Originally titled “Financial Instability in Iceland” as you note later this made me sick.
Jay Parker (I)

I WANT MY $400,000 BACK!

One of the most memorable moments of my life was watching Paulson stand behind the idiot Bush in sheepish silence as it was announced to the world that the US economy was found belly up and beyond resuscitation. My losses were nowhere near as large as yours, but considerable. I also was hit with the realization that my employment in construction supply was tied tightly to the house flipping craze that had been at the root of “exposing” the frailty in the system. Along with losing my employment I lost any affordable access to health insurance as my wife was in the middle of a fight for her life with stage four cancer, so I’m aware of the feeling of having the sand under my feet swept away by a series of waves.

Having a lot of time on my hands and being good at the Google, I took on the task of rooting out the cause of most costly failure of the banking system in modern history. It wasn’t easy because there was certainly no shortage of “experts” lined up to sell their version of history to the media or conspiracy theories promoted online. Each had its own villain to crucify and most were deflecting from their own culpability, so credentials meant less than nothing. On top of all of that disappointment it became clear that the President I had campaigned for (I was on the short list of people included in conference calls that the President sat in on until I argued openly with him in ’09) was going to abandon the people in favor of the defunct system as his cabinet began taking shape with most of the zombie Clinton era architects of the failure in top positions.

After the noisy, but obviously corrupted, chaff was blown away by research I found a small number of macro-economists and traders that had issued warnings of the frailty of a system that had no sound underpinning and no limit to risk exposure. They posited that, in the absence of public money in the economy to compensate for drains of trade deficits and wealth accumulation, the people had little choice but to leverage their private debt to maintain lifestyles. This demand for credit, coupled with monetary policy making it cheap, produces asset bubbles that turn to busts with the inevitable business cycles of a capitalist economy.

They laid the fundamental cause of the crash at the feet of the Clinton administration and its “budget surplus” that coincided with increased trade deficits from the tech bubble. Backing this analysis is a history of similar depression/recession following each previous occasion when public budgets came within shouting distance of balance and private debt increased to compensate. After reading “Seven Innocent Frauds” by Warren Mosler I lost all interest in micro economic nit picking of the crash and the pieces of the puzzle began falling into place, as well as the dread of realization that most accepted “truths” about economics were shredded even while politicians and the well paid economists shilling for banks were doubling down on them in our fiscal policy.

As this revelation lead naturally to the economists and research coming out of the Levy Economics Institute at Bard College and the discipline they labeled Modern Monetary Theory it became more than clear that nothing was “fixed” after the massive injection of public money at the top of the economic food chain and a lot of shuffling of deck chairs. We are at even more risk now than we were in ‘05-’07 with more exposure, not less. If anything, our chances of correcting the basic fault in thinking have been all but eradicated by the anger of the voting populace in reaction to their fear and sense of being had by their government that was supposed to be watching the wolves, not holding the door to the hen house for them.

I don’t see any chance of instituting a fiscal policy involving much more public deficit spending in our future sans the inevitable repeat of ‘o8. My suggestion is to buckle up because this next ride down is going to be much bumpier than the last, as all of the slack in the private sector was already taken up in austerity measures aimed at the mostly irrelevant public debt that is the default go to for politicians more adept at pandering than actual management.

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