This article was first published in June 2009:
Things have been strangely quiet on the economic and financial front over the last month or more. I believe this is the calm before the next storm, yet it is obvious that many people, including fund managers and other financial professionals think this rally will last and last. Let's see who is more likely to be right.
After the market collapse of late 2008 and early 2009 there was a reversal, and the stock markets of Britain and the US have made substantial gains. In the US the S&P rose 8.54 per cent in March, and has made further gains of 9.39 per cent in April, 5.31 per cent in May and, so far in June, 0.23 per cent. In Britain the figures for these months have been plus 2.51 per cent, plus 8.09 per cent. plus 4.11 per cent and then minus 2.89 per cent so far in June.
Just looking at these figures gives cause for concern for anybody having invested on the basis that the recovery is underway. The highest figure for both indices was for April, with June nearly over and showing stagnant or negative figures. But lets take a brief look at what has been happening behind the scenes at the banks, where all the trouble stems from.
These huge banks, remember, had to be bailed out with billions and billions of taxpayers' money just a few months ago. This was because they had been on a reckless orgy of lending massive amounts of money to people who had little or no chance of ever repaying it. What have these banks been doing over the last few months? Have they been prudently lending to credit-worthy companies and individuals in order to get their business back on a firm footing so they can start repaying the taxpayer? Have they been exercising extreme caution so as not to make the same mistakes again?
No. What they have been busy doing over the last few months is lending massive amounts of money to people who have little or no chance of ever repaying it.
This sounds incredible, but it's true. Added to this is, as I wrote last month, the fact that another, bigger barrel load of the brown stuff is set to hit the fan over the next few months and into 2010, and that is the commercial mortgage situation, where borrowers, through no fault of their own in general, are in the process of defaulting in massive numbers, having been hit by the recession and subsequent fall in sales and profits.
Meanwhile in Britain the latest ruse of domestic mortgage lenders is to sell the mortgage to another lender, who then offers to write off a percentage of the loan,typically around 25 per cent, if the borrower will then agree to seek out a new lender to transfer his mortgage to. At least this helps many house owners, who can reduce their monthly payments and overall liability to the money-lenders.
But it shows what a farcical merry-go-round the whole financial system is. The sooner we all wake up to the whole racket and take matters into our own hands, the better. There's nothing to stop us all issuing our own money, free from debt, and regaining our ancient freedoms.
Just download and read "Promise To Pay" from our home page to get started.
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