the banks purchase these bonds, and then money gets sent into the Treasury coffers, where it can be disbursed for the usual array of government programs.

I promised you that I’d show you how money first comes into being, and so far that hasn’t happened, has it? The bonds are being bought with money that already exists. Money is created by this next mechanism, where the Federal Reserve buys a Treasury bond from a bank.

When the Fed does this: They simply transfer money in the amount of the bond to the other bank and take possession of the bond. A bond is swapped for money.

Now, where did this money come from? Glad you asked. It comes out of thin air, as the Fed creates money when it ‘buys’ this debt. New Fed money is always exchanged for debt, so we can now put the title on this page.

Don’t believe me? Here’s a quote from a Federal Reserve publication entitled “Putting it Simply:” "When you or I write a check, there must be sufficient funds in our account to cover the check, but when the Federal Reserve writes a check, there is no bank deposit on which that check is drawn. When the Federal Reserve writes a check, it is creating money."

Wow. That is an extraordinary power. Whereas you or I need to work to obtain money, and place it at risk to have it grow, the Federal Reserve simply prints up as much as it wishes, whenever it wants, and then loans it to us all via the US Government, with interest.

Given the fact that over 3,800 paper currencies (and a few metallic ones) have been rendered worthless due to mismanagement, wouldn’t it make sense to keep a very close eye on whether or not the Federal Reserve is acting responsibly with our own monetary unit?

So now we know that there are two kinds of money out there.

The first is bank credit, which is money that is loaned into existence, as we saw here. Bank credit is a type of money that comes with an equal and offsetting amount of debt associated with it. Debt upon which interest must be paid.

The second type is money printed out of thin air, and that is what we see here at this stage.

The process by which money is created is so simple that the mind is repelled, so don’t worry if you need to review this chapter several more times. I’ve had some people attend my seminar four or more times and they say that this concept is just now starting to really sink in.

However, if you understood all that, and ‘get it,’ congratulations! Give yourself a hand, because it’s not easy.

These monetary learnings allow us to formulate two more extremely important Key Concepts.

The first is that all dollars are backed by debt. At the local bank level, all new money is loaned into existence. At the Federal Reserve level, money is simply manufactured out of thin air and then exchanged for interest-paying government debt. In both cases, the money is backed by debt. Debt that pays interest. From this Key Concept, we can formulate a truly profound statement, which is that at a minimum, each year enough new money must be loaned into existence to cover the interest payments on all of the past outstanding debt.

If we flip this slightly, we can say that each year all the outstanding debt must compound by at least the rate of the interest on that debt. Each and every year it must grow by some percentage. Because our debt-based money system is growing by some percentage continually, it is an exponential system by its very design. A corollary of this is that the amount of debt in the system will always exceed the amount of money.

I am not going to cast judgment on this and say that it is good or it is bad. It simply is what it is. By understanding its design, though, you will be better equipped to understand that the potential range of future outcomes for our economy are not limitless, but rather bounded by the rules of the system.

All of which leads us to the fourth Key Concept, which is that perpetual expansion is a requirement of modern banking. In fact we can make a rule: Each year, new credit (loans) must be made that at least equal the amount of all the outstanding interest payments that year. Without a continuous expansion of the money supply, past debts would not be able to be serviced, and defaults would ripple through, and possibly destroy, the entire system. Defaults are the Achilles heel of a debt-based money system, which we saw in our local banking example in the previous chapter. Because of this, all the institutional and political forces in our society are geared towards avoiding this outcome.

So the banking system must continually expand – not necessarily because it is the right (or wrong) thing to do, but, rather, simply because that is how it was designed. It is a feature of the system, just like using gasoline is a feature of my car’s engine. I might wish and hope that my car would run on straw, but I’d be wasting my time, because that’s just not how it was designed.

By understanding the requirement for continual expansion, we will be in a better position to make informed decisions about what’s likely to transpire and take meaningful actions to enhance our prospects.

More philosophically, we might wonder about the long-term viability of a system that must expand exponentially but which exists on a spherical planet. The key question is, “Can our current money system somehow be modified to be stable, fair, and useful when it is not growing?”

So the question is this: What happens when a human-contrived money system that must expand, by its very design, runs headlong into the physical limits of a spherical planet?

One more belief of mine is that I will witness this collision in my adult lifetime, and in fact it may have already started. I am extremely interested to see how this is all going to turn out.

Now this is, admittedly, a truly gigantic proposition to consider, and some would say that this is not very interesting at all, but rather frightening. Well, if you want the future to look just like the past, then I suppose it is frightening. But if you are flexible in your view of the future, then you have an opportunity to make the most of whatever future actually arrives. These are fascinating, invigorating, and truly unprecedented times, and I, for one, am thrilled to be living right now, right here, with you.
So there you have it, the main components needed for hyperinflation to play out over time throughout history are all in place.

Crash Course Chapter 10: Inflation
Most of us think of inflation as rising prices, but that’s not quite right. Imagine if an apple and an orange are a dollar each one year, but ten dollars each next year. Since you enjoy eating apples and oranges the same in one year as the next, then the only thing that’s truly changed here is your money, which has declined in value.

Inflation is not caused by rising prices. Rising prices are a symptom of inflation. Inflation is caused by the presence of too much money in relation to goods and services. What we experience are things going up in price, but in fact, inflation is really the value of your money going down simply because there’s too much of it around.

Here’s an example: Suppose you are on a life raft and somebody on board has an orange that they are willing to sell for money. Only one person in the raft has any money, and that’s a single dollar. So the orange sells for a dollar. But wait! Just before it sells you find a ten dollar bill in your pocket. Now how much do you suppose the orange sells for? That’s right, ten bucks. It’s still the same orange right? Nothing about the utility or desirability of the orange has changed from one minute to the next, only the amount of money kicking around in the boat. So we can make this claim: Inflation is, everywhere and always, a monetary phenomenon.

And what’s true within a tiny life raft is equally true across an entire nation. Here, let me illustrate this point using a long sweep of US history.

What we’re looking at here is a graph of price levels in the United States that begins on the left in 1665 and progresses more than 300 years to 2008 on the right. But at this moment, only inflation over the period from 1665 to 1776 is marked on the chart. On the “Y” axis, what is being charted are price levels, *not* the rate of inflation. Now, you might ask, “How can we compare prices in 1665 to prices in 1776, let alone 2008? Life was so different between those periods.” While there are some obvious liberties that have to be taken here, what is being compared are the basics of life. People ate food in 1665 as they did in 1776. People had to transport themselves, get educated, and live in houses in 1665 as they did in 1776. So what is being compared is relative cost of living in one period to the next. That is, inflation.

In 1665, the basic cost of living was set to a value of “5”. What is most striking about this chart to me is that from 1665 to 1776 there was absolutely no inflation. For 111 years, a dollar saved was, well, a dollar saved. Can you imagine what it would be like to live in a world where you could earn a thousand dollars, put it in a coffee can in the backyard, and your great- great grandchildren could dig it up and enjoy the same benefits from that thousand dollars as you would have 111 years previously?

This isn’t a fantasy in a cheap novella, this was reality in our country at one time. The country was on a silver and gold standard during this period and advanced tremendously while enjoying near-perfect price stability during times of peace. However, along came a war, the Revolutionary War, and the country found itself unable to pay for the war with the gold and silver to be found in the Treasury.

So a paper currency called “continentals” was printed, and at first it was fully backed by a specified amount of real gold and/or silver in the Treasury. But then the war proved to be more expensive than thought, and more and more was printed. Then the British, aware of the corrosive effects of inflation on a society, started counterfeiting and distributing vast amounts of bogus continentals, and soon the currency began to collapse.

Before long, massive inflation took hold, and Abigail Adams complained bitterly about this experience, noting that goods were hard to come by, making life difficult.

Seen on the inflation chart, the Revolutionary War took the general price level from a reading of “5” to a reading of “8”. After the war, the paper continentals were utterly rejected by the populace, who strongly preferred gold and silver. Most interestingly, price levels promptly returned back to their prewar levels.

The next serious bout of inflation was also associated with a war, again due to overprinting of paper currency, and again, upon conclusion of the war, we saw a relatively prompt return of prices to their pre-war levels, where they stayed for an additional 30 years. By now we are nearly 200 years into this chart, and we find that the cost of living is roughly that same as it was in 1665. That’s a truly fascinating concept to entertain.

But then a war came along – the Civil War – and it was a doozy. To finance the war, the North had to resort to printing a type of currency that still lends its name to our own currency today. Of course, back then it really did have a “green back.” Again we see a rapid rise of inflation as a direct consequence of war that again returned to baseline after the crisis was over. We are now 250 years into this story and the cost of living is still roughly the same as it was at the start. Can you imagine?

But then another war came along, this one even bigger than any before, and again it was a highly inflationary event.

And then another war, even bigger than any before it, which again proved inflationary. But this time, something odd happened. Inflation did not retreat before the next war began. Why? Two reasons. First, the country was no longer on a gold standard, but instead a fiat paper standard administered by the Federal Reserve, and the populace did not have another form of money to which it could turn. And second, because this was the first time that the war apparatus was not dismantled upon conclusion of hostilities.

Instead, full mobilization was maintained and a protracted cold war was fought; certainly as inflationary a conflict as any shooting war ever was.

And now if we look at the entire sweep of history, we can make an utterly obvious claim: All wars are inflationary. Period. No exceptions.

Why? Simple, really. Any time the government engages in deficit spending, it creates the conditions for inflation. However when the deficit spending is on legitimate infrastructure, such as roads or bridges, that investment will slowly “pay for itself” by boosting productivity and paving the way for the creation of additional goods and services that will ‘soak up’ the extra cash over time.

Wars, however, are special. Vast quantities of money are spent on things that are meant to be blown up. The money stays at home, while the goods get sent off to be blown up. When a bomb blows up, there is no residual benefit to the domestic economy later on. This means war spending is the most inflationary of all spending. It’s a double whammy – the money stays behind, working its evil magic, while the goods disappear. Heck, even if the goods aren’t blown up, there’s practically zero residual economic benefit to such specialized hardware, as amazing as that technology may be.

For some reason, the most recent pair of wars have been presented by the US mainstream press as being relatively “pain-free” for the average citizen, despite overwhelming historical odds to the contrary.

In fact, on this 15-year-long chart of commodity prices, we observe that prices bounced in a channel, marked by the green lines, for more than 10 years. However, and now hopefully unsurprisingly, shortly after the start of the Iraq War commodity prices began marching higher and have inflated nearly 140% in the five years since. Your gasoline and food bills will confirm this.

So if anybody tries to tell you that you haven’t sacrificed for the war, let them know you sacrificed a large portion of your savings and your paycheck to the effort, thank you very much.

At any rate, back to our main story. Here’s inflation between 1665 and 1975. Knowing what you now know about Nixon’s actions on August 15th 1971, what do you suppose the rest of the graph looks like between 1975 and today?

This is your world. You’ve been living on the steeply rising portion of the graph for so long that that you think it’s level ground.

Because inflation is now a permanent feature, and because it advances at a percentage rate, your money is declining in value exponentially.

That’s what this “hockey stick” graph is telling you.

What does it mean to live in a world where your money loses value exponentially? You know what it means, because you live there. It means always having to work harder and harder just to stay in place, and it means perplexing and astoundingly risky investment decisions have to be made in an attempt to grow ones savings fast enough to avoid the ravages of inflation.

It means two incomes are needed where one used to suffice, and kids left at home while both parents work. A world of constantly eroding money is a devilishly complicated world to navigate and leaves scant room for error, especially for those without the appropriate means or connections.

And it doesn’t have to be this way. And indeed, for the majority of our country’s history it wasn’t. And I’m hard pressed to say that inflation is a necessity and serves some essential and greater good, because a lot of progress and advancement happened between 1665 and 1940 without the “benefit” of perpetual inflation.

The point of this section was to help you appreciate the fact that our country has not always lived under a regime of perpetual inflation, and that, historically speaking, it’s a rather recent development.

To help put all of this in context, let’s mark the moments when our country abandoned the gold standard, first internally and then completely.

It may have surprised some of you, as it did me, to find out that inflation is not a mysterious law of nature, like gravity, but rather an extremely well-characterized matter of policy.

So now we have our fifth Key Concept: Inflation is, everywhere and always, a monetary phenomenon.

Flipped a bit, we can say that inflation is a deliberate act of policy.

Here’s what one wag had to say about this matter: “Paper money always returns to its intrinsic value – zero." Of course, he was a bit too pessimistic in his assessment, as this German woman proves by using her furnace to liberate the intrinsic heat content of paper money.

John Maynard Keynes, the father of the branch of economics that utterly dominates our lives, had this to say about inflation:

Lenin was certainly right, there is no more positive, or subtle or surer means of destroying the existing basis of society than to debauch the currency.

By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of the citizens.

The process engages all of the hidden forces of economics on the side of destruction, and does it in a manner that not one man in a million can diagnose.

Given that the destructive, corrosive effects of inflation are so well understood by the architects and administrators of our monetary system, it’s fair to wonder exactly what the plan here is.

Now, finally, here in Chapter Ten of the Crash Course, we can string together these three important dots:

#1: In 1971, the US, and by extension the world, terminated the last connection to a gold restraint and federal borrowing “turned the corner,” never to look back.

#2: Concurrently, the money supply “turned the corner” and started piling up at a rate much faster than goods and services were growing.

And so we get to data point #3, which is that inflation is the fully predictable outcome of data points #1 and #2.

Boom. Boom. Boom. One, two, three. All connected, all saying the same thing, with profound implications for our future.

Now, if you’re of a mind that there’s no reason that all three of these graphs cannot just continue to exponentially accelerate to ever-higher amounts without end, then there’s no point in watching the rest of the Crash Course.

However, if you don’t happen to believe that, then you’re going to want to see the rest of this.

There is literally nothing more important for you to be doing right now than gaining an understanding of how these pieces fit together, assessing the risks for yourself, and taking actions to prepare for the possibility of a future that’s substantially different from today.
So not only that hyperinflation will devalue existing currency faster than we can earn it, it's all happening on a virtual level, that we can't even detect it until it's already too late. But that's not all, when we consider the problem with changing demographics, when the older baby-boom generations with their financial wealth locked in real-estates as assets, can't find younger buyers who's currency is now worth so much less than theirs 40 years ago, that they're eventually loosing out on the exchange of ownerships.

Crash Course Chapter 14: Assets & Demographics
Now some would say that it’s not reasonable to look only at debt and savings; one also has to consider assets. After all, does it really matter if you have no savings and a million dollars of debt if you have assets worth $10 million? That’s a great point, and so we’re going to take a look at assets here.

All right, so what is an asset? One definition is items of ownership convertible into cash: total resources of a person or business, as cash, notes and accounts receivable, securities, inventories, goodwill, fixtures, machinery, or real estate.

So an asset is something of value that can be converted to cash or provides access to, or enhances, a flow of cash. If we simply said assets are deposits, real estate, a stock or a bond, and the stuff we own, we’d pretty much cover the vast majority of what we consider to be our assets.

We’re only going to look at the assets of households, because, as we saw earlier, the liabilities and assets of the US and state governments are really the liabilities of its citizens. But do remember, as we noted in Chapter 13, the US government has a total net worth of negative $50 to $85 trillion. In fact, that mismatch between assets and liabilities does not belong to the US government, it belongs to you and me and everybody else. Our national debts and liabilities are, well, ours. On the private side, the assets of companies belong entirely to the bondholders and shareholders of the company, not the company itself. And who holds those? Ultimately, private citizens do. Since we can pool citizens into households, we could examine household assets, deduct some relevant liabilities, and get a decent view of where things stand.

And we do this because the Federal Reserve tracks net worth at the household level, and this data is routinely and widely reported in the media. In fact, according to the Federal Reserve, household net worth has exploded by nearly $20 trillion in only five years – an astonishing feat – and it represents more ‘wealth’ than our country managed to amass from its inception until the late 1980s. And these are net assets, so the Federal Reserve, and many in the media, take the position that, with just under $60 trillion in net worth, Americans are doing just fine and our rapidly climbing debt levels are no cause for concern.

But before we get too excited about the astonishing wealth indicated here, there are two key oversights and a fallacy hidden in this report of which you should be aware. As always, the devil is in the details. Before I address those, I want you to observe this period here, spanning from 2000 to 2003. That dip in the net worth of households was due to the stock market collapse that ran from 2000 to 2003 and caused such great panic at the Fed that Greenspan lowered interest rates to the emergency rate of 1%, thereby igniting the greatest of housing and credit bubbles in all of history. And this decline in total net worth leads to this observation: Debt is fixed. When you take on a debt, there it placidly sits, growing larger, until you make payments on it. Debts do not vary with general economic conditions, or whether you get a raise or lose your job. Assets, on the other hand, are variable, sometimes gaining and sometimes losing value. And so this leads to the 8th Key Concept of the Crash Course: Debts are fixed, while assets are variable.

Okay. Where did that $19.8 trillion in new wealth come from? About 80% of that growth came from a rise in financial assets and the remaining 20% came from growth in real estate and other ‘tangible’ assets.

When we look at how much of each type there are, we see that 72% of the total net worth consists of financial assets totaling about $41 trillion, while the tangible assets are the remaining 28% and total around $16 trillion.

If we examine these assets a little more closely, we see that the $41 trillion dollars worth of financial assets consist of things like pension funds, the assets of privately held businesses, deposits, stocks, and bonds, which we can roughly recompose into these four main classes: stocks, bonds, cash or deposits, and the assets of privately held businesses.

The other bucket of $16 trillion in tangible assets consists primarily of real estate, which is 75% of this bucket, and consumer durables, which would be your car, your dryer, and your snow blower, if you have one. For every single one of these assets except cash, in order to liberate the wealth from these assets you’d have to sell them first.

One general rule of asset markets goes like this: Things go UP in price when there are more buyers than sellers, AND things go DOWN in price when there are more sellers than buyers. Hold onto that thought for when we get to demographics.

Now let me expose a great fallacy of the household wealth report. I’ll use real estate to make the point. Suppose you have a house that you bought for $250,000, and over time, say the last five years, it went up in assessed value to $500,000. The Fed would record this as a $250,000 increase in your net wealth. But there’s really no way for you to easily get to that wealth. Sure, you could borrow against that, but that does not liberate the wealth, it only exchanges an amount of it for debt. But suppose that you sold your house. Well, if you wanted to move into an equivalent house, guess what? They’ve all gone up in price along with yours, and so you have to spend $500,000 for an equivalent house, so nope, no wealth was liberated there. In fact, the only way to liberate the wealth in your house is to downsize and buy a smaller one (or rent). So here’s the rhetorical question of the day: How can everyone downsize? You might be able to, but, on balance, everyone can’t. At least not without creating a massive glut of large homes and a desperate shortage of smaller ones. And if everyone can’t do this, then it means that it is impossible to ever release the full value, or embodied wealth, of all the houses. So the wealth number is fun to look at individually, but it is more or less meaningless as a whole. This same dynamic is true for other assets as well: Sufficient buyers are essential, or the wealth is as good as stranded.

I mentioned that there are also two big oversights in the household wealth report, and the first is that the Fed mysteriously does not include the general liabilities of the government when calculating the household net wealth. Wouldn’t it make sense for the Fed to offset these against household wealth? After all, who else besides taxpayers living in households are going to pay off those liabilities? Nobody, that’s who. If the Fed did perform this offset, household net worth would plunge below zero, so I can guess why this comparison is never made. But I would argue that a careful steward of a nation’s monetary policy would be interested in representing the true situation as accurately as possible.

The second oversight is that the data is presented as if it applied to our entire country in a fairly even and useful manner. It does not. The top 1% owns 35% of ALL net household wealth AND, looking at stocks, only owns 56% of ALL stock (by value). If you can’t see it, I apologize; the top 1% is represented by a very thin red smear at the top of the column there. So it’s great that our stock market keeps powering higher, but for every trillion dollars it goes up, $560 billion of that goes to only one out of a hundred households.

The top 20%, which includes the top 1%, owns 85% of ALL net household wealth and 80% of ALL stock (by value). This means the bottom 80% of the citizens of this country, represented in yellow, holds only 15% of the total wealth of this country, and even there the distribution of wealth is weighted to the top.

Remember, an imbalance between rich and poor is the oldest and most fatal ailment of all republics. More immediately, this tells us that our credit crisis is going to be worse than advertised. Just as was true of the wealth gap in the late 1920s before the onset of the Great Depression, the severity of the crisis will not depend on average wealth but the distribution of the wealth. If a large swath of the population lacks the means to weather the storm, then the storm will be longer and harsher than otherwise would be the case. So what does it mean that 80% of our population possesses a meager 15% of the total wealth? For one thing, it means that the recent efforts by the Fed to provide massive amounts of liquidity support to the biggest and wealthiest banks at the inflationary expense of the lower classes were not only misguided, but they were cruel and unusual. This leads to an easy prediction to make: The wealth gap in the US will hamper our recovery and deepen the downturn.

In order to really understand why I have been harping on this notion of assets being variable and their value being dependent on the ratio of buyers to sellers, we’ll need to take a quick trip into demographics.

Recall that the US government has not saved in any of its entitlement programs, and that it has a massive shortfall in them, measuring in the tens of trillions of dollars. That situation comes about because the entitlement programs are wealth transfer programs, not savings accounts, and they depend on a significant surplus of current workers to retirees. The shortfalls in these programs are being exacerbated by a troubling trend. In 1950 there were seven workers per retiree and the system was balanced. By 2005, that ratio had dropped to only 5 to 1, and the system was already exhibiting signs of distress. By 2030, that ratio will have plummeted to a thoroughly unworkable value of less than 3 to 1.

And this trend comes about as a feature of the so-called Baby Boom . This is a demographic chart of the United States. Each bar represents a clustering of all the people who are within a five-year-wide ‘age window,’ as seen on the left axis, and shows how many millions of them there are along the bottom axis. The baby boomers number around 75 million strong and roughly occupy these four bands. While it may not seem like much, the ‘hole’ that exists in the population behind the baby boomers represents an enormous challenge, and even threat, to our entitlement programs, and will greatly complicate our efforts to resolve our levels of debt and our national failure to save.

A more ‘normal’ population distribution, and the kind that humans evolved with over countless millennia, looks like this. A pyramid. Again, this shows five-year-wide age brackets, with men in red and women in yellow. This distribution is capable of supporting an entitlement program such as the one in the US that is based on transferring wealth directly from workers to retirees.

But when we cast this chart forward to 2000, the baby boomer bulge is quite apparent. Besides the challenge that this demographic profile offers to the entitlement programs, an even larger challenge is presented to both the debt and savings issues I painted in previous chapters and even to the value of our assets.

Here’s what I mean. The boomers are the wealthiest generation ever, they hold nearly all of the assets, and they will need to dispose of those assets to fund their retirements.

Who exactly are the boomers planning on selling their assets to? This guy? Even if his generation somehow could afford to buy all these assets, there simply aren’t enough people in his generation to buy them.

In order to fund their retirement dreams, boomers are going to have to sell off their assets. And again we might wonder, to whom, exactly?

And lastly , if the massive accumulation of debt over the past 23 years was predicated on the assumption that the future will be much larger than the present, we might also question how exactly that will come to pass if boomers are retiring en masse and there are fewer behind them to take their place? Man…the next generation better be prepared to work really, really hard! Too bad they are graduating with the highest levels of college debt ever recorded.

This sort of demographic profile will be with us for decades and cannot be wished away or fixed by some clever policy. It is simply a fact of life, and one that we’d do well to recognize and plan for rather than ignore.

Boomer retirement has already begun, and the pace of this will accelerate rapidly over the next 15 years, which will make the twenty-teens quite interesting and leads me to conclude that the next twenty years are going to be completely unlike the last twenty years.
But housing market crash isn't anything new, just as all asset bubbles throughout history.

Crash Course Chapter 15: Bubbles
Through the long sweep of history, the bursting of asset bubbles has nearly always been traumatic. Social, political, and economic upheavals have a bad habit of following asset bubbles, while wealth destruction is a guaranteed feature.

Along the continuum of irrational financial behavior, it can be tricky to tell the difference between a bubble, a mania, and mere touch of exuberance. A bubble is reserved for the height of folly, and history is rich with folly.

Bubbles used to happen once every generation or so, because it took time to forget the pain from the damage. Today we are facing the bursting of a second major asset bubble, housing, spaced less than ten years from the bursting of the dot-com bubble. This is simply astounding and thoroughly unprecedented.

So how would we know that we’re in an ‘asset bubble’? What do they look like, and what can we expect when one bursts?

The Fed famously likes to claim that you can’t spot one until it bursts. But actually you can, and the definition is pretty simple: A bubble exists when asset price inflation rises beyond what incomes can sustain. A bubble represents people abandoning reason and prudence for hope and greed.

Out of that prior list, let’s look at one of the more interesting bubbles that happened in Holland in the 1600’s. For some reason, the people of that time became infatuated with tulips, saw them as a sure-fire path to riches, and a financial mania set in. Yes, we’re talking about the flowers that come from bulbs. The bubble began when beautiful and unique variants in tulip coloration were developed, and bulbs began trading at higher and higher amounts as the speculative frenzy built. At the height of the bubble, a single bulb of the most highly sought after example, the Semper Augustus seen here, commanded the same selling price as the finest house on the finest canal.

But eventually people figured out that you actually could grow quite a few tulips if you set your mind to it, and that perhaps bulbs were, after all, just bulbs.

It is recorded that the tulip craze ended even more suddenly than it began, ending almost in a single day at the start of the new selling season in February of 1637. On that day, a silent whistle blew that only dogs and buyers could hear, and prices crashed.

This example illustrates two characteristics of bubbles. First, that they are self-reinforcing on the way up, meaning that higher prices become the justification for higher prices, and second, that once the illusion is lifted, the game is suddenly and permanently over.

A second example of a bubble comes from the 1700’s and goes by the name “The South Sea Bubble.” The South Sea Company was an English company granted a monopoly to trade with South America under a treaty with Spain. The fact that the company was rather ordinary in its profits prior to the government monopoly did not deter people from speculating wildly about its potential future value, and the share price rose dramatically. Nor did the fact that the company was billed as “A company for carrying out an undertaking of great advantage, but nobody to know what it is."

Sir Isaac Newton, when asked about the continually rising stock price of the South Sea Company, said that he “…could not calculate the madness of people.” He may have invented calculus and described universal gravitation, but he ended up losing over 20,000 pounds to the bursting bubble, proving that intelligence is no guarantee of avoiding being swept up in the animal instincts of a still-expanding bubble.

In 1720, the mania took off, displaying a text-book-perfect example of an asset bubble. Here we see reflected two additional essential features of bubbles: They are roughly symmetrical in both time and price. That is, however long it took to create the bubble is roughly the amount of time it will take to unwind the bubble, and prices usually get fully retraced, if not a bit more. Here we can see those features in perfect form. Keep an eye on this shape. We’ll be seeing it again, and again, and again.

And here in a chart of the Dow Jones, beginning in 1921 we can see that the stock bubble that preceded the Great Depression followed the same rough trajectory, requiring about as much time to deflate as it did to inflate, and that prices roughly returned to the levels from which they started.

And here’s the stock price of GM in the blue line between the years 1912 and 1922, and Intel in the red line between 1992 and 2002, periods during which both stocks were swept up in bubbles. Here we might also note that the price data looks very similar for both stocks, despite the fact that they reflect a car company and a high tech chip manufacturer separated by a span of 80 years.

The fact that bubbles display the same price behaviors over the centuries tells us that they are not artifacts of particular financial systems, but rather are shaped by the human emotions of greed, fear, and hope. Those have not changed through the years, and this is why you should hold onto your wallet any time you hear the words this time it’s different.

Somewhere along the way, people started to believe this about houses. It got to the point that people began to really believe that a house was a path to riches. And, even better, it was a magical path that would transport you to easy street even if you sat on your sofa the whole time drinking beer.

Now, there’s simply no way for this to be true, and we should have known better, but bubbles usually have their way with the masses. Regardless, over the long haul house prices will be set by whatever it costs to build a new house, meaning that inflation will dictate house prices.

This amazing chart of inflation-adjusted house prices, created by Robert Shiller, reveals that between 1890 and 1998, house prices tracked the rate of inflation very closely. Any time the chart line is rising, houses are appreciating in price faster than the rate of inflation, and any time the line is falling, they are losing ground compared to inflation.

Over this entire 118-year period, house prices averaged 101.2, meaning that inflation-adjusted house prices are roughly comparable across this entire sweep of history. Real estate prices were stable compared to inflation, then fell before and during the Great Depression, stabilized again, and then rose dramatically after the war.

See this little bump right here? That was a property bubble that I still remember clearly, because it impacted the Northeast, where I lived at the time, and I got to ride my bike though abandoned construction projects. Notice that this property bubble returned to baseline in a fairly symmetrical fashion, as did the property bubble of 1989.

Well, if those were property bubbles, then what’s this? This housing bubble has no historical precedent and is massively out of proportion to anything we’ve ever experienced before. There is nothing even remotely close to it in magnitude, so we are left without any history to guide us as to what the impacts are likely to be.

And also note that this bubble did not suddenly begin in 2004; it began in 1998 and had eclipsed the past two by 2000. You might ask yourself, “If the Federal Reserve had access to this data, and knew we had a property bubble on our hands as early as 2000, why did they continue to aggressively lower interest rates to 1% and hold them there for a year between 2003 and 2004?”

That’s a darn good question, and I’ll get to that in a minute.

Based on this chart, where and when might we predict this bubble to finally bottom out? Well, symmetry suggests the bottom will be somewhere around 2015, while history suggest that prices will decline by roughly 50% in real terms.

The other way we could look at this is in terms of affordability. Again, over the long haul it is impossible for median house prices to rise faster than median incomes. Why? Because the amount that people can afford to pay sets a limit on house prices.

Here’s a chart I put together that compares median incomes to median house prices. The bubbles of 1979 and 1989 are not very dramatic on this graph, but there they are, marked by black arrows. The fact that median incomes did not deviate very far from those prior bubbly house prices helped to limit the impact of the bursting of those bubbles, painful though they were, because incomes and house prices did not have to travel very far to meet up once again.

This time? Again, we have no historical precedent for the gap between income gains and house prices, and we see disturbing signs as early as 1999 that things were getting off track. Based on income gains alone, how much would house prices have to fall to bring these lines back together? The answer is 34% - nationally - indicating that there’s a long way to go yet. Given the propensity of bubbles to overshoot to the downside, we can’t discount that a 40% to 50% decline is in store. Here we might also guesstimate that house prices would bottom somewhere in the vicinity of 2012 to 2015. Remember, a bubble exists when asset price inflation rises beyond what incomes can sustain. And that’s exactly what we see here in this chart.

So, where was the Fed during all of this? They were busy writing “research” papers convincing themselves that there was no housing bubble, as seen in this 2004 Fed study entitled, “Are Home Prices the Next Bubble?”

The main summary of the study started off on a good note, stating, “Home prices have been rising strongly since the mid-1990s, prompting concerns that a bubble exists in this asset class and that home prices are vulnerable to a collapse that could harm the US economy.”

But then main conclusion of the paper veered sharply off into a ditch, reading:

“A close analysis of the U.S. housing market in recent years, however, finds little basis for such concerns. The marked upturn in home prices is largely attributable to strong market fundamentals: Home prices have essentially moved in line with increases in family income and declines in nominal mortgage interest rates.”

“Essentially moved in line with increases in family income?” What? One of the most widely known facts of our time is that family incomes have not moved up at all over the past 8 years on an inflation-adjusted basis and is one of the principal economic failures of this decade. This just goes to show that the Federal Reserve is either stocked with inept or biased researchers, and, of the two, I am not sure which makes me feel worse about our chances of pulling through this mess.

But the Fed’s researchers were simply doing what millions of people did; namely, falling prey to believing that somehow “this time it’s different.” But that’s just how bubbles are. People take leave of their senses, use all manner of rationales to justify their positions, but then, suddenly one day the illusion lifts, and what seemed to be unassailably true no longer makes any sense at all. Once that day happens, the fate of the bubble is reduced to measuring the speed of its collapse.

Why is any of this important to us? Because we are going to be living with the after-effects for a very long time.

While it’s tempting to lay the blame for what’s happening on the housing bubble, it’s important to remember that the dramatic rise in house prices was itself just a symptom of a credit bubble r
Posted 10/27/12 , edited 10/28/12
American life resembles a sick cartoon. When you spend money you don't have to impress yourself and you don't even like yourself or anyone else... that's pretty messed up. It would be a very sad cartoon.
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