Bailouts No Solution

Already a few say that stimulus plans make things worse. However too many don’t yet know the right course.

It still is widely thought that this crisis is an economic recession that only lasts a couple of years, however this recession is becoming a Global depression. And could last 10-20 years, or even more if Governments continue the to flood the market with their bailouts paid for by fiat money.

As long this crisis is treated as a recession instead of a depression, the wrong bailout-medicine is administered that increases the liquidity, which does not work for depression but worsens this disaster. A much deeper understanding is required.

Recessions take a comparative short period of time a depression much longer before it is healed. A depression is structural that bankrupts a whole economy that we now are facing.

The world has far too much production capacity from everything fiat money, cars, electronics, houses, offices, you name it. Structural reform is necessary, by reducing banking, manufacturing capacity and so on. Innovative ways and thinking have to be deployed to make the change cleverly with minimal harm for people. Damage will occur, and that should be dealt with by subsidies.

Jobless rates keep rising. The former ‘old hats’ are still in charge, they don't have innovative insight or ideas to tackle this depression. They still think it is a recession and keep the market and banks flooded with fiat money. Even worse Central Banks now are starting with Quantity Easing. This is "monetizing the debt," when the bank takes in debt and turns it into cash. It’s like another kind of printing press to create money out of thin air!

China and Japan, the world's lenders are idiots too, but of a different breed. Simplified the world's credit markets work like this: The world's lenders China and Japan are eager to make loans to the world's biggest debtor the USA because they don't trust anyone else. On its turn the world's biggest debtor lends to people private lenders don't trust. To be more specific: the borrowers who can't pay the money back.

Now people start saving, which is good for them, but a kiss of death to the consumer economy we were in. Savings are good for the individual, but when savings rates go up, spending goes down. The economy suffers. Then, people lose jobs and income, further depressing economic growth. Many came to believe that a little inflation was necessary, since it discouraged saving. While before the crisis it was thought that derivatives were a healthy innovation, since these spread risk and that subprime debt was a good thing as it made it possible for common people to buy houses they otherwise couldn't afford. All this has come to an end, we now have entered another economical cycle called depression where we have to live through whether we like or not.