On August 6th, 2007, the “American Home Mortgage Company” filed for
bankruptcy. It was the sign that the global system could not absorb any more debt.
Record amounts of debt around the world had fueled the incredible growth seen in the US,
Dubai, Singapore, Malaysia, China, and many other countries that had experienced massive
booms in real estate and development.
The debt bubble burst that day and because all of this debt had been collateralized and resold
time and time again through derivatives, it was an event that was felt around the world.
Now the popping of any credit bubble is a deflationary event, and in the case of the great
depression, it was extremely deflationary.
When a home goes into foreclosure, a loan gets defaulted on, or someone files bankruptcy, that
currency simply disappears back into currency heaven where it came from. So as credit goes bad, the currencies supply contracts and deflation sets in.
This is what happened in 1930-1933. As a wave of foreclosures and
bankruptcies swept the nation, one-third of the currency supply of the
United States evaporated into thin air.
Over the next 3 years, wages and prices fell by one third. Companies could
not afford to pay their employees and those people could not afford to pay
their bills.
This process began once again in 2008 with the popping of the housing credit bubble.
Over the past 24 months, deflation has sucked an estimated 60 TRILLION worth of credit out of the global economy.
That’s 60 Trillion dollars worth of fuel, which was flaming the fires of growth around the world; and it virtually disappeared over night. The result is massive deflation. Money and credit have become harder and harder to find as the money supply continues to contract. There’s less money to be spent, so prices and volume of sales continue to fall.
Falling prices and sales volume leads to more layoffs and reduced salaries, which means less money is spent, creating a downward spiral. Today, real unemployment in the United States is actually twice the official number stated by the government- which does not include people in that statistic who haven’t looked for a job in more than 30 days, or those who have part-time jobs.So if you include those two groups, real unemployment sits right around 23% today,
while the unemployment rate during the great depression was 24%.
As deflation continues, the value of people’s homes continues to decline, destroying the
number one source of available equity and credit that most people had amassed.
Tax revenues for the government decline, which means an increase in taxes for the rich. Now
this is what the majority of the people in our country are aware of, because they’ve heard
about it in the news, they’ve seen the price of their home decline, or they’ve been fired.
But let’s get into the real problems that aren’t discussed nearly as often…
