A.G. Cuomo (N.Y.): Was AIG Re-Capitalizing Banks All Over The World?

Attorney General Andrew M. Cuomo of New York said Thursday afternoon that he was widening his investigation of the American International Group to examine whether its trading counterparties improperly received billions of dollars in government money from the troubled insurer. 

Those counterparties include Goldman Sachs, which received $12.9 billion, as well as Société Générale of France and Deutsche Bank of Germany, which each received nearly $12 billion. 

Why is the AG of New York Doing the Investigating Geithner and Holder Should be Doing of the Wall Street Crooks? 

“Our investigation into corporate bonuses has led us to an investigation of the credit default swap contracts at A.I.G.,” Mr. Cuomo said in a statement. “CDS contracts were at the heart of A.I.G.’s meltdown. The question is whether the contracts are being wound down properly and efficiently or whether they have become a vehicle for funneling billions in taxpayers dollars to capitalize banks all over the world.” The Obama Administration Would Want to Know, Don't You Think?

The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.

Home Prices ConginueTo Plunge!

We are in for a hellish nightmare! This is what happens when you let CEOs in the W.H.

NEW YORK (CNNMoney.com) -- Home prices continued their plunge during the last three months of 2007, setting a real estate trade group's record for the biggest-ever quarterly drop. .

The national median price drop of 5.8%, to $206,200 from $219,300, was the steepest ever recorded by the National Association of Realtors (NAR), which has been compiling the report since 1979.

NAR officials blamed the liquidity squeeze that began last summer for much of the drop. Home buyers had trouble obtaining mortgage financing, especially for more expensive properties.

"The continuing crunch in the jumbo loan market that began in August has disproportionately reduced the number of transactions in higher price ranges," said Lawrence Yun, NAR's chief economist, in a statement.

Fewer expensive homes were sold, bringing down median prices.

"California, south Florida, D.C., many of the high-cost markets are reflecting that," said Walter Molony, a spokesman for NAR.

Each of the four U.S. regions recorded losses compared with the fourth quarter of 2006. The West took the worst hit, at 8.7%. Prices dropped 4.8% in the Northeast, 5.4% in the South and 3.2% in the Midwest.

In Lansing, Mich., square in the Midwest Rust Belt, prices plunged 18.8% to $109,600. In Sacramento, Calif., prices fell 18.5% to $197,600, and in both Jackson, Miss and Riverside, Calif. prices dropped 16.8%.

Seventy-three of the nation's 151 real estate markets recorded price gains. Cumberland, Md., led the winners with an increase of 19% to $116,600.

The least expensive single-family-home market in the nation got even cheaper, as prices in Youngstown, Ohio, dropped 9.3% to $72,600. The most expensive market, San Jose, Calif., got dearer, with prices up 11.2% to $845,300.

Condo prices fared better. The fourth-quarter median condo price of $221,100 was little changed from the $221,200 a year earlier.

But some areas, mostly Sun Belt cities, took significant price hits.

Cape Coral, Fla., condo prices were down 26% compared with the last three months of 2006 to $202,300, and Tucson, Ariz., prices dropped 19.8% to $128,000. Atlanta prices fell 12% to $141,100, and Las Vegas was off 10.3% to $178,500.

Bismarck, N.D., condo prices recorded the largest gain at 20.8% to $125,000, with New Orleans second at a 17.8% gain to $173,300.

Last year, fourth-quarter home prices were 2.7% lower from the year before.

"The healthiest housing markets today generally are moderately priced and are experiencing job growth and often population growth, which in turn is supporting strong price growth," said NAR's Yun. "Most of the weakest markets have either experienced both job and population losses, or they are experiencing corrections following a prolonged period of rapid price growth."

Many markets have also been affected by soaring foreclosure rates. Large numbers of houses for sale, many repossessed from borrowers, sit empty, depressing prices in cities from coast to coast - but most notably in economically distressed Midwest industrial towns and some once-booming Sun Belt cities.

NAR numbers are arrived at by examining the prices of all homes sold during the period. The median price is the one in which half of all homes sold for more and half for less.

Using median prices rather than mean - or average - prices reduces the impact of the sale of very expensive homes, which would raise mean prices disproportionately.

The NAR take on price trends, usually an optimistic one, was that recent steps taken in Washington would lead to improved conditions later this year.

"Higher limits for FHA loans, which go into effect March 14, will be a big help to first-time buyers in high-cost markets," said NAR President Richard Gaylord.

"Higher limits for conventional loans purchased by Freddie Mac and Fannie Mae will take a bit longer," he said. "When they become available, high-income, creditworthy borrowers in high-cost areas will have access to affordable and safer financing, and that will help unleash pent-up demand."

But other industry insiders are predicting harder times ahead. A Merrill Lynch report in January forecast peak-to-trough price declines of 15% in 2008 and another 10% in 2009 before markets begin to recover.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)


The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.

More On The Coming Economic Meltdown

August 1, 2007

Extreme Capitalism and the Financialization of America

By randyholhut

DUMMERSTON, Vt. — It seems hard to believe, but the finance, insurance and real estate sector (FIRE, for short) now constitutes about 20 percent of our nation's gross domestic product, while manufacturing contributes less than 13 percent. By comparison, in 1950, manufacturing was 29.3 percent of GDP and financial services contributed 10.9 percent.

In other words, more money is made today by shifting money around than in making things. And the FIRE sector no longer represents a group of institutions designed to raise capital for investment in productive activities. It is wealth generated from activities that contribute little to the actual economy.

Conservative writer Kevin Phillips calls it "financialization," or the process by which the FIRE sector assumes the dominant economic, cultural and political role in a national economy.

For example, energy prices. Last summer, commodities traders bid up the price of oil to $78 per barrel last summer on fears of more unrest in the Middle East after the Israel/Hezbollah dustup and another season of severe hurricanes. Neither thing happened, and oil prices slid down to about $50 per barrel by the end of 2006. Fear-based speculation drove up oil prices, and reality drove them back down.

If you invested in oil futures and got out at the top of the market, you made money. But what did it contribute to the larger economy? The rest of us paid more than we needed to for most of 2006 for heating oil, propane and gasoline, based on a possibility that some disruption of petroleum supplies might happen. That's what you get when the financial sector is totally divorced from reality.

Now, oil prices have crept back up to that level this summer, without an suitable alibi such as a hurricane or a war to justify $78 a barrel oil. Who is profiting and does this profit provide a good for the economy at large?

An equally good question is the long-term viability of an economy based on shuffling around financial assets.

It's hard to say whether the sharp swings in the stock market over the past week has been just a minor correction in stock values or the start of what could be a bigger problem.

The Dow Jones Industrial Average went all the way up to 14,000 on July 19 based on the hope that the collapse of the subprime lending market would not have an effect on the larger economy and that higher energy prices would not have an effect on consumer spending.

The reality, however, is that as much as $2.5 trillion could be at risk in bad mortgages and the frenzy of mergers and leveraged buyouts of companies fueled by borrowed money.

According recent figures from Moody's, the bond rating firm, nearly 20 percent of all mortgage debt is at risk, or about $2.5 trillion of sub-prime mortgages. About $1.4 trillion is at high risk of default, as many as 2.5 million mortgages will default in the next two years and about 20 percent of sub-prime loans written in the last half of 2006 will default. Investor losses could run into hundreds of billions of dollars.

On July 26, a record 10.59 billion shares changed hands on the three major U.S. markets. Several big deals — from Chrysler to Tyco Electronics — have been postponed in the last couple of weeks because of rapidly tightening credit. There's an estimated backlog of more than $300 billion in unsold bonds and bank loans. That's almost as big as the backlog of unsold homes in the United States right now, as housing inventories in some part of the country are at levels not seen in decades.

The implosion of the sub-prime mortgage market, where people with little or no savings took huge mortgages with little or no money down, has been well documented. While it was inevitable that money lent to people without the means to pay it back would lead to a massive number of defaults and foreclosures, the investors who fueled this market never seemed to think that all those risky loans might go bad at all once.

It's truly amazing to see how deeply Wall Street has been involved in what's known as collateralized debt obligations (CDO), or the bundling of mortgages, home equity loans, car loans and credit card debt by hedge funds.

A major Wall Street investment house, Bear Stearns, saw about $10 billion of value disappear from two of its CDO hedge funds last month, and the market barely blinked an eye. But once other investment houses came to the realization that they are holding hundreds of billions of dollars of bad loans that they are now unable to sell to other investors, they started to realize that you can only ignore reality for so long before it comes back to bite you — hard.

Mortgage lenders stopped caring if borrowers were qualified. Bankers stopped caring if borrowers couldn't repay loans. And all these bad loans got repackaged and resold to other investors — all gussied up so that you'd never know that you were buying into funds based on assets that didn't exist.

This has been the state of our financial markets over the past few years. Greed has seemingly blinded people to fundamental economic principles, and the transfer of more of this nation's wealth into the hands of fewer and fewer people is celebrated as capitalism's highest achievement.

The total net worth of American households climbed to $54.1 trillion last year, or more than $3 trillion higher than it was in 2005, and tax revenues managed to increase despite lower rates on wealthy Americans. Meanwhile, over the past five years, inflation-adjusted weekly wages for workers have been up about 0.5 percent per year.

Unfortunately, the people who have profited from wrecking the American economy will walk away with bulging pockets and seemingly clear consciences. The rest of us will be stuck with cleaning up when every comes tumbling down.

Authors Bio: Randolph T. Holhut has been a journalist in New England for more than 25 years. He edited "The George Seldes Reader" (Barricade Books). He can be reached at randyholhut@yahoo.com.

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)

The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.

U.S. Economy crash; a done deal

It’s Official: The Crash of the U.S. Economy has begun
by Richard C. Cook
Global Research, June 14, 2007


It’s official. Mark your calendars. The crash of the U.S. economy has begun. It was announced the morning of Wednesday, June 13, 2007, by economic writers Steven Pearlstein and Robert Samuelson in the pages of the Washington Post, one of the foremost house organs of the U.S. monetary elite.

Pearlstein’s column was titled, “The Takeover Boom, About to Go Bust” and concerned the extraordinary amount of debt vs. operating profits of companies currently subject to leveraged buyouts.

In language remarkably alarmist for the usually ultra-bland pages of the Post, Pearlstein wrote, “It is impossible to predict when the magic moment will be reached and everyone finally realizes that the prices being paid for these companies, and the debt taken on to support the acquisitions, are unsustainable. When that happens, it won't be pretty. Across the board, stock prices and company valuations will fall. Banks will announce painful write-offs, some hedge funds will close their doors, and private-equity funds will report disappointing returns. Some companies will be forced into bankruptcy or restructuring.”

Further, “Falling stock prices will cause companies to reduce their hiring and capital spending while governments will be forced to raise taxes or reduce services, as revenue from capital gains taxes declines. And the combination of reduced wealth and higher interest rates will finally cause consumers to pull back on their debt-financed consumption. It happened after the junk-bond and savings-and-loan collapses of the late 1980s. It happened after the tech and telecom bust of the late '90s. And it will happen this time.”

Samuelson’s column, “The End of Cheap Credit,” left the door slightly ajar in case the collapse is not quite so severe. He wrote of rising interest rates, “As the price of money increases, borrowing and the economy might weaken. The deep slump in housing could worsen. We could also discover that the long period of cheap credit has left a nasty residue.”

Other writers with less prestigious platforms than the Post have been talking about an approaching financial bust for a couple of years. Among them has been economist Michael Hudson, author of an article on the housing bubble titled, “The New Road to Serfdom” in the May 2006 issue of Harper’s. Hudson has been speaking in interviews of a “break in the chain” of debt payments leading to a “long, slow economic crash,” with “asset deflation,” “mass defaults on mortgages,” and a “huge asset grab” by the rich who are able to protect their cash through money laundering and hedging with foreign currency bonds.

Among those poised to profit from the crash is the Carlyle Group, the equity fund that includes the Bush family and other high-profile investors with insider government connections. A January 2007 memorandum to company managers from founding partner William E. Conway, Jr., recently appeared which stated that, when the current “liquidity environment”—i.e., cheap credit—ends, “the buying opportunity will be a once in a lifetime chance.”

The fact that the crash is now being announced by the Post shows that it is a done deal. The Bilderbergers, or whomever it is that the Post reports to, have decided. It lets everyone know loud and clear that it’s time to batten down the hatches, run for cover, lay in two years of canned food, shield your assets, whatever.

Those left holding the bag will be the ordinary people whose assets are loaded with debt, such as tens of millions of mortgagees, millions of young people with student loans that can never be written off due to the “reformed” 2005 bankruptcy law, or vast numbers of workers with 401(k)s or other pension plans that are locked into the stock market.

In other words, it sounds eerily like 2000-2002 except maybe on a much larger scale. Then it was “only” the tenth worse bear market in history, but over a trillion dollars in wealth simply vanished. What makes today’s instance seem particularly unfair is that the preceding recovery that is now ending—the “jobless” one—was so anemic.

Neither Perlstein nor Samuelson gets to the bottom of the crisis, though they, like Conway of the Carlyle Group, point to the end of cheap credit. But interest rates are set by people who run central banks and financial institutions. They may be influenced by “the market,” but the market is controlled by people with money who want to maximize their profits.

Key to what is going on is that the Federal Reserve is refusing to follow the pattern set during the long reign of Fed Chairman Alan Greenspan in responding to shaky economic trends with lengthy infusions of credit as he did during the dot.com bubble of the 1990s and the housing bubble of 2001-2005.

This time around, Greenspan’s successor, Ben Bernanke, is sitting tight. With the economy teetering on the brink, the Fed is allowing rates to remain steady. The Fed claims their policy is due to the danger of rising “core inflation.” But this cannot be true. The biggest consumer item, houses and real estate, is tanking. Officially, unemployment is low, but mainly due to low-paying service jobs. Commodities have edged up, including food and gasoline, but that’s no reason to allow the entire national economy to be submerged.

So what is really happening? Actually, it’s simple. The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.

Of course we got ourselves into this quandary by shipping our manufacturing to China and other cheap-labor markets over the last generation. “Dollar hegemony” is backfiring. In fact China is using its American dollars to replace the International Monetary Fund as a lender to developing nations in Africa and elsewhere. As an additional insult, China now may be dictating a new generation of economic decline for the American people who are forced to buy their products at Wal-Mart by maxing out what is left of our available credit card debt.

About a year ago, a former Reagan Treasury official, now a well-known cable TV commentator, said that China had become “America’s bank” and commented approvingly that “it’s cheaper to print money than make cars anymore.” Ha ha.

It is truly staggering that none of the “mainstream” political candidates from either party has attacked this subject on the campaign trail. All are heavily funded by the financier elite who will profit no matter how bad the U.S. economy suffers. Every candidate except Ron Paul and Dennis Kucinich treats the Federal Reserve like the fifth graven image on Mount Rushmore. And even the so-called progressives are silent. The weekend before the Perlstein/ Samuelson articles came out, there was a huge progressive conference in Washington, D.C., called “Taming the Corporate Giant.” Not a single session was devoted to financial issues.

What is likely to happen? I’d suggest four possible scenarios:

Acceptance by the U.S. population of diminished prosperity and a declining role in the world. Grin and bear it. Live with your parents into your 40s instead of your 30s. Work two or three part-time jobs on the side, if you can find them. Die young if you lose your health care. Declare bankruptcy if you can, or just walk away from your debts until they bring back debtor’s prison like they’ve done in Dubai. Meanwhile, China buys more and more U.S. properties, homes, and businesses, as economists close to the Federal Reserve have suggested. If you’re an enterprising illegal immigrant, have fun continuing to jack up the underground economy, avoid business licenses and taxes, and rent out group houses to your friends.

Times of economic crisis produce international tension and politicians tend to go to war rather than face the economic music. The classic example is the worldwide depression of the 1930s leading to World War II. Conditions in the coming years could be as bad as they were then. We could have a really big war if the U.S. decides once and for all to haul off and let China, or whomever, have it in the chops. If they don’t want our dollars or our debt any more, how about a few nukes?

Maybe we’ll finally have a revolution either from the right or the center involving martial law, suspension of the Bill of Rights, etc., combined with some kind of military or forced-labor dictatorship. We’re halfway there anyway. Forget about a revolution from the left. They wouldn’t want to make anyone mad at them for being too radical.

Could there ever be a real try at reform, maybe even an attempt just to get back to the New Deal? Since the causes of the crisis are monetary, so would be the solutions. The first step would be for the Federal Reserve System to be abolished as a bank of issue and a transformation of the nation’s credit system into a genuine public utility by the federal government. This way we could rebuild our manufacturing and public infrastructure and develop an income assurance policy that would benefit everyone.

The latter is the only sensible solution. There are monetary reformers who know how to do it if
anyone gave them half a chance.

Richard C. Cook is the author of “Challenger Revealed: An Insider’s Account of How the Reagan Administration Caused the Greatest Tragedy of the Space Age.” A retired federal analyst, his career included work with the U.S. Civil Service Commission, the Food and Drug Administration, the Carter White House, and NASA, followed by twenty-one years with the U.S. Treasury Department. He is now a Washington, D.C.-based writer and consultant. His book “We Hold These Truths: The Hope of Monetary Reform,” will be published later this year. His website is at www.richardccook.com.

Richard C. Cook is a frequent contributor to Global Research. Global Research Articles by Richard C. Cook

(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)


The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.

By Mike Whitney

“The US economy is in danger of a recession that will prove unusually long and severe. By any measure it is in far worse shape than in 2001-02 and the unraveling of the housing bubble is clearly at hand. It seems that the continuous buoyancy of the financial markets is again deluding many people about the gravity of the economic situation.” Dr. Kurt Richebacher “The history of all hitherto society is the history of class struggles.” Karl Marx


02/21/07 "ICH" -- -- This week’s data on the sagging real estate market leaves no doubt that the housing bubble is quickly crashing to earth and that hard times are on the way. “The slump in home prices from the end of 2005 to the end of 2006 was the biggest year over year drop since the National Association of Realtors started keeping track in 1982.” (New York Times) The Commerce Dept announced that the construction of new homes fell in January by a whopping 14.3%. Prices fell in half of the nation’s major markets and “existing home sales declined in 40 states”. Arizona, Florida, California, and Virginia have seen precipitous drops in sales. The Commerce Department also reported that “the number of vacant homes increased by 34% in 2006 to 2.1 million at the end of the year, nearly double the long-term vacancy rate.” (Marketwatch) The bottom line is that inventories are up, sales are down, profits are eroding, and the building industry is facing a steady downturn well into the foreseeable future.

The ripple effects of the housing crash will be felt throughout the overall economy; shrinking GDP, slowing consumer spending and putting more workers in the growing unemployment lines. Congress is now looking into the shabby lending practices that shoehorned millions of people into homes that they clearly cannot afford. But their efforts will have no affect on the loans that are already in place. $1 trillion in ARMs (Adjustable Rate Mortgages) are due to reset in 2007 which guarantees that millions of over-leveraged homeowners will default on their mortgages putting pressure on the banks and sending the economy into a tailspin.

We are at the beginning of a major shake-up and there’s going to be a lot more blood on the tracks before things settle down. The banks and mortgage lenders are scrambling for creative ways to keep people in their homes but the subprime market is already teetering and foreclosures are on the rise.

There’s no doubt now, that Fed chairman Alan Greenspan’s plan to pump zillions of dollars into the system via “low interest rates” has created the biggest monster-bubble of all time and set the stage for a deep economic retrenchment. Greenspan’s inflationary policies were designed to expand the “wealth gap” and create greater economic polarization between the classes. By the time the housing bubble deflates, millions of working class Americans will be left to pay off loans that are considerably higher than the current value of their home.

This will inevitably create deeper societal divisions and, very likely, a permanent underclass of mortgage-slaves. A shrewd economist and student of history like Greenspan knew exactly what the consequences of his low interest rates would be. The trap was set to lure in unsuspecting borrowers who felt they could augment their stagnant wages by joining the housing gold rush. It was a great way to mask a deteriorating economy by expanding personal debt. The meltdown in housing will soon be felt in the stock market which appears to be lagging the real estate market by about 6 months. Soon, reality will set in on Wall Street just as it has in the housing sector and the “loose money” that Greenspan generated with his mighty printing press will flee to foreign shores.

It looks as though this may already be happening even though the stock market is still flying high. On Friday, the government reported that net capital inflows reversed from the requisite $70 billion to AN OUTFLOW OF $11 BILLION! The current account deficit (which includes the trade deficit) is running at roughly $800 billion per year, which means that the US must attract about $70 billion per month of foreign investment (US Treasuries or securities) to compensate for America’s extravagant spending.

When foreign investment falters, as it did in December, it puts downward pressure on the greenback to make up for the imbalance. Everbank’s Chuck Butler put it like this: “Not only did the buying stop in December by foreigners in December, but the outflows were huge! Domestic investors increased their buying of long-term overseas securities from $37 billion to a record $46 billion.

This is a classic illustration of ‘lack of funding’. So, the question I asked the desk was… ‘Why isn’t the euro skyrocketing?’” Why, indeed? Why would central banks hold onto their flaccid greenbacks when the foundation which keeps it propped up has been removed? The answer is complex but, in essence, the rest of the world has loaned the US a pair of crutches to bolster the wobbly dollar while they prepare for the eventual meltdown. China and Japan are currently hold over $1.7 trillion in US currency and US-based assets and can hardly afford to have the ground cut out from below the dollar.

There are, however, limits to the “generosity of strangers” and foreign banks will undoubtedly be pressed to take more extreme measures as it becomes apparent that Team Bush plans to produce as much red ink as humanly possible. December’s figures indicate that foreign investment is drying up and the world is no longer eager to purchase America’s lavish debt. The only thing the Federal Reserve can do is raise interest rates to attract foreign capital or let the dollar fall in value. The problem, of course, is that if the Fed raises rates, the real estate market will collapse even faster which will strangle consumer spending and shrivel GDP. In other words, we are at the brink of two separate but related crises; an economic crisis and a currency crisis.

That means that the unsuspecting American people are likely to be ground between the two mill-wheels of hyperinflation and shrinking growth. In real terms, the economy is already in recession. The growth numbers are regularly massaged by the Commerce Department to put a smiley face on an underperforming economy. Industrial output continues to flag (In January it was down by another .5%) while millions good paying factory jobs are being air-mailed to China where labor is a mere fraction of the cost in the USA.

Also, automobile inventories are up while factory production is in freefall. In addition, new jobless claims soared to 357,000 in the week ending February 10. 44,000 more desperate workers have been given their pink slips so they can join the huddled masses in Bush’s Weimar Dystopia. December’s net capital inflows are a grim snapshot of the looming disaster ahead. As the housing bubble loses steam, maxxed-out American consumers will face increasing job losses and mounting debt. At the same time, foreign investment will move to more promising markets in Asia and Europe causing a steep rise in interest rates.

This is bound to be a stunning blow to the banks which are low on reserves ($44 billion) but have generated $4.5 trillion in shaky mortgage debt in the last 6 years. It’s all bad news. The global liquidity bubble is limping towards the reef and when it hits it’ll send shock-waves through the global economic system. Is it any wonder why the foreign central banks are so skittish about dumping the dollar?

No one really relishes the idea of a quick slide into a global recession followed by years of agonizing recovery. Maybe that’s why Secretary of Treasury Hank Paulson has reassembled the Plunge Protection Team and installed a hotline to his Chinese counterpart so he can quickly respond to sudden gyrations in the stock market or a freefalling greenback; two of the calamities he could be facing in the very near future. Greenspan has successfully piloted the nation into virtual insolvency. In fact, the parallels between our present situation and the period preceding the Great Depression are striking.

Just as massive debt was accumulating in the market from the purchase of stocks “on margin”, so too, mortgage debt between 2000 and 2006 soared from $4.8 trillion to $9.5 trillion. In both cases the “wealth effect” spawned a spending spree which looked like growth but was really the steady, insidious expansion of debt which generated economic activity. In both periods wages were either flat or declining and the gap between rich and working class was growing more extreme by the year.

As Paul Alexander Gusmorino said in his article, “Main Causes of the Great Depression”: "Many factors played a role in bringing about the depression; however, the main cause for the Great Depression was the combination of the greatly unequal distribution of wealth throughout the 1920's, and the extensive stock market speculation that took place during the latter part that same decade".

The same factors are at work today except that the speculation is in real estate rather than stocks. Just as in the 1920’s the equity bubble was not created by wages keeping pace with productivity (the healthy formula for growth) but by the expansion of personal debt. Also, one could buy stocks without the money to purchase them, just as one can buy a $600,000 or $700,000 house today with zero-down and no monthly payment on the principle for years to come.

The current account deficit ($800 billion) could also weigh heavily in any economic shake-up that may be forthcoming. Bob Chapman of The International Forecaster made this shocking calculation about America’s out-of-control trade deficit: "US debt was up 10.1% to $4.085 trillion and accounts for 58.8% of all the credit issued globally last year.

That means the US expanded credit at a much faster rate than the economy grew. This was borrowing to maintain a higher standard of living and attempt to pay for it tomorrow."

Think about that; the US sucked up nearly 60% of ALL GLOBAL CREDIT in one year alone. That is truly astonishing. There are many similarities between the pre-Depression era and our own. Paul Alexander Gusmorino says: "

The Great Depression was the worst economic slump ever in U.S. history, and one which spread to virtually all of the industrialized world. The depression began in late 1929 and lasted for about a decade....The excessive speculation in the late 1920's kept the stock market artificially high, but eventually lead to large market crashes. These market crashes, combined with the misdistribution of wealth, caused the American economy to capsize. (The income disparity) between the rich and the middle class grew throughout the 1920's. While the disposable income per capita rose 9% from 1920 to 1929, those with income within the top 1% enjoyed a stupendous 75% increase in per capita disposable income…A major reason for this large and growing gap between the rich and the working-class people was the increased manufacturing output throughout this period. From 1923-1929 the average output per worker increased 32% in manufacturing8. During that same period of time average wages for manufacturing jobs increased only 8% (This ultimately causes a decrease in demand and leads to growth in credit spending) The federal government also contributed to the growing gap between the rich and middle-class. Calvin Coolidge's (pro business) administration passed the Revenue Act of 1926, which reduced federal income and inheritance taxes dramatically…

(At the same time) the Supreme Court ruled minimum-wage legislation unconstitutional. The bottom three quarters of the population had an aggregate income of less than 45% of the combined national income; while the top 25% of the population took in more than 55% of the national income...Between 1925 and 1929 the total credit more than doubled from $1.38 billion to around $3 billion”. (Just like now, the growing wage gap has spawned massive speculative bubbles as well as a steady up-tick in credit spending. Wage stagnation forces workers to seek other opportunities for getting ahead.

When wages fail to keep pace with productivity then demand naturally decreases and business begins to flag. The only way to spur more buying is by easing interest rates or expanding personal credit, and that is when equity bubbles begin to appear. That's what happened to the stock market before 1929 as well as to the real estate market in 2007. The availability of credit has kept the housing market afloat but, ultimately, the result will be the same.

n Monday October 21, 1929, the over-valued stock market began its downward plunge. It managed a brief mid-week comeback, but 7 days later on Black Tuesday it plummeted again; 16 million shares were dumped and there were no buyers. The game was over. Confidence evaporated overnight. People stopped buying on credit, the bubble-economy collapsed, and the mighty locomotive for growth, the American consumer, hobbled into the Great Depression. Tariffs were thrown up, foreigners stopped buying American goods; banks closed, business went bust, and unemployment skyrocketed.

Tens years later the country was still reeling from the implosion. Now, 77 years later, Greenspan has led us sheep-like to the same precipice. The economic dilemma we’re facing could have been avoided if the expansion of personal credit had been curtailed by prudent monetary policy at the Federal Reserve and if wealth was more evenly distributed as it was in the ‘60s and ‘70s. But that’s not the case; so we’re headed for hard times.


(In accordance with Title 17 U.S.C. Section 107, this material is distributed without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. I.U. has no affiliation whatsoever with the originator of this article nor is I.U endorsed or sponsored by the originator.)


The Nazis, Fascists and Communists were political parties before they became enemies of liberty and mass murderers.