Don't Understand Why We Are In A Global Depression? Read This Thread.

We are in a Depression. We know it, can see it, can feel it in our bones. No amount of media boasting is going to change the facts that are coming out everyday, that something is majorly wrong with the Global Economy.

You know something is wrong, you know that the Stock Markets around the world have fallen 50% or more in the last year. You have watched the prices of your groceries get higher and seen gas go from 1.35$ USD to nearly 5.00$ in some places over the last decade but the fact of the matter is you do not know why and how we got where we are today.

This thread will try and help you understand that in the easiest way possible.

Right off the bat you need to understand our monetary system and why it is flawed.
What is money?
Wikipedia

Money is anything that is generally accepted as payment for goods and services and repayment of debts. The main uses of money are as a medium of exchange, a unit of account, and a store of value. Some authors explicitly require money to be a standard of deferred payment. The dominant form of money is currency

What is a currency?
Wikipedia

A currency is a unit of exchange, facilitating the transfer of goods and/or services. It is coins and paper bills used as money. It is one form of money, where money is anything that serves as a medium of exchange, a store of value, and a standard of value. Currencies are the dominant medium of exchange. Coins and paper money are both forms of currency.

What is Revenue?
Wikipedia

In general usage, revenue is income received by an organization in the form of cash or cash equivalents. Sales revenue or revenues is income received from selling goods or services over a period of time. Tax revenue is income that a government receives from taxpayers.

In more formal usage, revenue is a calculation or estimation of periodic income based on a particular standard accounting practice or the rules established by a government or government agency. Two common accounting methods, cash basis accounting and accrual basis accounting, do not use the same process for measuring revenue. Corporations that offer shares for sale to the public are usually required by law to report revenue based on generally accepted accounting principles or International Financial Reporting Standards.

What is a monetary system?
Wikipedia

A monetary system secures the proper functioning of money by regulating economic agents, transaction types, and money supply.

What is the Fractional Reserve System?
Wikipedia

Fractional-reserve banking is the banking practice in which banks keep only a fraction of their deposits in reserve (as cash and other highly liquid assets) and lend out the remainder, while maintaining the simultaneous obligation to redeem all these deposits immediately upon demand.[1][2] Fractional reserve banking necessarily occurs when banks lend out any fraction of the funds received from demand deposits. This practice is universal in modern banking.

By its very nature, the practice of fractional reserve banking expands the money supply (cash + demand deposits) beyond what it would otherwise be. Because of the prevalence of fractional reserve banking, the broad money supply of most countries will be a multiple larger than the amount of base money created by the central bank. That multiple is determined by the level of reserve requirements imposed by financial regulations. Central banks impose reserve requirements that require banks to keep a minimum fraction of their demand deposits as cash reserves. This both limits the amount of money creation that occurs in the commercial banking system, and ensures that banks have enough ready cash to meet normal demand for withdrawals. Problems can arise, however, when a large number of depositors seek withdrawal of their deposits, which can cause a bank run or, in extreme cases, a systemic crisis.

Now that you know the general meaning of these words please watch the following movie by Paul Grignon. Money as Debt






Another well known explanation of the system is in the movie Zeitgeist.

Now these two movies have given you insight as to why our Monetary System is flawed. Now comes the how, both the why and how are closely related to each other, so close in fact you could say that it is almost incestuous.

As before you must understand a few key terms before you watch the following movie.

What is a mortgage?
Wikipedia

A mortgage is the transfer of an interest in property (or the equivalent in law - a charge) to a lender as a security for a debt - usually a loan of money. While a mortgage in itself is not a debt, it is the lender's security for a debt. It is a transfer of an interest in land (or the equivalent) from the owner to the mortgage lender, on the condition that this interest will be returned to the owner when the terms of the mortgage have been satisfied or performed. In other words, the mortgage is a security for the loan that the lender makes to the borrower.

The term comes from the Old French "dead pledge," apparently meaning that the pledge ends (dies) either when the obligation is fulfilled or the property is taken through foreclosure.

What is a Credit Default Option (CDO)?
Wikipedia

In finance, a default option, credit default swaption or credit default option is an option to buy protection (payer option) or sell protection (receiver option) as a credit default swap on a specific reference credit with a specific maturity. The option is usually European, exercisable only at one date in the future at a specific strike price defined as a coupon on the credit default swap.

What is a Credit Default Swap (CDS)?
Wikipedia, I suggest you read the rest of this to understand completely.

A credit default swap (CDS) is a credit derivative contract between two counterparties. The buyer makes periodic payments to the seller, and in return receives a payoff if an underlying financial instrument defaults.

CDS contracts have been compared with insurance, because the buyer pays a premium and, in return, receives a sum of money if one of the specified events occur. However, there are a number of differences between CDS and insurance.

Now that you understand these terms better please watch the following FRONTLINE: Inside The Meltdown

I hope that you have found that this has broadened your understanding of the Global Depression and how we have reached such a disaster.

Please feel free to add clips and movies in your comments that will further explain this to anyone who might come across this thread.

Star & flag 4 U!

Coolness...

If people take the time to go through all of this information, they'll have to see why we're in the mess we're in now

Thanks for taking the time to educate the masses!

reply to post by Hx3_1963


Thank you Hx3!
I do really hope people will take the time out of their day to read and watch all the movies. The information is needed to be known by everyone, not just to understand the Depression but the way money works around them everyday.

The problem is easy to see. Global labor competition combined with higher productivity means more people chasing after lower demand for workers, which depresses wages, resulting in lowered demand for goods and services. Without demand, supply can not move. It takes demand as well as supply.

The solution is to lower working hours so more people can participate in the economy while raising wages, to increase demand. Higher demand for available supply is needed to keep markets systems functioning.

I wish there was a reference I could add to support my observations of an economic war fought from China against the US through Chinese manipulation of our Fractional Reserve system, but alas there is none.

It is however perfectly explainable.

The Chinese know how the US money supply expands, and the reason it is so dangerous to keep the spending spigot going while there is a down turn in the US economy. The fact of the matter is this, from 1991 to 2001 the United States Treasury sold $5 trillion dollars in bonds to foreign governments. After Japan in 1991 saved us from what would have been a depression by buying up bonds and opening up factories, the Federal Reserve began, in my opinion, working on a way to get the rest of the world to finance huge American government spending and personal consumerism while selling the world paper representing a payment that never took place. China isn't stupid. Let me illustrate:

When the American's opened up the Bond market to China it turned out to be a slow going process. Markets, after all, had to be created in China, as none really existed in the first place. Over time, and as the markets of China diversified and grew, the People's Republic decided to continue to buy American debt, but with the accrued savings they had already gathered from the previous purchases of American bonds. Of course they spent a little money here and there, but if they had spent it all trying to help the Chinese people the Communist way, they would never have achieved the Economic status they enjoy today, but I digress.

The Chinese are savers. They also know that to maintain a solid country you must have a solid currency. The Chinese Yuan or Renminbi, is a silver backed currency printed in enough volume to maintain a lower value than the US dollar. This, in the end, gives them the buying power they need to buy our gold, our silver, and massive amounts of oil to feed their ever expanding military and the needs of 1.3 billion Chinese. It also gives them an edge in the argument to become the world Reserve Currency that replaces the dollar.

They recently signed a huge currency swap deal with Argentina, Argentina knowing full well that when China stops manipulating it's currency, holding Chinese Yuan will be a boon. China, Argentina sign 70b yuan currency swap deal

It is important to note that these swap deals take place every day, but have only been made public due to recent announcements by China favoring a replacement currency, or a world currency to the current US dollar Reserve standard.

Sometimes China will use companies(proxies) in other nations to move huge amounts of money in any preferred currency, and buy up hard assets with them later. The following thread is a perfect example of this.

RED ALERT: FX Dislocation In Process

These things happen for a reason. And it is amazing as much as KD catches patterns that he never catches this one. It is VERY important to understand that the charade kept up in Washington as to our real ties with China will soon see their consequences. We've been playing chess this entire time thinking the Chinese were somehow the primitive, developing nation, and that somehow we were ahead of the game.

Neglecting the patience of the Chinese and underestimating their intelligence is what lead to this. It is important to understand this relationship in order to understand the currect state of economic affairs int he US. The Chinese have been WAITING for a chance like this, and they finally have it.

Sure they're taking a hit, but they're not going to take it like we will, they'll get out of it just fine because in the end, the final intervention will come when they finally call the dollars bluff.

Economic war is new, so I don't expect anyone to understand what I am talking about, nor do I expect anyone to take my word for it. But the Chinese have been working since Nixon to debase the American empire and replace the hole left over with a very powerful and rich People New World Order. Or do you think the Western NWO is the only one? The whole world is NOT in on it. But no one can afford to tell us what's going on either, so we have to figure it out for ourselves.

If the NWO was truly in control out of line regions would have been keenly targeted. By shutting down power plants, or other utilities, they could drive inflation up in one country over night. No, this isn't something like that. What we're seeing here is a battle of wits between the Financial elites of two super powers. The West and the East. It is safe to say that this Childish battle has not ended. And that it won't end until the US is broke and must become second at the table.

Now, all this said, I implore you not to take my word for it. I want you to look at the pattern, the speech, use your psychological skills if you have any at all, and you will see what I see. Their actions speak louder than anything else, and yet in this new kind of war they are the least noticed disturbaces on the battlefield.

Hello Tentickles. I don't comment very often but i have read here for a number of years, more than a few. I read a lot, i am retired, i have time. I have seen some of the material you have put up. It is very good. Here are a couple of good articles from some time ago, that i recall. Many people knew what it is happening now, was coming some years ago. The Corporate property bust will be the big one. Yet to happen. A time bomb ticking. Good luck.
www.whale.to...
www.financialsense.com...

reply to post by Tentickles


Excellent post, and educational information!

If only we taught this truth in our school system...then at least we would have truely eductated our youth! Then we may have had a fighting chance...

Sincerely, you are bighter and smarter than many middle aged adults who have worked in the financial sector for decades! Sad, but true!

Starred & Flagged!

Poet1b: A Depression is literally a downturn in output.
Wikipedia

Considered a rare and extreme form of recession, a depression is characterized by abnormal increases in unemployment, restriction of credit, shrinking output and investment, numerous bankruptcies, reduced amounts of trade and commerce, as well as highly volatile relative currency value fluctuations, mostly devaluations. Price deflation or hyperinflation are also common elements of a depression.

projectvxn: As you know from my other posts I know you've seen that I also believe that China is effecting the USD and will shortly stop buying out our Treasury Bonds. Your post is insightful and better than I could have said! Great addition.

Mummu: Thank you for the compliment! The property bubble is a huge risk to our economic safety and the sharp objects just keep getting thrown in it's direction. I am surprised it has not busted it farther than it already has.

burntheships: Thank you very much for stroking my ego. Our children coming out of High School and College are severely lacking in many skills and money management is one of them. I can honestly say I have learned more by teaching myself then I ever did in all the years I went to school. Sadly though other people's agendas will never allow us to improve our broken educational system. Please see: Poor Marks For U.S. Education System

An excellent post! Shall watch later!

S+F!

reply to post by Tentickles


Sorry, but a depression is s downturn in demand, in which people stop buying products because no one has any money, which results in a sustained drop in prices, called deflation. After demand drops, then supply drops, because no one can make money producing products that no one can afford to buy.

China has one choice, start raising wages in order to raise domestic demand. The reason the U.S. is in debt to China is because China doesn't pay its own people enough to buy the products that they produce. Once China starts paying its own people decent money, then they loose their competitive edge. Oh, and by the way, China has turned its nation into a toxic wasteland by failing to control pollution. China's economy is more of a house of card than the U.S. economy.

Whatever game the Chinese and Western elites thought they were playing, both failed to recognize that there could be no winner.

Originally posted by poet1b
reply to post by Tentickles

 

Sorry, but a depression is s downturn in demand, in which people stop buying products because no one has any money, which results in a sustained drop in prices, called deflation. After demand drops, then supply drops, because no one can make money producing products that no one can afford to buy.

Whatever game the Chinese and Western elites thought they were playing, both failed to recognize that there could be no winner.

Well I have to disagree with you on your first comment, I did give the definition of a economic depression but it is more complicated since it is global and there are many different factors. So while the definition covers it in general, I am actually unable to give you a response that would completely cover how massive this is.

This isnt a game and no one ever wins at life.

reply to post by Tentickles


I have known that we are basically either in a depression now, or will be soon.

Went through all that you posted and now I am in a depression


Excellent work on this post..I just wish those that are denying that the world is in BIG trouble would go through it as well.

Oh well, the way I figure it those that refuse to see what is happening are in for a very rude awakening. They can't say "why didn't someone say anything" anymore.. The facts are right in front of them everywhere.

Do you think that once this is over those in charge will have learned anything?

NOT.....

reply to post by tribewilder


In the words of the great Calvin and Hobbes:

Calvin: It's true Hobbes ignorance IS bliss.
Once you know things, you start to see problems everywhere and once you see problems, you feel like you ought to try to fix them and fixing problems always seems to require personal change and change means doing things that arent fun! I say phooey to that!But if youre willfully stupid, you dont know any better, so you can keep doing whatever you like!The secret to happiness is short-term, stupid self interest!
Hobbes: We're heading for that cliff!
Calvin: I don't want to know about it.
CRASH
Hobbes: Im not sure I can stand so much bliss.
Calvin: Careful! We don't want to learn anything from this.

Here is an article in which the Economist talks about the definition of a depression. They avoid pointing out the basic problem, but this paragraph basically puts it into perspective.

www.economist.com...

In the Great Depression average prices in America fell by one-quarter, and nominal GDP ended up shrinking by almost half. America’s worst recessions before the second world war were all associated with financial panics and falling prices: in both 1893-94 and 1907-08 real GDP declined by almost 10%; in 1919-21, it fell by 13%.

Why do prices fall? There is one reason, supply exceeds demand, it is the basic tenet of economics. When demand exceeds supply, prices go up, and when supply exceeds demand, prices go down.

This economic downturn is world wide, as was the Great Depression. It effects everything and every aspect of the Markets.

reply to post by poet1b


K, now I see why this wasn't going through my head. You seem to have forgotten that the US Government infused a HUGE amount of money into the system to try and balance things out. Which has never worked.

Putting more money into the economy to try and fix an economy only leads to inflation rather than deflation. If this were a normal depression and it were just to be allowed to play out we would see deflation but with these bailouts and economic stimulus packages the out come is more likely to be inflation.


Wikipedia - Price Inflation
Wikipedia - Monetary Inflation

Google Video Link

The video gives a good summary of how the economy works.

The U.S. government infused the economy with large amounts of money to prop up debt, not to increase demand, but to keep lending institutions from going broke, because people can not afford to pay off their loans. Until government money starts going to the people in some form of job creation, like WW II, then our economy will continue to sink.

By the way, Wikipedia is not a reliable source.

One of the best OP's I've seen in my short time here!
So many really bright and caring people...thanks to you and all those who invest the time and effort in trying to help sort it out for no other reason than because you obviously can and care enough to do so!
KUDDOS!

[edit on 8-4-2009 by irishchic]

reply to post by poet1b


Wikipedia can be sketchy sometimes but these definitions I have found to be very accurate.

Here is the law of supply and demand.

www.netmba.com...

The law of supply and demand predicts that the price level will move toward the point that equalizes quantities supplied and demanded. To understand why this must be the equilibrium point, consider the situation in which the price is higher than the price at which the curves cross. In such a case, the quantity supplied would be greater than the quantity demanded and there would be a surplus of the good on the market. Specifically, from the graph we see that if the unit price is $3 (assuming relative pricing in dollars), the quantities supplied and demanded would be:

Quantity Supplied = 42 units

Quantity Demanded = 26 units

Therefore there would be a surplus of 42 - 26 = 16 units. The sellers then would lower their price in order to sell the surplus.

The more people who have no income, and therefore no money to buy products, the demand for goods and services declines. Prices then decline until a profit can not be made, and then businesses start to fail.

This is what creates deflation and depression.