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It should, because it is a description of the economy from 1921 to 1929, BEFORE The Great Depression.

On October 24, 1929, "Black Thursday", the NYSE crashed. Tens of thousands lost nearly 80% of the value of their investments, marking the start of the great depression. It lasted until 1939. International trade declined, along with personal income, tax revenues and product prices. Production declined abut 50%. Capital investment and construction slowed or stopped completely. Unemployment was higher than 25%, affecting mostly those 18-25 and older than 55. Farms suffered as commodity prices dropped about 40%. Tax receipts fell causing increased tax rates and reduced spending. Millions of people stood in soup lines. Ability to buy basic needs worsened. Banking, rumored to be in trouble suffered a number of "runs on the bank", which caused desperate bankers to try calling in loans, which caused up to 40% of the available money supply to be destroyed by bank failures. There were about 11,000 Bank Failures in all.

After thoroughly researching the subjects of economic depression, recession, inflation and the economy, I present here a detailed explanation of why I believe the economic collapse is upon us, why you should be concerned about it and how to survive. We'll cover the following affected areas and we encourage you to submit questions on other areas that might be affected:

How banks and banking will be affected How home values will be affected How gold will be affected What can you do to reduce your exposure to an economic collapse?

Liquidity

To increase liquidity, or the supply of money, the Federal Reserve (FOMC) buys government issued securities (such as U.S. T-bonds, T-bills or notes). This effectively reduces interest rates, which decreases the cost of borrowing. The “FED“ must be careful, because too much liquidity in the market can be inflationary. The opposite effect would be reached by selling securities, causing higher rates.

Sub-prime Lending

Sub-prime loans are usually used to finance mortgages for high risk borrowers with poor credit, at rates higher than the prime rate. High risk borrowers inability to make their payments due to increased interest on adjustable rate mortgages or the inability to refinance due to falling housing values, causes significantly higher default rates. As foreclosure rates rise, banks could fail.

To illustrate how quickly this can happen, I site the following examples:
On April 2, 2007, New Century Financial the second largest prime mortgage lender in the U.S., filed for bankruptcy. American Home Mortgage filed for bankruptcy on August 8, and shares for Countrywide Financial, Accredited Home Lenders and Thornburg Mortgage have all lost slightly more than 50% of their value over the last year.

Predatory Practices to Watch Out For

Low introductory rates that ratchet upward by as much as 50% Adjustable-rate loans with large balloon payments No early pay off Making it difficult to refinance

Many people today are using credit cards to stay afloat. Heck, I’ll bet you’ve even seen people financing their groceries and gas station purchases. Many purchased new cars at low interest rates and others took out home equity mortgages. Credit debt is rising at an alarming rate. As of 8/10 2007, consumer debt is nearing 2.5 TRILLION dollars. Because the job market is shrinking due to jobs being shipped off to other countries as well as the faltering economy, many will lose their jobs, which means they will not be able to pay these loans back. This will be big trouble for banks and finance companies.

Inflation

Inflation (the loss of purchasing value of the dollar) occurs when the demand for goods and services are greater than the supply, and/or the supply of money is increased 'created out of thin air', which causes an inordinate rise in the general level of prices. Excessive debt creation by the financial system also contributes to inflation. Deflation occurs when the supply of goods and services is greater than demand, and/or the supply of money is decreased. Decreasing the money supply can be achieved indirectly by increasing the nominal interest rates. Spending cuts and tax increases by the Government can be used to achieve the same results.

Not to be confused, the term national debt refers to direct liabilities of the United States Government. As of 8/10 2007, the national debt stood at 9,009,410,075,859.67. That's 9 TRILLION!

Recession

A downward trend in the business cycle, or a decline in production and employment causes consumers to buy fewer durable goods, and businesses delay purchasing machinery and equipment and are more likely to use up existing inventory instead of adding goods to their stock which leads to a corresponding fall in production which worsens the economy. Personal and Business Bankruptcy will naturally follow!

Recessions generally lasts from six to 18 months. Interest rates usually fall during a recession in order to stimulate the economy by offering cheap rates at which to borrow money. The problem here is, that the U.S. Dollar is already at a 15 year low and still falling, which means it buys less in trade. If the FED lowers interest rates again, which they will certainly be forced to do because of the faltering economy, not only will it drive the value of the dollar down further, but it creates even higher inflation. Inflation that’s been hidden for as long as I can remember, by excluding food and energy from the mix. In the last 4 years, food has MORE than doubled and gasoline fluctuated between 50% and 100% increase in it’s price since 2003.

A depression is a recession that is increased in duration and depth of the loss of wealth.
PS

And so it begins. I listened to MSNBC all day Friday, Sept. 28 and didn't hear a peep about this story: Regulators Close NetBank, also on Oct 4, 2007, the failure of Miami Valley Bank, nor the fact that this is the third bank closing in 2007.

By Michael Scoglietti
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