Economic bubbles

The cornerstone of the CPA profession is independence, integrity and objectivity.  I wish I could tell you that our financial system was going to be okay and that President Obama and our elected and appointed leaders in Washington were going to save the day.  Unfortunately, I'm highly skeptical and I have obligations to my friends, clients, family and readers to share my concerns.  Your future depends on understanding these matters.

Economic bubbles exists when asset price inflation rises beyond what income can sustain.  The ride up a bubble is exhilarating as everyone thinks they've found a fountain of gold and the ride down is devastating, as the economic system collapses and the artificially inflated values people assigned to certain assets retreat to their actual value.

One of the most famous bubbles was the Dutch tulip mania that peaked in 1637.  On the run up, people actually believed a single bulb was worth more than a house.  

We've actually experienced two bubbles in the past ten years (dot.com and housing).  These were partially fueled by cheap credit (corporate, governmental, private).

Ludwig Von Mises (1881-1973), an influential Austrian Economist wrote:

“There is no means of avoiding the final collapse of a boom brought about by credit expansion.

The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”

If this is true, current government actions to expand credit (print a $Trillion and get banks lending again) will ultimately lead to the collapse of the US currency.  A collapse occurs when people no longer have confidence in a fiat currency. Historically, thousands of currencies have collapsed.  Given time, is it possible that they all will? 

It would be unfair to freak you out without providing a solution.  The first step is to get educated and then to take action.  Two items I'm imploring you to read/watch are 

1. Chris Martenson's Crash Course.  The first sentence on the home page reads, "Ready to learn everything you need to know about the economy in the shortest amount of time?"  
2. David Korten's Agenda for a New Economy: From Phantom Wealth to Real Wealth

I'm on Chapter 17 of the 20-Chapter Crash Course, and I'm in Section 2 of Korten's book.  

$3 Trillion, get ready to be ripped off

I woke up to a liberal talk radio host interviewing a conservative FOX business guy and their prediction and conclusion was that next week, the government should and would set up a new federal bank, capitalized with $3 TRILLION to buy up all the bad loans in the system. What the hell?

Even before the latest crisis, it is a Wall Street myth that the old economy worked. Sure, it made some people fabulously rich and it did supply many needed goods and services, but even more glaring is the fact that it failed on so many levels (Think of unmet NEEDS and environmental and social havoc). Spending trillions of dollars to restore the economic system to its previous condition is a reckless waste of time and resources.

Have you gotten your copy of David Korten's new book Agenda for a New Economy: From Phantom Wealth to Real Wealth? Here is a link if you need one.

I'll leave you with two good links today.  First, is a real nice review of David's book so you can get a taste of what is covered.

Second is an excellent article by Prof. John McMurtry from Global Research on the current problems and the choices we face. Near the end he concludes:

The most instructive moments in America’s history have been forgotten - for example, the 1776 American Revolution itself which Benjamin Franklin said was most of all to wrest back control over the issuing of money from the private Bank of England; Abraham Lincoln’s issue of “greenbacks” to go over the head of the New York bankers’ demand of 17% compound interest to fund the war for the Union; and FDR’s historic New Deal which guaranteed minimum economic security and put people back to work in rebuilding the real economy. Yet not even the Depression has demanded the economic reset now required to resolve the coinciding energy, environmental, employment and financial crises confronting America and the world.

Agenda for a New Economy

Let us be honest.   We don’t need to fix the old economy – We need to create a new economy.

David Korten’s new book, Agenda for a New Economy: From Phantom Wealth to Real Wealth, has been in bookstores less than 10 days and I implore you to get this book and read it immediately.  We have a unique opportunity to change this system and create a sustainable, life-affirming economy.  We must rid ourselves of the Wall Street menace. 

Last night I attended the first of a 4-session workshop to explore David’s new book.  There were at least 30 people in attendance which seems huge given the fact the book was launched January 23^rd, 2009!

We started by watching David give a presentation at Trinity Wall Street, a church in the heart of America’s financial district on the 23rd, which coincided with the launch of his book.  If you do nothing else this week, watch this presentation.  You can fast forward to 6:15 to see the introduction of the presentation, followed by a short video bio.  He concludes at 59:30.  There is a Q&A that follows.

I’ll be writing more about this in the future but let us take this opportunity to get to the root cause of our problem.  It is time to treat the system, not the symptoms.  The system solution is to fix the system so the problems go away.  Isn’t that what we learned in business school?