Planck Foundation



What's the background of this? The current USA only wants the positive facets of capitalism, the negative facets they don't like very much. For example: Each economy moves -and improves continuously- in 7 years quite up and than 7 years some correction (as in slower growth). These cycles of 7 years give an economy both growth and firmness, just like summer and winter take care of the growth and the stabilization of that growth as can be seen in the grow rings of a tree. A short (kind of) recession after a time of boom is good. It wipes out the wrong developments, gives a solid bottom to build further on, avoids unsustainable developments build on quick sand, that will collapse. Governments must educate more. Not in propaganda, but in education. General economics is the less exposed science on schools/universities. Than people would know the endless returning 7 year cycles and understand the recurring grow/stabilization/grow/stabilization phases. And maybe growth becomes less important and stabilization more important (due limited resources of the world). The USA has find ways (dollar, tech boom, housing boom) to push these years of slower growth and stabilization into the future. Making that period when it is not longer avoidable much more tougher. So the gamblers got in to trouble by their stupid short term high risk high gains games and the get the money they need to settle their bills from the FED, otherwise other banks would fall. But this bailing out is just started and (according to Greenspan) not even close to the end. The largest economy of the world (average $ 10 trillion GDP a year) has gone 20 years ago the wrong road and is by that been fuelled/build on consumption based on credit instead of on production. Which percentage of these 20 times $ 10 trillion = $ 200 trillion was fake growth based consumption is up to anybody to say. But a figure between 10% and 20% will do the job. One big huge figure where everybody that holds the related debts must pay for in down writing sometime, somewhere, somehow. The amount of write downs will be severely higher than we have seen. The US has to drive back to where they took the wrong road and start there again. This in a quite more difficult environment. The US Administration (as spending more than they earn -sound familiar in this context-) is concerned about their 'brand' in loaning. The world must stay increasing their dollar reserves by buying US Treasuries and US GSE Bonds, but there is a limit on all of this. The Credit Crisis is the last global event where the US was leading. The US is moving more and more out of the center of the world market. There are new more beautiful girls in town. So the gambling banks (those who did the short term high risk deals) needed money. They've got it. They will need money again tomorrow and they will got it than again. There is $ 50 billion cash left in the US bank emergency fund, this will stay there. The FED will borrow any bank any amount, bank failures is something the US can't use right now. So the banks don't trust each other and this makes debt by each other a little different till impossible. The FED has fixed this minor problem. And the problem was also more the fact that many banks just had to much debt and just hadn't the liquidity they suppose to have by their books, this is why the short term this measure flagged loans, are quietly changed in long term loans. The what is the real problem? 1) The books of the banks are cooked (they were this already before the Credit Crisis and since than cooking the books explode: balance sheet holds value levels that no longer are out their in the real world). 2) The underlying values of the bank real estate assets (actual mortgages, MBSs and CDOs) will shrink to 50% of the current balance sheet values. 3) They have issued to much credit and therefore the credit is 'out of stock' (it is not longer possible to create money based on current actual pledge values). Money supply by issuing loans is a beautiful system and stand for a long period if a) the growth periods will cycle with stabilization focused periods (stabilization is no party, but certainly necessary) and b) economic factors stays the same. Credit Oversupply and Peak Everything both has ruined this party. Other nations also want some prosperity and as energy and minerals are finite resources this drives prices of energy, minerals and food much more higher. Causing non money supply caused stagflation and burdens the stabilization process severely. But the system of money creation by loan creation can't go on for ever. This as only the money for the loan is created and not the money for the interest payments. These must come from the money supply of tomorrow. Money supply by loan creation can only stay alive in an endless growing economy, but endless growth is not possible on world with finite resources. This is the reason why most of the retired national/global topbankers (who understand these issues better than everybody else) are not positive on the current situation. It had could gone further some decades, but it has managed not wisely and is maybe now at its end. A facet that makes the situation more worse is that banks holds also shares in each other. A success multiplier in times of tailwind, but a severe troubles multiplier in times of headwind. Governments that just follow the economic waves, just enforce both the tops and the sags of an economy. If a government wants to spend some money, and they do it in good times, they fuel a boom even more when the boom doesn't need it, when they retract this spending in sag times, they enforce the depth of the sag. Good governments take back action/drive in their own spending when an economy drives good and increase if an economy slows down. Than they really make capitalistic less painful in the right way. Friedman in times of gloom/boom, Keynes in times of doom. Than the tops are lower, the corrections are less severe and the sag depths also. Russia has become capitalistic in their genes (just doing good mutual business deals based actual production) and the USA has become socialistic in their genes (living on credit, more consuming than producing and in addressing the Credit Crisis in privatizing profits and socializing debts). On top of these very a good market driven sharp economy weakening socializing debts issue, there are Stasi/KGB like structures (DHS) initiated and already operational. So much for a free open dynamic market driven efficient innovative society. Does anybody read history anymore (WW II, low efficient communism and state driven public opinions with it 'thought police' institutions)? Innovation needs freedom and markets. If there is any thing this momentum needs than is that innovations and markets. Not state driven, but people/companies driven. No innovation, no future, so simple can the Energy Crisis be defined. Russia is more capitalistic than the USA. And where the state controls in Russia it is in the long term benefit of the nation. The USA has experimented with painless capitalism and the results are severely bad. Painless capitalism cause later-on a huge economic earthquake. Move economic pain into the future is not only collecting economic pain of sometimes, but also multiplying it. Only weak, short sighted, economic systems don't understanding leaders doesn't follow the summer/winter seasons of the economy. Every tree has each year thick/soft grow rings and thin/strong stabilization rings. Recession wipes out the wrong directions. Moving recession into the future is giving wrong directions/developments more grow time/energy and therefore the correction will not only collect all the collected needed correction in to the future, it also gives more to correct by longer existing wrong corrections.

Author: Gijs Graafland

Back to Credit Index

Download the full Global Future Analysis report in PDF

Planck Foundation