Monday, October 13, 2008

Perspective On Today's Financial Crisis

Once upon a time, banks were locally owned and run by people whom were your neighbors, friends, lunch buddy, etc... The bank was simply a warehouse for the depositor's money and the bank managers had to be careful about whom they were lending the depositor's money to. They made sure you were credit-worthy and had good references. You used warehouse receipts that were redeemable in lawful money. Then a new breed of banker came along roughly around the middle of the 20th century and from there, it was easy credit just for the sake of easy credit. Thriftiness and good monetary principles were out and convenience just for the sake of convenience was in. Federal Reserve Notes backed by the national debt ("good faith and credit") is another indicator of this mindset. These notes are certainly not backed by lawful money.

But nowadays, credit is getting harder to come by. While this may cause some short-term pain, in the long run, it is necessary. If you keep playing with fire, you will eventually get burned and many people have been burnt. Of course, the central banks of the world which caused the problem in the first place are now claiming they will fix it. But in reality, they just want to continue doing what they've been doing all along. They either don't care if they harm people or nations or will never learn so as long as they can consolidate their power and wealth.

But if this crisis is going to be overcome, it will have to be done at the grassroots level. We need to get back to basics. Stop leaving beyond your means and stop allowing yourself to be enticed by the bank's promises of easy credit which is created by fractional reserve banking.

*Coming tomorrow - what will the near future look like*


Byron Chesney said...

I think we should reprise the barter system.

One thing that I hope to see come out of all of this is a decrease of the number of credit card offers in my mailbox.

Chris F. said...

I have had one credit card my whole life. I only use it on occasion generally for emergencies or online buying. I pay it off in full just a few days before it is due. I remember getting my first credit card just before I turned 18. I wonder what I did to deserve it. Of course, they thought I would just go run it up. Not me. I've understood how credit worked since I was 13.
I wasn't a fool then and I'm certainly not now.