When This New Bubble Bursts, It's All Over

by Okechukwu Onwuka

Recently by Gerald Celente: The 2nd American Revolution

“Our society is now based on consumption .. 70 per cent of the GDP. This is more than we produce. So to pay our bills, we use funny money invented in 1913 with the creation of the Federal Reserve and the fiat dollar based on credit (debt).. the fractional reserve system.

In 1930’s you bought what you could afford. You saved up to buy your home. The easy credit of the 90’s has destroyed the country. Now you borrow what you can’t afford .. and the nation’s done the same.”

“Phantom dollars, printed out of thin air, backed by nothing … and producing next to nothing … defines the ‘Bailout Bubble.’ Just as with the other bubbles, so too will this one burst. But unlike Dot-com and Real Estate, when the “Bailout Bubble” pops, neither the President nor the Federal Reserve will have the fiscal fixes or monetary policies available to inflate another.” “This is much bigger than the Dot-com and Real Estate bubbles which hit speculators, investors and financiers the hardest. However destructive the effects of these busts on employment, savings and productivity, the Free Market Capitalist framework were left intact. But when the ‘Bailout Bubble’ explodes, the system goes with it.

The above are extracted statements made on the US and world economy by Gerald Celente, the head of the Trends Research Institute, a top trend-forecasting agency in the world. He had predicted accurately a number of previous events such as the 1987 stock market crash, the 1998 Russian economic collapse, the 2000 Dot-Com bubble burst, the 2001 recession, the US housing market collapse of 2008, among others. You may be wondering what this has got to do with the Nigerian banks and their MDS. The answer is a lot. In the current world economy, a bank will typically extend credit to borrowers in excess of the fund reserve it carries at any point in time in a practice known as fractional reserve banking.

By doing so, banks effectively increases the total money supply in the system above that of the total amount of fiat money in existence. Fiat money is a term used to define money that is not backed by reserves of another commodity such as gold, silver, or other tangible mineral or asset. The reality of this practice is that a bank will not have access to sufficient cash (fiat money) to meet all the obligations it has to depositors if they all decide to withdraw the balance of their accounts or deposits. Fiat money is usually given value by the government. The United States switched indefinitely to fiat money in 1971, with many developed countries’ currencies fixed relative to the US dollar. Our banking system is not home grown. Our financial theories and economic systems are largely wholesale adoption of western systems.

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September 7, 2009

Gerald Celente is founder and director of The Trends Research Institute, author of Trends 2000 and Trend Tracking (Warner Books), and publisher of The Trends Journal. He has been forecasting trends since 1980, and recently called “The Collapse of ’09.”

Copyright © 2009 Vanguard Media Limited