Stock Market Investing for Beginners

Causes of the Economic Crisis

Current economic crisis is not the making of one or two governments. They are all the same. The monetary system is flawed and the past governments created the problem trying to avoid recession and achieve fake growth in their term. Banks create money when we borrow. This new money makes the government look good because when there is more money in the economy, it becomes easy to earn it. So people think the government is doing a good job.

To postpone every recession, and make it a smooth sailing, the governments of the past 70 years encouraged borrowing. FED went along because that meant more money (more interest income) for their banks.

How did they do this? They used housing bubble among other things. For example mortgage interest deduction from tax. Why do they do this unfair treatment? It is a subsidy from tax payers to the banks. It encourages borrowing to buy a home at the expense of other tax payers.

http://www.tradingstocks.net/html/housing_market_bubble_bust_cyc.html 
 
But they do this so that:

1. Bank credit is inflated (create inflation).

2. Home prices rise, so that future borrowing has to be bigger (so that more money is created to pay back old debt)

They continued this with sub-prime. When they ran out of prime borrowers, the deflationary crash would come sooner, so they said "Homeownership is the American Dream, everybody should own a home". And there goes the sub-prime. No 20% down was OK. Who wants cash down, when you can borrow money for the full amount of the home value so that the bank creates it from thin air and gives it to you!

Liar loans were OK. Their borrowing creates good money too! Why leave them out. Bring in the liars. Make them borrow. In fact, if they cannot afford the monthly interest or the closing costs, we will add all that to the principal, even better!

Then they still ran out of borrowers. Then cash for clunkers, so that you may borrow. Now they offer 8K home buyer credit so that you may borrow! The government is begging you to borrow. But it won't work. This is old story.