By Michael, on August 3rd, 2012 
The problem with our financial system is world wide. In a few days, or a few weeks, or even a few months from now, I predict a bank crash of world wide proportions. It can be postponed as long as a year or more. It might happen on a Monday. It might happen on a Tuesday. But what will happen is one or more major billionaire investors will pull the plug on easy money by simply transferring their money into something a little wiser. It will probably happen gradually. This will be to keep a panic from occurring. I suggest they are going to put all their investments in something like Big Oil. Huge amounts of money are currently being quietly transferred to metals such as gold or silver. This comes from the conservative attitude that these metals and more will maintain value when currencies go down. It has been occurring for a long time now.
Simply put, the banks do not have enough money to cover themselves when a major account decides to go to Gold. And we are very close to seeing that happen at any time. Normally it would be buried by the election. The politicians need to get elected then let disaster happen. They are in and have nothing to worry about. Or do they?
Anyone that has studied history knows that we have two sets of numbers going here. The one set is in accordance with financial theories currently popular such as Keynesian Economics. The other set is determined by a more conservative group. This second set of numbers is what concerns me. This conservative group is betting big money that the currencies themselves will go under. This group is led by a theory put out by the Mises Institute.
So our government is busy printing money. The government has nothing on which to back this money up with. The idea is to have the money on paper for the banks to cover themselves with. So far little of this money is actually going into circulation. It is on the books of the banks to keep the banks solvent while they ride the numbers and the world wide depression that is coming.
The financial people have gotten themselves into a system that has nothing to do with reality. And that in a few words is going to hurt them badly.
Reality Check One: all money has to be backed by something. Without that one statement they are all in trouble. In the real world ,currency without backing is called counterfeiting. It doesn't really matter if it is legal or illegal. You have more and more money chasing fewer and
fewer goods.
Reality Check Two: No raises in the current economy. Negotiating wages of the common people. People do not have the ability to negotiate wages for themselves in most cases. What are they going to do if they don't get a raise? Quit? If your job can be done cheaper elsewhere it eventually will and you will be out of work. This negotiating is essential in a counterfeiting government currency crisis. The government keeps making the money worthless. The people find themselves with no discretionary funds. They are actually not even able to save any money at all. Negotiating is only feasible for people with a necessary skill that the companies cannot do without C cannot
replace with someone else readily.
Reality Check Three: Retail stores have to make a profit. Without profit they go bankrupt. Normally this is done by inflating the economy. You give people the idea that they have discretionary funds to purchase goods. This goes back to Reality Check Two. No raises. No discretionary funds. Retail goods rising in price. The market place goes tighter and tighter because people do not have the discretionary funds necessary for the retail stores to raise the price of goods. When it reaches a critical level these stores no longer have the purchasing power to buy retail goods to sell. The stores go under bankruptcy protection.
Reality Check Four: Normally, the banks protect themselves by making a profit on any situation you can name. Everything from late fees, fees for bouncing a check, mortgages, car loans, etc. The banks are good at draining a massive profit off the common person out there. They are in partnership with our government and the Federal Reserve and it is a closed deal very profitable to the bank.
Here is what is happening to kill the banks. John Doe has bought a house based on his wages at the car wash. Well, the car wash cannot afford to give him a raise in salary which he probably does not deserve anyway. It could just as easily be making Hamburgers for a quick food chain. Or any other number of unskilled labor jobs or semi-skilled jobs. They all pay poorly.
Rule of thumb in the old days: Your house payment cannot exceed one fourth of your monthly income. So the bank fudges a little. Instead of a conservative rule they make it one half of his income. He is qualified to buy the house. A closing date and a payment schedule is set up.
Something wicked then occurs. He is not able to work. He has no job or income. His unemployment check barely feeds him and in some cases his family. He falls behind on his payments.
The bank would like to send someone out to break his legs. Oh, that is the Mafia right? My mistake. They have a more than passing resemblance to each other.
The house sits empty. It is foreclosed on. Now according to government rules, the FHA, or other institutions can now sell the house for two-thirds of the value of the mortgage. (Not the value of the house, the mortgage.) Anything else they have to
eat.
In normal times, this provides them with a healthy profit from someone's misfortune. They get new closing costs, a new mortgage. The buyer gets a house at a really cheap price.
The problem is in this market no one has discretionary income to buy the house. So like a lot of others, the house sits vacant. Squirrels take up residence and the plumbing and the wiring go down the tubes. So now the bank has a property and they cannot sell it. No one wants it. They have just eaten an entire mortgage that was profitable to begin with. This has happened over and over again in the last 5 or
6 years.
The bank is going bankrupt fast and no one can do anything about it under the current rules. Normally these mortgages are sold in packages to investors. But someone neglected to say that the car washer couldn't afford the mortgage even giving it to him for half his monthly wages.
This is generally considered fraud. The bank should never have sold the house to the person in the first place because a conservative system would have stayed with ¼ to 1/3 of the person's monthly income. The banks are only doing what banks do. They are greedy and necessary. The government forced the credit rule on them. So by discrimination rules put out by the Federal Government they really had no choice in the matter. They had to by law give the bad credit risk a mortgage. It came back to hurt both the bank and the government as a good number of these risky investments went bad.
Reality Check Five: Government can change the game rules, but they cannot change the end result of poor judgment. Basically the changes in game rules concerning our financial sector are the problem not the solution. The reality is unless people have a matching income to pay their bills we are all going to be in trouble. The government has changed the rules in the last 20 years. The result is a bankrupt middle and lower class. This effects everything. Taxes to pay for things, the home market, the school system depleted of real estate taxes, the people pushed below poverty level and onto welfare systems. It is a chain reaction. We have to fix the basic problem with government. The rules have to make sense financially for the banks to recover.
Governments all over the world have tried socialism and public welfare. It doesn't work. Reality checks will show it doesn't work. The problem is to get rules that do work. This article only covers one aspect of the problem. That is basically wages, retail prices, and mortgages. It is a lot more complicated than that . . .
In the months ahead, as wages do not match retail prices, I predict you will see a complete collapse of the financial system. The government will have a bank holidays. They will be seeking solutions with pressure from large groups of formerly middle class Americans. The trick will be to keep it from happening until the politicians actually get elected.
(Authored by Dave Webb)
