Why Our Economy Collapsed
We are in the midst of a recession. We have the news media slathering us every minute of the day with news of disaster striking on every front. Real estate markets are collapsing, the stock market is at it’s lowest in a decade, and the average American is scared. But why?
Debt
Our capitalist society has a strong basis in debt. The fractional reserve banking system that the first world economic system relies on so heavily is inherently flawed. The economic powerhouses of Europe and North America are based on nothing but debt. Without the promise of work to be done in the future, America collapses. Europe collapses. The whole first world collapses. But why?
Fractional reserve banking is based on a bank being allowed to lend out substantially more money than they hold in deposits. This is allowed due to the theory that a very small portion of the population will require their funds at the same time. Technically, there is no reason for this to not work. But what if we get greedy?
What if over the years we require less and less to be on hand to cover deposits? What if loans are provided on exponentially small amounts of deposits? What if, for the pursuit of profit, we lend out money to people who simply can’t afford the loans too often? This entire system is based entirely on the promise to repay. If this promise is not kept then the system collapses. But if the promise is made by someone who is clearly unable to pay the amount promised, then there is simply no way for the system to be sustained. And this is something that anyone who understands fractional reserve banking already knows.
All the major news outlets want you to believe that it’s your fault. So maybe it is, if you’re one of these people who asked for more money than you could afford to re-pay. But if the crisis is on such a grand scale, then what could you have possibly done to prevent it? Nothing. The people at fault are the big lenders, the banks, the investment firms, the mortgage providers. All the people at the top got so greedy that they lent out so much money to so many people who had no hope of repaying their loans that eventually we had a collapse.
And now who does this recession effect the most? The working class Joe; Tom, Dick and Harry can no longer retire. The life savings you’ve produced to one day be able to spend a day on the beach just because you feel like it is half depleted, if not moreso. But remember, it’s your fault that Tom and Dick both borrowed more money than they could have possible repaid.
Perhaps it’s wrong to say that it effects the middle class the most…
Because you could also look at it by saying the current recession allows all the biggest, most valuable companies to be bought on the stock market at a deep discount. That the richest people can now afford to buy out huge shares of major corporations for much less than any time in recent history.
But what’s bigger news?
Good thing for the Great Bailout.
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User Comments
Uliith
On January 24, 2009 at 12:40 pm
The bailout will probably cause the next economic collapse. The massive sums of money our government is handing out could lead to hyperinflation.
Tom
On January 24, 2009 at 1:11 pm
Out of control spending, big goverment sponsored by the Republicans. Lack of leadership for the past eight years and a political party that promoted GREED and PREJUDICE. McCain’s platform on his campaign should have been MONEY FIRST and not the lie “Country First” ASK NOT WHAT YOU CAN DO FOR YOUR COUNTRY– ASK WHAT YOUR COUNTRY CAN DO FOR YOU!!!!
nutuba
On January 24, 2009 at 4:39 pm
Interesting, informative, and insightful. I think there are some good observations here. Well done.
Mike
On January 24, 2009 at 4:43 pm
Any loan I ever had with a bank I had to have collateral to get the loan. I have talked to alot of people from all classes, they all said it was the same for them. The banks didn’t just easily hand out money. So if so many people did default on loans should they not have a massive amount of assets even tho at a lower value due to recession? Why can’t they cover some loss with the assets? The collapse during the 29 depression came from panic and people all trying to get their money out of the bank when wall street fell right? I don’t know of anyone who cleaned out their accounts and buried their money in the yard. I don’t know hardly anyone who was foreclosed on or had property repossessed. It all seems fishy to me. Our country is ran by the wealthy, for the wealthy. I haven’t heard of any poor boys in office anyway..lol Tom I do agree Country first!!! I just don’t want to make the rich insanely rich at everyone else s expense.
Guffin Mopes
On January 24, 2009 at 5:13 pm
Hey Mike, you should check out the link to wiki in there (marked “fractional reserve banking”.
It explains why the collateral isn’t really enough to keep the system’s head above water. If the money isn’t there, no amount of collateral can prevent at least a short term hiccup in the system.
And nutuba: thanks, you rule.
denus
On January 24, 2009 at 5:32 pm
very good informative article, well done.
cheers,
denus
Danielle
On January 24, 2009 at 10:32 pm
I agree with Lillith. This is pretty much how we got into this position in the 1st place. Producing more money, that has less value. Its a shame is what!
Tom
On January 24, 2009 at 10:38 pm
Mike you are right. There are assets sitting there and nothing being done with them. My wife is a realtor and she told me to put a bid on a bank owned home is a joke. The banks don’t reply for months by that time the buyers pull out. the worst is country wide– WHY SELL THESE ASSETS WITH BAILOUT MONEY THERE? Oh if you check on the percentage differance between offers and mortgage owed it is only 5% to 25% less. Why are these lenders willing to sit on all this real estate when the can pull out 70% to 90% from most of it? The cost every month in losses are far greater then unloading now.
preperowlifick
On January 24, 2009 at 11:35 pm
I understand the need for the great bailout but with it should go great accountability. Good writing and thought provoking. Thinking about any facet of banking is almost painful though.
smoothe1
On January 27, 2009 at 11:33 am
Great article. I feel sorry for the new President. He walked into a sandstorm where it’s just to difficult to see if the decisions he makes now will have lasting positive affects in the future.
Bo Jack Russo
On January 27, 2009 at 8:18 pm
People,I don’t believe the bailout even exists.That money is electronicly generated fantasy money
workaholic
On January 29, 2009 at 12:44 am
good article. I completely agree with you. I belive that this is just the beginning and there’s more pain left.
Dave
On January 29, 2009 at 9:54 pm
well..seems to be so..i’m glad Obama’s comments on the shameful 18 billion bonus given out for Wall Streets…
But who is actually gaining all of the cash pouring in now? I really wonder…who can explain….
BetterWay
On March 2, 2009 at 9:02 pm
Lets all get out of this boom and bust cycle, lets use our brains and try a new system: See here:
http://www.thezeitgeistmovement.com
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