IPFS Jet Lacey

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The Economic Crisis and Why It's Happening

By Jet Lacey

February 28, 2009

I’ve been doing a lot of reading on Economics lately, and frankly it bores me to tears.  I am not, nor do I ever wish to become an Economist.  The reason I’ve been reading about economics is to understand the origins of the crisis that is happening around the world right now.  Something just doesn’t seem right about the cause of the global banking collapse.  Subprime mortgages did this?  Could it be possible?  I remembered I had read somewhere in passing, before this crisis ever began, that the Federal Reserve admitted that they had caused the original Great Depression, and they “wouldn’t let it happen again.”

When this latest crisis started to unfold, I thought “Hmmm.”  Something about this stinks, and chances are, if it smells like bulls**t it probably is. Alex Jones said on his radio show the other day, “It starts with investigating one lie and a whole universe opens.”  Man, ain’t it the truth

I will explain step-by-step and in layman’s terms how the greatest robbery in the history of mankind is occurring right now. And I will show how it is you, along with everyone else in the world, who are the ones being robbed.  To comprehend what is happening and why, we must break down each facet of the situation into its lowest common denominator. To achieve that, we must start at the bottom and work up from there.

I will, to the best of my ability, help you to:

Understand what money and currency is, especially fiat currency.
Understand what debt is. 
Understand the basic theories of economics, emphasizing the Keynesian and Austrian School models.    
Understand fractional reserve banking and other methods banks and investment houses use to make money, both literally and figuratively. 
Understand Central banks, and what their purposes are. Understand gold and silver as currency and why they are important.   
Understand what derivatives are and why they are ultimately leading to the complete destruction of the World economy. 
Understand who engineered the crisis are and what their ultimate goals are.       

“Money is power,” as they say.  That is true.  But money also is the most fundamental way a country says “We’re a sovereign nation, and we’re open for business.”  In the past, it was commonplace that countries kept a reserve of gold with which to back their money, but this practice has been largely abandoned.  This brings us to fiat currency.  Fiat currency is money that does not have any inherent or intrinsic value, but is authorized by governments as legal tender, which is defined as money that must be accepted under law.  In other words, it is money that is not backed by anything of value other than the faith and good credit of the people of that nation.

Since fiat currency’s value lies within the faith and good credit of the nation issuing it, what then is debt?  Debt can mean numerous things but in its most literal sense it means something owed; an obligation.  In terms of economics, debt much more complicated.  The United States total public debt, or national debt, which is what is always referred to with regard to the economic crisis, is defined as the sum total of all existing claims against the United States.

Simply stated, how do we understand currency (the positive side of the balance sheet) and debt (the negative side), their effects on one another, their affect on the nation as a whole, and how to act when economic crises do occur?  It is through the study of economics.  According to Merriam-Webster, economics is a social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services. 

There are many schools of thought regarding economics, and trying to make sense of them in the most basic of terms is a frustrating endeavor at best.  For simplicity’s sake we will look at Keynesian and Austrian School economics with special interest paid to how each theory believes is the right way to deal with economic crisis.  These belief systems are at the very forefront of the disagreements over how to deal with the crisis.  By understanding the basics of these theories, you will begin to understand where many of the main “actors” involved with managing the crisis base their logic.

Keynesian economics is a macroeconomic theory developed by John Maynard Keynes.  It was first described in his book The General Theory of Employment, Interest and Money published in 1936.  He is largely credited with creating the terminology and direction of modern macroeconomics.  Keynes argued that total spending in an economy, known as aggregate demand, might be insufficient during an economic downturn, leading to unnecessarily high unemployment rates and further decreases in production.  In a depression, Keynesian economics dictates that the government should stimulate the economy by reducing interest rates and investing in infrastructure.  Investment by the government injects income into the economy which increases spending, which in turn creates more production and investment and so on.

The Austrian School theory was created by Carl Menger, but was popularized by Ludwig von Mises, Frederich Hayek, and Murray Rothbard. Austrians subscribe to a laissez-faire market economy.  That is to say an economy that is free from government intervention, a free market.  The Austrians believed in the study of the axioms (self-evident truths) of human existence.  They believed, first and foremost, that humans take conscious actions toward personal goals. In other words personal choice determines the direction of the economy, and that the protection of personal property and support for individualism was absolutely necessary for economic growth. 

To achieve that end, Austrians also believe in the principles of sound money.  Sound money is a currency that is properly managed to avoid excessive inflation, such as a currency that adheres to the gold standard.  Austrians argue that without excessive inflation, there wouldn’t be any wild fluctuations in the economy, thus avoiding depressions.    

Austrians strongly disagree with the Keynesian strategy of artificially reducing interest rates and manipulating the circulating money supply to create growth.  Murray Rothbard, who wrote America’s Great Depression in 1963, believed that the first Great Depression was caused by the Federal Reserve’s expansion of the money supply, leading to an unsustainable credit-driven boom.  He also felt that government intervention delayed the much needed market correction and lengthened the road to recovery. Does this sound familiar?

So, how are fluctuations in the money supply created?  To contract the money supply, a Treasury or Central bank simply makes less money available as the money cycles through the system.  However, in this economic crisis the increase in the money supply and the decrease of available credit are the major problems. 

One way to increase the money supply is to turn on the printing press.  Another more insidious way is through fractional reserve banking, a practice done universally by banking establishments.  In fractional reserve banking, a bank is required to have only a fraction of its deposits on hand with the percentage determined by the government.  In the United States, the Federal Reserve has set the required on hand amount at 10%. For instance, if a bank receives a one million dollar deposit, only $100,000 of that amount is required to be on hand. The rest is leant out at a higher interest rate than is paid to the depositor.  However, what the banks actually do is keep the $1,000,000 deposit on hand, and create $9,000,000 more to be leant out, thus increasing the money supply by nine million dollars artificially.  In essence the money is counterfeited into existence.  And when banks lend money to each other, as they often do, the process occurs over and over again. 

Through direct printing and fractional reserve banking, money in a fiat system is literally created out of thin air.

According to Article I Section 8 of the Constitution, the borrowing of money on the credit of the United States, the coining of money and regulating the value thereof is solely the responsibility of Congress.  However, on January 12, 1912, Senator Nelson Aldrich of Rhode Island submitted legislation to create the Federal Reserve System at the behest of the banking elite.  To learn more about this I highly recommend The Creature from Jekyll Island by G. Edward Griffin. The Aldrich plan (The Federal Reserve Act), which legislated away that right, was passed on December 23, 1913 and signed by President Woodrow Wilson.  On that day, the Federal Reserve became the Central Banking Establishment of the United States and our nation was changed forever.  The Federal Reserve, contrary to popular belief, is not nor has it ever been a government institution.  It is a private bank owned privately.    

Since then, our currency has no longer belonged to the American people but by private banks.  Is it a mere coincidence that the 16th Amendment, which created the Federal income tax, was enacted in the same year as the Federal Reserve?  Not by a long shot.  Most of what is paid in Federal income taxes goes toward servicing the National debt because every dollar that is printed by the Federal Reserve comes with a percentage of compounded debt attached to it. 

Central Banks state that their purpose is to alleviate fluctuations in the economy, but what really happens is that the citizens are doomed to abject slavery because of the inherent debt attached to the currency that an outside force creates and controls. Thomas Jefferson wrote in a letter to John Taylor in 1816, "And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale." The World Bank, the International Monetary Fund, and the Bank for International Settlements act in the same fashion, but on an international level.

So, after you understand these principles, it is easy to see how gold and silver is so vitally important in all of this.  It is because gold and silver are the real currencies of the world, and they have been for as long as there have been societies with individuals that traded with one other.  How banking institutions and Central banks operate is largely through smoke and mirrors; they make you believe that nothing is really something. Gold and silver are irrefutable, hard currency.  Regardless of the economic climate, by possessing precious metals you actually create your own freedom.  You create freedom by being able to trade with others apart from the restrictions of regulatory systems or governments.  In essence, with gold in your purse you automatically become your own free market.

The wisdom of trading in your paper assets for gold at this point is also a matter of simple mathematics. The Federal Reserve has doubled the money supply within the last four months or so.  Therefore, if there are twice as many dollars in circulation as there were just four months ago, dollars are probably worth half as much, right?  I want to clarify that the presses aren’t really working overtime.  What the Federal Reserve is actually doing is adding zeroes on to their computer balance sheet at will (with the debt attached to it), and they will continue to do so.  They will keep doing it until the dollar is ruined as a currency, but more on that later. 

President Franklin Delano Roosevelt, hailed as the ‘hero’ who saved us from the first Great Depression, should have been sent straight to prison, or the gallows, as a traitor to his country.  On April 5, 1933 by signing Executive Order 6102, FDR was responsible for seizing the gold directly from Americans’ hands by forcing them to sell it to the Federal Reserve, and accept mere paper in return.  The criminality of it is stupefying.  Not only did the Federal Reserve get all of the American people’s gold, they simply printed the money to buy it out of thin air with compounded debt attached to it.  This did not change until President Richard Nixon cancelled the Bretton Woods Agreements and fully divested the US dollar from the gold standard in 1971.

Derivatives.  Remember that word.  Here is where things get really messy.  Derivatives are what insurance and banking institutions, like AIG and Citigroup, have used to turn the stock exchange into something more like a casino, rather than an investment and commodities exchange.  In short, derivatives are what have bankrupted the world. In extremely simple terms, derivatives are contracts that seek to bet/insure when a company or fund will fail.  There are many kinds of derivatives but the most destructive to the world economy have been Credit Derivatives, and the most common you will hear referred to in the news are Credit Default Swaps (CDS). 

A CDS is a quasi-insurance policy that pays if the financial instrument the buyer bet against fails. However, the buyer of the CDS didn’t need to own the underlying security or even be at risk for loss should it fail. To quote James Lieber’s great article in the Village Voice “What Cooked the World’s Economy?”- Imagine that a person is terminally ill.  He or she would not be able to buy a life insurance policy with a huge death benefit.  Obviously, third parties could not purchase policies on the soon-to-be-dead person’s life.  However, with financial instruments, especially Collateralized Debt Obligations such as bundled mortgages, this is exactly what happened. 

Credit Default Swaps were meant to be insurance policies for investors, but what they actually did was destroy the world economy.  Aside from the Congressional bailouts, over 9.7 Trillion dollars has been given to the banks by the Federal Reserve without Congressional input nor will they say where the money went.  This is enough money to pay off 90% of all existing mortgages in the United States. Unfortunately, 9.7 Trillion is a drop in the bucket.  According to the Bank of International Settlements’ December 2007 quarterly review, there are 681 Trillion dollars worth of derivatives written.  That is 681,000 billion dollars.  No matter how much money we throw at Citigroup and AIG, we will never make them solvent institutions.    

Know this: The economies of the United States and the world are terminally ill and they are breathing their gasping, dying breaths.

So you ask, how did this happen?  Who allowed such a nightmare to unfold?  Although Obama and all of the news outlets are saying it is because of free market economics, you can’t blame free market economics because there has never been a free market.  The simple fact of the matter is that there are regulations already in place but the regulatory agencies, such as the SEC, have been complicit in the scam. 

What’s happening is not a conspiracy; it is an agenda.

This agenda, which is the brainchild the world banking and corporate elite, is to literally crush the world’s economies and currencies in order to usher in a single world government which will be run behind the scenes by them, with a single world currency and a single world bank that you will pay your taxes to directly.  Also, through the Credit Default Swap scheme, it is the biggest land grab in the history of mankind.  They will not only own all of the homes that have defaulted, they will own all of the other mortgages as well as billions of square feet of commercial real estate.   The commercial real estate market is far more leveraged than private family homes are. In short, they have created money out of thin air, collapsed the economy, and they are receiving real assets in return.  It is the biggest robbery in the history of mankind. 

It is well known that our government doesn’t work for “We the People;” they work for the banks, the corporations and the Military Industrial Complex. 

At their handlers’ behest, the government uses the classic Problem-Reaction-Solution paradigm, or Hegelian Dialectic

Simply, Hegelian Dialectic says:

Create a problem (destroy the economy). 
Generate opposition to the problem (fear, hysteria, paranoia)
Offer a solution to the problem (one World Bank and one world currency). 

This is what our government has been doing to us on numerous levels for years, with the War on Terror being a perfect example. 

The Globalist’s ultimate aim is to control every aspect of everyone’s life the world over.  In a cashless society, you won’t be able to pay your babysitter or go to a yard sale without paying sales tax.  You won’t be able to be a babysitter or host a yard sale without paying income tax.  They will know every single transaction everybody makes.  You will be further taxed into slavery (Carbon tax, mileage tax, sales tax, income tax, etc.) more than you already are. 

If they succeed in forming a world government you won’t have any rights either.  The protections afforded to you under the Constitution and the Bill of Rights will be a bittersweet memory.  You will no longer be able to go where you wish or do as you wish. You will be under surveillance everywhere you go.  You will no longer have any choices regarding your health care.  You will be forced into receiving inoculations.  You will eat nothing but genetically modified foods. You will no longer be able to raise your children as you see fit.  You will no longer be able to own firearms for self protection.  You will no longer be an American citizen; you will be a “world citizen.”

All of these things are happening NOW!  We must wake up and resist.  If you are passive you will be an accomplice in your own enslavement and the enslavement of everyone in your family.  They cannot possibly overtake all of us and we can accomplish it without violence because we are still protected by the Constitution of the United States. 

I pray that I have been successful in proving that the economies of the United States and the rest of the world will ultimately collapse and why.  However, I don’t want anyone to feel that all hope is lost.  There is still time but it is running short. Self-sufficiency and knowing your enemy will ultimately equal freedom. 

·        Take all of your savings (IRAs, CDs, Stocks, etc.) out of the banks before it’s too late, and don’t worry if there’s a penalty.

·        Buy gold and silver coins (not stock) to trade with.   

·        Buy a Life Saver bottle. 

·        Grow a garden with non-GMO heirloom seeds. 

·        Store non-perishable foods. 

·        Buy a gun, learn how to use it, and buy ammunition.

·        Turn off the propaganda box, the Television.

·        Tell everyone you know what you’ve learned.

·        Take an active role in the preservation of your freedom.            


3 Comments in Response to

Comment by Edwin Sumcad (15723)
Entered on:
I rather find it odd that anyone without a religion can say in a condescending way that his relationship with "his Creator" is strictly his own business and not anybody's business. It is clearly a statement of arrogance of one's own self-belief on "his Creator" with a total disregard and disrespect of the others' belief in religion!

In my opinion – formed after a long investigative excursion on religious studies in the academe – one cannot live without a religion, for religion is life itself. I cannot say and will not say that those who have no religion have no life even though this might be true. But even atheists believe on some gods – themselves. They believe that the universe starts from them -- that is at least jointly they believe there is no need of God because they are God themselves. The public had a good opportunity of reading author Sumcad's editorial on this mystic thinking in "When Reason Is God So Is The Media" [read latest editorials/opinions in the Archive button].

Religion is actually belief on the existence of the "Creator"… the wise said this a million times since the first man walked the earth. You can ask anyone from kindergarten to the brainiest wizards of the land, and they will tell you so.
If you reject the religious belief in the existence of the "Creator" on one hand, and on the other you accept that your "Creator" exists, this oddity is worse than Obama's foible when he rejects Bush's war policy in Iraq as robbing the people of billions of tax money not to speak of an unacceptable number of military casualties and yet continues Bush's war policy in Afghanistan, which requires even a more spending binge that milks Americans dry to the bone, and more graves to dig in the Arlington cemetery!

To the Godless, belief in God is purely "theoretical", this I grant arguendo. Since to the disbelieving mind, belief in the Supernatural Being is nothing real because it is merely assumptive, I am amused by this article that professes belief in the theory of Austrian economics as more real than in the principles of neoclassical economics, and yet rejects the existence of God when it is also based on same ground – only a theory. Isn't this not strangely anomalous?

Austrian obsession in orthodox economics has become a comedy of errors in many false assumptions. It is "heterodox economics" rejected by mainstream economists. Heterodoxy is not based on tested economic principles under which the Austrian School is one of them; it includes a variety of "social economics" of which Marxism and Bill Ayers' Socialism [the American Bomber] are among them. It "fails the test of falsifiability."

In the case of Ayers' economic socialism, the theory argues with the explosion of the bomb that destroys buildings and kills people.

The comedy of errors is a non-issue to pseudo-economists outside of the economic realm. For example, the "government" and "unions" are blamed for distortions in the failure of the economy in the free market system. This is not only false but also delusional. There are countless "market-based impediments" which to discuss them here will require ample space we do not have. But don't mess up reality with what's happening – that the exercise of "freedom" in the economic system is abused. There is greed in it.
Adam Smith warned about greed that distorts the market equilibrium. When economic players could no longer "govern" themselves because of greed, Smith himself recommended the intervention of the Government to restore order.

By the way FYI, Smith was the "inventor advocate" of the free enterprise system. It was not Ludwig von Mises or Murray Rothbard of the Austrian orthodoxy who originally said that the economy is not the government's business to interfere with. These guys are but Smith's copycats who stubbornly and foolishly argue that the need for the Government to regulate a chaotic market is Hitler's demon reincarnate!

Think for example how atypical orthodox economists argue their protests against the Federal Reserve. They want the country's central banking abolished for any reason at all under the sun – you name it! But the Federal Reserve is the U.S. Congress itself! Like in all civilized nations, this country's central bank is but the shadow of Congress. Only Don Quixote would stab a shadow to death. If they want to kill the Federal Reserve, they must kill Congress. But can they? It is laughable.

It is not hard to explain why knowledgeable Americans are folding over when they laugh hard it hurts. In this published "economic analysis" that bangs the gavel with authority, the Federal Reserve is looked down as some kind of a disease in our body politics. It prescribes a cure to get rid of this disease. Think of this body as your own with such kind of disease, and you receive a medical advice from someone who does not have a medical diploma!! Sounds familiar? And why do Americans laugh? That's because they know that there is still this kind of "doctor" that practices medicine in the deepest jungles of the Great Amazon River in Africa, a strange primitive world untouched by civilization!

If I am talking to economist colleagues worth their salt right now, I must say that the orthodoxy's objection to the neoclassical utility theory would lead to the total rejection of "the pervasive use of calculus in economics". I was incredulous when I learned for the first time that they foolishly ridiculed the assumption of continuity. While I was in the graduate school of economics I thought it was a joke. But it was not a shaggy dog story strictly for fun. If you are an economist, you will know that an economic mathematician [econometrist] can only differentiate a function based on the assumption of continuity …!! There is a lot more of rebellious arrogance out of the mainstream economic theories that had been proven ludicrously wrong.

Here is the problem: One who has not gone to school in economics reads all the books of economic theories he can in one day or two, comes out publicly to demonize the long established theory of neoclassical economic principles [NEP] and beatify certain economic orthodoxy -- which schooled mainstream economists who labored for a number of years to earn their Ph. Ds -- reject, is to me the greatest surprise of the day!

The success of the NEP and the failure of the Austrian advocates to prove their assumptions are not out of this world, have been examined thoroughly and tested accordingly in the academic lab and proven by historical experience for years before a pundit would dare to challenge certain economic imperatives with impunity like this article which deceptively persuades the public to believe as economics' gospel truth.

Let there be no mistake about it: The government in a free enterprise society is not without a weakness, just as there is this weakness in the free economic system without the government. The economic debacles we are experiencing right now are those weaknesses that challenge our free-for-all democratic market system supposedly ideally free of government intervention.
Austrian school Nobel Laureate awardees like Friedrich Yayek, Henry Hazlitt and Murray Rothbard, have their talents brilliantly exposed on those weaknesses as responses to the call of the time. But their school of thoughts "currently contributes relatively little to mainstream economics." [Caplan]

If such is the case, how much do you think this unschooled philosophy of one who gets educated by reading books – which is laudable and persevering, we must admit – contribute to the better understanding of the already confused public? Would average right-thinking Americans believe one who does not believe in the gospel of any religion because God is but an assumption and therefore not real but believes in orthodox economic preaching as real even though this is nothing but also just an assumption?
Knocks me out!

Here, there is no offense intended to anyone living or dead – just a cerebral exercise in the discussion of multiple issues disconnected or not, raised in the article.



Comment by Jet Lacey (17811)
Entered on:
I know Chuck, I know.

It's obvious you don't fully understand what I say oftentimes. You can't grasp that I have a wicked sense of humor and not a wicked heart. You are so quick to judge me and others, it makes me wonder how personally unhappy you must be. I feel for you brother, I really do.

I only quoted Alex Jones insofar as that he made a brilliant insight regarding the depth of the scam that is being perpetrated on all of us by the elite.

When one is "awakened," as the those who understand the situation we are in refer to the process of becoming enlightened, the world really is like the Matrix. The reality we once believed in is one based on complete lies.

For me personally, and I don't speak for anyone else but myself, I feel that religion only serves to further muddy waters that are already polluted and brackish.

My relationship with the Creator is personal. It is my own, belonging to no other, and I don't need anyone trying to tell me what is going to happen to my mortal soul. If you really believe in what Christ and the Bible says you know damn well that it isn't your place to judge me.

I'm not angry with you Chuck, you just need to understand that your judgments are unwelcome and unappreciated. Whether I go to hell or not (I don't believe in it anyway) is frankly none of your business, but may the Creator bless you anyway.



Comment by Jet Lacey (17811)
Entered on:

Thanks for the feedback.

I'm glad you don't think I'm a Satanist any more. It was making things uncomfortable between us.