(All transactions used to be in gold but bankers quickly noticed that people never took all their gold out of the bank's vault at once so they issued promissory notes against the gold they held, usually about ten times the actual amount kept in the bank vault.)
Naturally, governments got nervous when a hundred million was 'out there' in circulation against eight million locked in the vault, so they banned gold and dropped 'payable in gold' on the promissory notes (paper money).
Debt today is payable in an accounting term called 'money' that is not backed by any collateral at all, let alone gold, except the collateral of our contractual commitment to pay back (sometime in the future) our loans taken out today for cars, houses, living, loving and kids' education, called credit but is really debt.
Today credit has dried up because many banks cannot meet the 8% capital requirement that limits their ability to lend. A bank's capital – the money it gets from the sale of stock or from profits – can be fanned into more than 10 times its value in loans; but this leverage also works the other way. While $80 in capital can produce $1,000 in loans, an $80 loss (from an SP default) wipes out $80 in capital, reducing the sum that can be lent by $1,000.
Since the banks have been experiencing widespread loan defaults, their capital base has shrunk proportionately – the same eighty on a thousand, hence, 'bubble'.
I'll leave that for now and let the SP bubble burst in its own quick time and just ask you to consider why the Bush administration talked so fast and put such 'huge pressure' on congress to pass the seven hundred billion bailout bill.
The next bubble in the bailout queue is called the derivative bubble. Derivatives are things that even George Soros won't touch, "because nobody understands them".
It's also a bubble with a bailout figure attached approaching $180 trillion.*
And that's not all! When you buy into 'leveraged' capitalism you get to face the post-derivative bubble which you probably first heard of on this page: the Credit Default Swap bubble, currently 'leveraged' at 'around' $540 trillion dollars.
There is no bailout from that height: It's more than the planet is 'worth':
'The End of Compound Interest'
The three-hundred-year long pyramid structure with wealth concentrated at the top from contributors at the bottom is collapsing: This debt-based economy simply has no more people who can afford to buy in – SP loans were the bottom of the barrel.
If you look closely at last week's Dead Cat Bounce in the market, you'll see what I consider a to have been a final exit strategy for the people at the top of this collapsing pyramid.
(A Dead Cat Bounce is a broker's term for a pattern in which a spectacular market drop is suddenly followed by a sharp, moderate rise, which is not an indication of improving circumstances in the fundamentals of the stock, but an observation that even a dead cat will bounce if dropped (or thrown) from a great height.)
Next? A resource-based economy the seeds of which may be emerging in South Africa:
Consider their tripartite alliance's economic policies.
(Note: You can view every article as one long page if you sign up as an Advocate Member, or higher).
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