CLASSIC PATTERN OF CRISIS DEVELOPMENT
The fact of mass non-repayment of credits by households because of their lower income triggered the current crisis. Individuals’ incomes shrink naturally, when the debt burden increases. The bulk of individuals have only one source of income, their wage. The more credits citizens have, the more income they have to give away to banks and the less money they have at their disposal to buy goods.
Although the credit system is meant to spur consumer activity, in reality, the activity with a corresponding growth of production is only spurred in the short-term. In the long-term, a spate in the consumption level (artificially created by financial institutions with the help of credit money) is inevitably followed by a long decline in demand, which always leads to forced cuts in production volumes and a corresponding fall in employment.
Having lost the only source of income (their wage), people stop repaying credits and cut their running expenditures drastically. Commercial banks which work with individuals are forced to pursue a tougher and more selective policy in this situation, only exacerbating lower demand, pushing production even lower down, etc. This is a classic pattern of crisis development caused by the current financial system.
The producing sector of the economy, engaged in the production of goods, is forced to turn to credit institutions to prop up their businesses because it can take money nowhere else. As a result, in the case of bankruptcy (which is very possible in a crisis), bankers appropriate production facilities and private property of the representatives of the producing sector of the economy.
The government is forced to increase expenditure for the producing sector of the economy by widening budget deficit or getting even more in debt with the Federal Reserve or central banks to avoid social unrest. The burden of the additional spending is distributed among all holders of the national currency (population) as an inflationary tax.
The dollar is ‘the anchor currency’ for many countries of the world, including Russia. This is why the crisis processes, which started in America, are spread to the international economy. Games with credit rates cannot save the situation but only push it into the deadlock further with no matter at what price credit money would be offered. Only a change in the operation of the very financial mechanism, or the system of money distribution must be changed to overcome the crisis and put the situation right.
Some economists suggest the Federal Reserve should be transferred into the government’s ownership. But how does it matter who issues money if gross national product does not belong either to the state or the Federal Reserve. GDP can belong to the government only if it rejects market economy principles and privatization (appropriation) by the state of the whole volume of existing material values. But such an economic system has already failed. The inefficiency of command and administrative economy and totalitarian and party-based policy ruined the socialist world. (ref. von Hayek “Road to Serfdom”).
As for the Federal Reserve (or central banks), they finance state budget expenses, which exceed tax revenues (the government-debtor is always backed by an unlimited right of money printing by the Federal Reserve or the central bank), on the one hand. On the other hand, they are a tool of preserving and supporting of the whole cartel of commercial banks, which are, in fact, insolvent (bankrupt) now. Their sheltered existence is only possible thanks to an unlimited subsidy of the Federal Reserve with the help of the same printing press. The ensuing inflationary tax is to be paid by the population in both cases.
All modern banking system is, in fact, involved in privatization of households’ profits (with the help of credits) and nationalization of bank losses (via the inflationary burden on the society). In the nineteenth century, in the times of ‘the gold standard’ there was also the ‘economic cycles’ phenomenon (the periods of sharp declines of economic activity). But then periods of production and wage cuts were painful but ended quickly. Now ‘economic cycles’ overlap with an unlimited emission possibility of the central banks and the Federal Reserve, which bred a new phenomenon of ‘a smoothed decline’, which turns into a prolonged stagnation and inflation.
Although the credit system is meant to spur consumer activity, in reality, the activity with a corresponding growth of production is only spurred in the short-term. In the long-term, a spate in the consumption level (artificially created by financial institutions with the help of credit money) is inevitably followed by a long decline in demand, which always leads to forced cuts in production volumes and a corresponding fall in employment.
Having lost the only source of income (their wage), people stop repaying credits and cut their running expenditures drastically. Commercial banks which work with individuals are forced to pursue a tougher and more selective policy in this situation, only exacerbating lower demand, pushing production even lower down, etc. This is a classic pattern of crisis development caused by the current financial system.
The producing sector of the economy, engaged in the production of goods, is forced to turn to credit institutions to prop up their businesses because it can take money nowhere else. As a result, in the case of bankruptcy (which is very possible in a crisis), bankers appropriate production facilities and private property of the representatives of the producing sector of the economy.
The government is forced to increase expenditure for the producing sector of the economy by widening budget deficit or getting even more in debt with the Federal Reserve or central banks to avoid social unrest. The burden of the additional spending is distributed among all holders of the national currency (population) as an inflationary tax.
The dollar is ‘the anchor currency’ for many countries of the world, including Russia. This is why the crisis processes, which started in America, are spread to the international economy. Games with credit rates cannot save the situation but only push it into the deadlock further with no matter at what price credit money would be offered. Only a change in the operation of the very financial mechanism, or the system of money distribution must be changed to overcome the crisis and put the situation right.
Some economists suggest the Federal Reserve should be transferred into the government’s ownership. But how does it matter who issues money if gross national product does not belong either to the state or the Federal Reserve. GDP can belong to the government only if it rejects market economy principles and privatization (appropriation) by the state of the whole volume of existing material values. But such an economic system has already failed. The inefficiency of command and administrative economy and totalitarian and party-based policy ruined the socialist world. (ref. von Hayek “Road to Serfdom”).
As for the Federal Reserve (or central banks), they finance state budget expenses, which exceed tax revenues (the government-debtor is always backed by an unlimited right of money printing by the Federal Reserve or the central bank), on the one hand. On the other hand, they are a tool of preserving and supporting of the whole cartel of commercial banks, which are, in fact, insolvent (bankrupt) now. Their sheltered existence is only possible thanks to an unlimited subsidy of the Federal Reserve with the help of the same printing press. The ensuing inflationary tax is to be paid by the population in both cases.
All modern banking system is, in fact, involved in privatization of households’ profits (with the help of credits) and nationalization of bank losses (via the inflationary burden on the society). In the nineteenth century, in the times of ‘the gold standard’ there was also the ‘economic cycles’ phenomenon (the periods of sharp declines of economic activity). But then periods of production and wage cuts were painful but ended quickly. Now ‘economic cycles’ overlap with an unlimited emission possibility of the central banks and the Federal Reserve, which bred a new phenomenon of ‘a smoothed decline’, which turns into a prolonged stagnation and inflation.