How Free Markets Sank the US Economy

Here is a good article that describes how we got into this mess:

http://finance.yahoo.com/news/How-free-markets-sank-the-US-rb-3640236057.html

The true cause of the crash is not the free markets. The true cause is decades of government intervention in the form of FDIC, FED, Fannie Mae, Ginnie Mae and other government programs coupled with a bankrupt monetary system that demands usury and uses fractional reserve banking.

Here how banks create money out of thin air, and along the process create a debt bubble that is impossible to pay back and certain to cause a deflationary crash:

http://www.tradingstocks.net/html/banks_create_money.html

What about FDIC? FDIC is a broke corporation that cannot possibly guarantee all deposits. Yet they claim to do so. This claim blinds the depositors and removes any worry about their banks. This mentality is the cause of the collapse of the banking system.

If the bank deposits were not insured, then depositors would questions the bank actions. Banks would not get too big to fail while at the same time take excessive risk. Depositors worry would keep a check on bankers' greed. There would be a whole new breed of banks who just keep your money safe, with minimal or no risk and not pay interest at all.

But due to FDIC, people threw caution to the wind, and nobody questioned the bank. They blindly deposited their money thinking that FDIC guarantees it. Now FDIC is broke:

http://www.tradingstocks.net/html/fdic_insurance.html

Thus a government intervention in the form of FDIC ends up causing the exact opposite of it's intended result. Now the banks are bankrupt, they are insolvent due to their risky bets and the tax payer has to clean it up. Here is a free 13 page report that details the problem with the banks and their wrong portfolio decisions that lasted decades:

http://www.tradingstocks.net/html/2010_stock_market_forecast.html

What about FED? FED made credit easy, and America borrowed from the future. FED's easy money policy gives the wrong signal to the markets. Interest rates should be left to the markets. FED claims that it regulates the markets. But if we look at 20th century, we had a more volatile economy and stock market compared to 19th century when the FED did not exist! Real growth during 19th century was higher compared to 20th century. So what did FED really do?

In 19th century, we had periods where we had beneficial deflation. As productivity was increased, goods and services became cheaper. But FED openly says they want 2% inflation. This makes it easier to borrow (so that you can pay back with inflated dollars). People cannot save to buy a home, savings are reduced and spending is increased. This is not a healthy system. But FED wants this in order to channel wealth to the bankers. Without inflation, people would have the option to save and bankers would get a smaller share of the wealth with their usury.

What other harm does this FED policy of easy money do? As debt inflates, it becomes a monster that has to feed on itself. To pay old debt, new debt must increase exponentially. Otherwise, money supply, which is credit, is not enough to pay existing principal + interest. Here it is:

http://www.tradingstocks.net/html/inflation_deflation_credit_bub.html

FED is a government intervention into the free market rates. Without FED, as the debt bubble grew, rates would go up and it would provide an automatic check on further debt expansion. Debt would deflate quickly to sustainable levels with frequent deflations, thus we would have smaller recessions instead of huge bubbles and depressions that follow them.

Now that FED has messed with the economy for decades, instead of another recession, we have to go through a major depression for the mess to be cleaned and debt to deflate to a sustainable multiple of GDP.

All of this is the result of government intervention. We need small government, and free markets. We don't have that.