In 2008, the Treasury secretary, the Federal Reserve chairman and almost all the politicians, including Barack Obama (a senator at the time) told the American people that if they did not step in and do something, the global financial system would collapse.
When I talk to people now, virtually no one seems to know what "they" did to prevent the collapse and moreover, they are pretty content in not knowing.
However, I think Americans should basically know what the government did to prevent the so-called global financial system collapse of 2008.
On the monetary side, the Federal Reserve lowered interest rates to zero and bought $2,300 billion worth of investments that no one else wanted, mainly government backed mortgage debt. On the fiscal side, it has increased the deficit each year from about $400 billion to $1,500 billion or about $1 trillion per year. That does not include any state or city borrowings, nor does it include trillions of dollars of borrowings that other countries did to stimulate their local economies. A good estimate is that worldwide, governments borrowed or printed $8 trillion to $12 trillion to try and stimulate the global economy for the past 3 years.
So what that means is that the solution that everyone seems to be content with was to borrow even more money then we were before the crisis in 2008.
What have we gotten for all the additional borrowings? The Western countries have GDPs around 1 percent, and many people feel like the last recession never ended. The emerging markets are doing better with regard to GDP growth, but have inflation problems. Some emerging market economies are raising interest rates to try and slow down the local inflation rate.
Time is running out and we will soon see if, indeed, the political elites' solution of fighting a huge debt problem, which was to borrow and print even more money, will actually work.
I was taught by parents and teachers back in the 1960s in Walla Walla who went through the Great Depression. Their teachings were based on sound finance principles. And based on sound finance principles the elites' solution of borrowing more money will not work, and my investment portfolio is built on that premise.
In fact, I think since governments are borrowing even more money that we're even closer to a global economic collapse now than we were in 2008. Time will tell.