Building a world without FED Vol.2
In 2008, Wallstreet bankers almost destroyed our financial system by fueling the world with bad credits and loans.
We were never that close to the 1929 great depression. We were witnessing the market suffering a total credit meltdown.
Ex-Fed Chairman, Alan Greenspan dispels the seals that lock evil bankers’ power of abusing the system with leverage and capital. The idea of limiting banks has facilitated by Alan’s predecessor, Paul Volcker. He understands that bankers and financial institutions are greedy.
The purpose of central bankers is clear and sound: they are here to prevent our economy from having low inflation and employment rates.
To stimulate GDP growth, FED needs to inflate the economy. Healthy inflation would be around 2%. There are different methods of creating inflation in our economic systems, such as allowing financial deregulations and fiscal stimulus. These are policies often used by the government. Deregulation means allowing banks and financial institutions to have more power to issue credits to corporate entities.
In other words, with deregulations, banks and institutions can now lend more money in lower interest rates to companies and SMEs. Traders and investment banks are free to intervene and speculate with savers’ money when they see fit.
When they get lucky, they take home with a big bonus. When traders have bad days, they go to prison and lose everything. This issue stands as a moral hazard between savers and banks.
Deregulation is an easy way of stimulating short-term economic growth. Alan Greenspan chose the easier path of making Wallstreet his allies instead of his foes.
On the other hand, to achieve long-term economic growth will need the most vital element: market demand.
Market demand is everything the government needs. Without solid market confidence and demand, it is nearly impossible to have economic growth.
That means the corporates need to borrow money and create new debt to meet the demand of their customers.
A bad economy is an economy that everyone refuses to consume and keeps depositing money in their banks. Such behavior means companies are not capable of creating new revenue. Without consistent cash flow, large companies could easily default on their bonds and could also declare bankruptcy.
When many companies file bankruptcy and people are rioting outside, the economic machine is heavily damaged. Economists have a fancy word describing such a scenario: deflation. It is vital to understand this concept.
By understanding deflation and depression, we can understand the roots of revolutions and wars.
In the next chapter, I will briefly explain how banksters are often creating deflation and causing instability in our economic system.