| As was written in 1986: 'The problem is not just the | | | | requirements of a Bank one automatically reduces |
| personal, corporate and bank leverage nor just the | | | | the leverage they may have. |
| unprecedented national debt, current account and | | | | Now, over 4 years late and after millions of people |
| trade deficits but with the addition of the huge | | | | lost their jobs, their homes and their savings, on |
| unfunded liabilities it takes only a small trigger to get | | | | March 20, 09, CNN reported that the X-Chairman of |
| the whole economy to collapse.' | | | | the Federal Reserve Bank, Alan Greenspan said that: |
| The leaders of both Parties in both Congress and the | | | | 'The Banking system needs increased reserve |
| Administration and the Federal Reserve Bank failed to | | | | requirements.' What a bozo! I have been calling for |
| see this intellectually obvious, economic crisis coming. | | | | him to do or say this for 3 years as you see from |
| After the economic crisis hit them, they all recognized | | | | above, but Greenspan is 4 years late!!!! |
| and now confirm that it was excessive leverage, i.e. | | | | The solution to the longer term critical problems of |
| the ratio of the debt relative to the equity, that was | | | | OPEC oil and of China trade deficits starts with the |
| the problem. | | | | following clear recognition of reality: |
| Indeed it took only a less than 20% reduction in | | | | The war of fascism and of dictatorships against |
| housing values in California and Florida to start the | | | | democracies has been relentless and ongoing for |
| downward accelerating spiral that brought the | | | | centuries and will manifest itself again in apocalyptic |
| economies of all Western Democracies to their | | | | destruction unless China's trade deficits with the |
| knees. These 20% normally small losses, (particularly | | | | West are reduced to practically zero within 3-4 years. |
| in a small sector of the economy,) that were | | | | That (probably appropriately not publicly admitted)but |
| reasonable to expect after a 40% speculative run on | | | | very real economic war between those that strive to |
| housing prices in those markets, spurred by the | | | | be free from those tyrants that seek dominance |
| cultural attitude of "lets get rich fast despite being | | | | over others spills over into the military. That is why |
| very ignorant and very stupid," when leveraged as | | | | we are in two very costly wars that we can't get |
| high as they were leveraged by individuals and add | | | | out of as fast as we would like and are trying to |
| the leverage on the same underlying asset by the | | | | minimize the chances of catastrophic wars in the |
| banks and the almost infinite leverage on that same | | | | dictatorships of N. Korea and Iran, that are covertly |
| asset by the CDO's and CDS's that had no reserve | | | | supported (in fact instigated)by other dictators, the |
| requirements, we end up with hundreds of billions in | | | | most powerful of which are those of China. |
| losses becoming losses in the trillions; when so highly | | | | (By the way, the fiscal deficit, which is the fourth |
| leveraged. | | | | component of the downward accelerating spiral, by |
| Defining which was "the trigger" for the economic | | | | 2012 should be below 3% i.e. at less than $350 billion |
| crisis depends on the referenced time-frame so that | | | | and dropping, not the $500 billion and then increasing |
| one can just as validly argue that the oil prices | | | | that is currently proposed, with no further tax |
| primarily driven by the dictators of OPEC nations, of | | | | increases,(see taxes) but with much larger |
| $140 during mid 2008, and the resulting fears of an | | | | government (non defense) spending cuts that should |
| inflationary spiral, were the trigger and also just as | | | | start in 2011.) |
| validly argue that the domestic job losses from the | | | | The above solutions only help to navigate through, |
| deflationary $600 billion annual trade deficit a year | | | | minimize the negative effects and postpone the |
| that we pay dictatorial China and then pay interest | | | | crises. This economic crisis has been effectively |
| on the debt of it, was the critical 'trigger', from a long | | | | postponed by the late, inefficient but finally effective |
| term perspective. | | | | government actions. But these solutions do not solve |
| The wisdom necessary now is to minimize the | | | | the structural and strategic problems that are |
| damages while correctly maximizing the opportunities | | | | extremely severe so that the probability of a new |
| of the crisis. On the regulatory side the | | | | worse collapse in 2012 or 2016 remain very high. |
| recommendation was given in 1986. | | | | To deal with the structural problems there is a need |
| "The Federal Reserve should increase the reserve | | | | for 40% or so in taxes on imported oil. It is the best |
| requirements of Banks thus reducing their leverage | | | | way to preempt another steep oil price increase |
| and thus the probability of an economic collapse."as it | | | | while achieving positive political, fiscal, trade and |
| was explained in 1986. | | | | environmental results. |
| Reserve requirements are the equivalent of equity as | | | | Also, after a few months of useless negotiations |
| far as banks and financial institutions are concerned. | | | | (that will yield only minimal and only face saving |
| They are the percentage of how much money they | | | | concessions) with the Chinese dictators, tariffs on |
| can borrow and lend relative to the deposits and | | | | Chinese imports or taxes on the $/Yuan exchanges |
| cash they have. By increasing the reserve | | | | by about 40%, must be instituted. |