You learned from yesterday’s Economic Update that our nation’s money supply is composed of much more than just physical currency.  In fact, the greatest amount of money is in the form of credit that was created through the issuance of new loans.

Here’s a question for you.  What if you had the desire to be incredibly wealthy, but you didn’t much like the biblical principle of putting your hand to the plow?  What if you decided to let others labor for you – until such time as you would come in and steal their labor?

This is exactly how the international banking community operates.  Don’t believe me?  Let’s examine history.

How many have heard of the Great Depression of 1920?  No, I didn’t say 1929 – I said 1920.  It was a short-lived depression, but it served as a psychological impetus for citizens to thirst greedily for the free flow of bank credit that was to follow.  We hear about the “roaring 20’s”, where financial speculation ran rampant.  People were investing huge sums of money into the stock market and real estate.  Banks allowed anyone desiring credit to attain it.  We became a nation of debt-addicts.

Then 1929 hit.  The international bankers abruptly shut off the flow of easy credit to the addicts.  The most highly-leveraged individuals were so distraught that they contemplated suicide – and many of them followed through.  Companies could no longer obtain financing to meet their payrolls, and had to lay people off or reduce wages and benefits.  Long soup lines formed, while the nation’s unemployment rate skyrocketed to around 25%.

Franklin Delano Roosevelt was elected President of the U.S. with a promise to fix things.  He, along with Congress, instituted large public work projects, such as Hoover Dam and the Tennessee Valley Authority.  An economist by the name of Keynes assured the Federal government that massive deficit spending would give a new spark to the economy and we would eventually recover.  It didn’t happen.  It wasn’t until the international bankers collected enough of the underlying assets from defaulted credit that they began to gradually turn on the “credit availability valve”.  This had the effect of causing the money supply to grow once again, and inflating the assets that the international bankers had taken from the people – assets that the bankers never did an ounce of work to attain.

Let’s fast-forward to present times.  The international bankers caused a major depression (all recessions used to be termed “depressions” until after World War II) back in late 1999 and on into the year 2000.  It was fairly short-lived, and aroused the appetite for the remarkably easy credit availability that followed.  We lived through the “roaring 2000’s” – where speculation ran rampant in the stock market and everybody was making large sums of money in real-estate.

Then 2008 hit.  The international bankers abruptly shut off the flow of easy credit to the addicts.  Do you see a pattern?

This “credit valve” that was shut off will most likely remain that way for at least the next eight to ten years, if we use history as our guide.

What happens when credit stops flowing?  All of the money created based on credit also stops flowing.  What happens when credit begins to default and get destroyed?  Money gets destroyed.  The money supply begins to fall – and fall fast.  We see where companies can no longer meet payroll, or they need to trim their fixed costs by getting rid of employees, reducing wages, and eliminating certain types of benefits.  Factories produce fewer widgets as existing inventories are drawn down to bare-minimum levels.

How badly has credit been getting destroyed?  Pictures speak better than words.  Here’s a graph showing year-over-year changes in commercial and industrial loans at commercial banks:



Notice the cliff dive.  Credit is being destroyed – meaning money is being destroyed.  Also notice the mini-depression around 2000 and the subsequent “roaring 2000’s”.

Now let’s look at consumer loans at commercial banks as a year-over-year comparison:

Again, we see credit being destroyed at unprecedented levels.  The nation’s money supply is being destroyed as credit gets destroyed.

This next graph shows us how much credit consumers still have outstanding on a year-to-year basis:



Some people think it’s great that consumers have less outstanding debt.  Actually, it’s horrible for the economy – since the reduction in debt is mainly due to credit defaults where the banks are taking the underlying assets.  It’s also destroying our nation’s money supply.
Our nation is in a very, very serious predicament.  The international bankers have shut off the flow of credit, and there’s nothing that we, or our government can do about it.  Congress is powerless.  The President can only beg the banks to begin lending again.

Folks, here’s the reality.  We are currently in a severe depression.  Not just us, but the entire developed world.  The international banks have shut off the credit valve to all of the various governments, and we don’t know when they plan to turn it back on again.

We have unemployment nearing the levels achieved during the Great Depression #1, when measured with the same methodology as was used back then.  We have soup lines that are just as long – except the 35 million standing in line with their soup bowls are actually holding food stamp credit cards instead.

The ONLY thing that is masking the credit destruction somewhat is the absolute reckless debt creation being carried on by our Federal government.  We’ll examine that side of the equation next time.

Tomorrow: The Federal Government – Creating Debt Like Their Life Depends On It

If you are not currently on the Economic Update email list you can email me at: brad@newfamilyeconomics.com to be added.
There is no charge and your email address will never be shared.