How Bad Will the Economy Get? Really, Really Bad

By Thomas Greco, Jr., AlterNet. Posted July 14, 2009.

Historically, every financial and economic crisis has been used to further centralize power and concentrate wealth. This one is no different, and in fact the moves being promoted by the Obama administration and the central banks of the Western powers will take the whole world to the pinnacle of financial despotism -- unless enough people wake up and claim their own "money power.”

In recent months, the Fed has expanded its "assets" from about $800 billion to more than $2,000 billion. Those so-called assets are securities it bought from financial institutions and loans made to central banks in other countries. But the Fed refuses to name the specific recipients of those funds, while admitting that by doing so they are manipulating the value of the US dollar on foreign exchange markets. (Congressman Alan Grayson Grills Fed Vice Chair Donald Kohn.)

Where does the Fed get the money to buy those "assets" or to make those loans? Quite simply, it creates the money. Unlike you or me or any other economic entity, the Fed has the power to create Federal Reserve dollars by effectively writing a check against no funds. This is the function known as "Open Market Operations."

What is the economy experiencing now, and what is in prospect for the future? Despite unprecedented inflation of the money supply, we are now (mid-July, 2009) in a period of depression. How can we have simultaneous inflation of the currency and still have economic depression?

It is a matter of where the money is going. While the public sector (federal government) is being lavishly funded to maintain a global empire, and the banks are being bailed out to try to keep a dysfunctional and destructive financial system from collapsing, the private productive sector is being starved for credit. As a result, businesses are bankrupting, people are losing their jobs and their incomes, and lower levels of government are being squeezed because their tax revenues are shrinking.

There is also the matter of the real estate bubble that was created by the financial institutions as they loaded up the private sector with a debt burden that was way beyond its ability to bear. Now that burden is being shifted to the public sector as the government assumes those "toxic" loans. Unfortunately, it is not the poor suckers who were lured into the debt trap that are being relieved, but the predatory lenders who laid the traps. So mortgages are being foreclosed at an unprecedented scale, people are losing their equity as housing values plunge, and more Americans are being made homeless.

These are the factors that have so far kept the effects of monetary inflation from becoming extreme. Ultimately, however, such abusive issuance of political money shows up as rising prices.

When will the price effects of hyper-inflation begin to kick in? How will the government respond to it? What will be the social and political fallout? What can ordinary people do to protect themselves from monetary and legislative abuses? These are the questions that beg for answers.

Already there are rumblings and signs that the U.S. dollar is about to lose its status as the global reserve currency. When that happens, imports of energy and other necessities will become more expensive. The U.S.’s massive trade deficits will not be sustained into the future. China, the OPEC countries, and others that have been buying massive amounts of U.S. government bonds with their dollar earnings, are indicating that their appetite has been sated. Bilateral and multilateral trade agreements are being made that bypass the use of the dollar for international trade.

One thing is clear -- we cannot rely upon the government to act in the best interests of the people. Already, President Obama has moved to give the Federal Reserve even more power to control the people's credit and financial resources. According to a June 18 article in the Wall Street Journal, "The central bank would win power to monitor risks across the financial system, and sweeping authority to examine any firm that could threaten financial stability, even if the Fed wouldn't normally supervise the institution." This is not a new plan; it was floated as a trial balloon during the Bush administration. As early as March 2008, then Treasury Secretary Paulson was proposing to "give the Federal Reserve broad new authority to oversee financial market stability, in effect allowing it to send SWAT teams into any corner of the industry or any institution that might pose a risk to the overall system."

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Thomas H. Greco, Jr. is the director of the Community Information Resource Center, which he founded in 1992. CIRC is a nonprofit consulting organization and networking hub dedicated to economic equity, social justice, and community improvement, specializing in community currency and mutual credit design, development, and implementation. His newest book is The End of Money and the Future of Civilization.

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