Finding Clarity Within a Confused Planet — Part 1

As a planet suffers the perils of a devastated economy, students, politicians, and economists search for answers.  Over 40 million Americans need food stamps to survive and the official unemployment rate exceeds 9.1%.  When including workers who have fallen off the roles, the rate climbs higher than 15%, and solutions seem weak or unbelievable.  Or not affordable.  U.S. taxpayers are getting tired of being the source of bail-out funding.

An assortment of victims are now Occupying Wall Street, and opening new demonstrations all across the country.  Some economists predict it will even get worse.  As Gerald Celente, of Trends Research Institute states, in nearly every interview, “When one loses everything and has nothing left to lose, he loses it.” – http://www.trendsresearch.com/index.php

Helpful as that is as a trend, it only describes what happens as the system comes apart.  Of greater interest, is understanding why it is coming apart, how it started, and what will finally fix it.  As usual, media outlets seek experts from all walks of the spectrum to offer suggestions, and sorting thru the opinions is beyond the average citizen’s pay grade.  We need real answers, and real solutions that are crystal clear and immediately useful.

Well, we can start by showing that an economists by the name of Dr. David X. Li, coupled with basic human nature, started the crash, but he had a lot of help.  Almost anyone with basic production experience, in the mid 80′s, and with the ability to look ahead, had to realize that something unusual was happening to this nation.  The PC’s and the Apples that came into the market during the 80′s provided an opportunity for virtually any one, at nearly any task, to become more productive, not just a little more productive but a lot more productive.  It was similar to what machinery did for the farmers at the turn of the century, only the improvements in computers advanced at a pace that was probably ten times the machinery advances earlier in our history.  In addition, Ross Perot spoke of “the giant sucking sound” as U.S. jobs would be going offshore.  A double whammy so to speak.

Congress, in it’s infinite wisdom, began a series of changes to facilitate home ownership, along with robust opportunities for employment.  Without dwelling how that motivation occurred, suffice it to say that new laws did indeed make it easier to buy a home.  After all, this certainly would create a demand for brand new starter homes, and for vacation cottages and investment homes that could be flipped for a profit.  Home construction followed by Commercial construction ramped up.  An entire host of collateral opportunities were created to service this growing sector.

Money came out of the woodwork, so to speak, and the cry for getting everyone into a home of their own seemed like a really  good idea at the time.  Well, this creates a problem, otherwise known by some as a perfect opportunity.  One such opportunity was provided by Dr. David X. Li.  Dr. Li who found a mathematical way to asses the risk when issuing (and selling) sub-prime mortgages.  He published a paper in 2000, where it was mathematically clear, that lumping a group of risky investments, along with good investments, provided a method where bankers could now bundle these investments into a bond that was AAA rated.  Human nature did the rest.  When one furnishes a “promise to pay note” as his collateral, it is relatively easy to repeat the funding process over and over, especially as every “repeat” spins off a nice profit (human nature).  Major elements of the story regarding Dr. Li can be found in an issue of Wired Magazine (2/23/09) titled, Recipe for Disaster: The Formula That Killed Wall Street (http://www.wired.com/techbiz/it/magazine/17-03/wp_quant?currentPage=all)

Before the crash, many investors thought that Dr. Li would get a Noble Prize in Economics.  The thinking now is just the opposite.  Future history will ultimately tell the real tale.  Some think he did it purposely to destroy the global economy, while improving the economy of China.  Drilling deeper, might suggest that he knew the entire global economy would implode, and soon be replaced by a global economy that is vastly superior.  Possibly he wanted a better global economy to happen years ahead of the “Original Plan” and figured that this mess needed a quicker clean-up than possible following the slow natural course of activity.  Only our future history will be the final judge.

So what is the problem with the global economy that Dr. Li must have clearly seen?  The problem is that the global economy is mostly funded with borrowed money.  It’s that simple.  However,  proving it will take a little more effort.  It’s lot like refinancing one’s home to get the funds to make next years payments.  It works for awhile, but has serious drawbacks over the long haul. At first, the increasing deficit doesn’t matter at all.  Then it’s eventually becomes a matter of transferring something of value for something made of paper.  The banker seldom loses.  Or does he?

As a well educated economists, Dr, Li surely saw, and fully understood  Article I, Section 8, Clause 5 of the U.S. Constitution. “To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;”   China does not fund it’s economy with borrowed money.  It grows at better than 8%.  There is no recession or depression in China at this time.  At the rate that China is accumulating global money, it is becoming increasingly clear that borrowing money to support an economy is not a good plan.  It might someday be shown that if little or nothing changes, China could end up owning the entire planet, and without wasting any of it’s currency on bullets!

Author: This article has been written by one of our avid blog follower – Len. We thank him for his efforts.