|Hear Me Roar!
Joined: Sun Sep 17, 2006 2:45 am
Location: Surrey, B.C. Famous for many things
|Here is an article which tallks about the problems that are created when the Federal Reserve pursues a policy that it knows will get people into trouble. In this case it is the low interest or sub-prime loan problem. And, at the center of the article is the problem for Bear Stearns who took on some of this debt in its hedge fund. Article cited below:
http://www.informationclearinghouse.inf ... e17942.htm
HHere are some selected quotes from the article:
The Bank for International Settlements issued a warning this week that the Federal Reserve’s monetary policies have created an enormous equity bubble which could lead to another “Great Depression”. The UK Telegraph says that, “The BIS--the ultimate bank of central bankers--pointed to a confluence a worrying signs, citing mass issuance of new-fangled credit instruments, soaring levels of household debt, extreme appetite for risk shown by investors, and entrenched imbalances in the world currency system.........
The IMF and the UN have issued similar warnings, but they've all been shrugged off by the Bush administration. Neither Bush nor the Federal Reserve is interested in “course correction”. They plan to stick with the same harebrained policies until the end.
The “easy credit” which created the subprime crisis in mortgage lending has now spread to the hedge fund industry. The troubles at Bear Stearns prove that Secretary of the Treasury Henry Paulson’s assurance that the problem is “contained” is pure baloney. The contagion is swiftly moving through the entire system taking down home owners, mortgage lenders, banks, rating agencies, and hedge funds. We are just at the beginning of a system-wide breakdown.
The problem originated at the Federal Reserve when Fed-chief Alan Greenspan lowered the Feds Fund Rate to 1% in June 2003 and kept rates perilously low for more than 2 years. Trillions of dollars flowed into the economy through low interest loans creating a massive equity bubble in real estate which drove up housing prices and triggered a speculative frenzy.
The Feds’ “easy money” policy has disrupted the “debt-to-GDP” balance which maintains the integrity of the currency. By expanding circulation debt via low interest rates; Greenspan put the country on the path to hyperinflation and, very likely, the collapse of the monetary system.
Millions of people who were hoodwinked into buying homes with “interest-only”, “no down” loans will now either lose their homes or be shackled to an asset of decreasing value for the next 30 years. They've been tricked into a life of indentured servitude.
“Thanks to the Federal Reserve’s expansionary monetary policies over the past 5 years, US asset-prices have risen considerably; also known as the “wealth effect”. At the end of last year, the market capitalization of the US stock market rose to a record-high of US$20.6 trillion, matching the value of household real-estate, which also rose to a record-high at the same time. On the surface, this may seem like brilliant news, however you must realize that this “wealth illusion” achieved by an ocean of money and record-high indebtedness is only a consequence of inflation."
We should now be able to see the straight line that connects the Fed's low interest rates to the impending stock market meltdown. The problems began at the central bank.
Presidential candidate Rep. Ron Paul (R-Texas) summed it up best when he said:
“From the Great Depression, to the stagflation of the seventies, to the burst of the dot.com bubble; every economic downturn suffered by the country over the last 80 years can be traced to Federal Reserve policy. The Fed has followed a consistent policy of flooding the economy with easy money, leading to a misallocation of resources and artificial “boom” followed by recession or depression when the Fed-created bubble bursts”.
My life is full of optimism and I am not going to stop living until I know the answers to all of the important things, like why does love exist.