When Volcker used monetary policy to "wring out inflation" in the early 80s, one effect was to raise interest rates to very high levels. Thus, at that time, to choose one example, short term CD rates went to 15 to 18 per cent levels. S&Ls (which at that time tended to hold mortgages as assets ) found themselves having to fund the 6% mortgages on their balance sheets with these very expensive short term liabilities -- that's what banks do, borrow short and lend long. This maturity mismatch really whacked the income and balance sheets of the S&L industry, which led to legislation "freeing" the industry from a lot of the regulation that had existed before. This change, along with the go go environment in real estate markets in the mid 80s (when oil prices were falling a lot), culminated in the S&L fiasco of the late 80s, which was kept on the back burner during Reagan's final years and was addressed by Bush 1.

So Volcker was there at the start and looks to be in the room again, at what will hopefully be the end.

http://www.goldprice.org/gold-price-history.html#10_year_gold_price

Gold is the most stable commodity. The vast majority of all gold ever mined is still part of the current supply. So the total supply grows very slowly.

The changes in the price of gold are really telling us what's happening with the dollar. After many years of inflation, we are now in deflation.

Stability is what we need. Tying the value of the dollar to a fixed quantity of gold, the way it used to be before Nixon started the inflation cycle by taking us off the gold standard, is an essential first step.

First off, government programs were enacted in order to convince banks to over extend themselves to consumers. Consumers were encouraged by artificially low interest rates to borrow more than they could afford.

These loans that were created were then bundled up and sold to investors around the world. These investors, to guarantee their invested money should these bundles default, also bought insurance to cover their bets.

The consumer, who is underwater in debt, defaults on the loans they were encouraged to take. Insurance companies that provided insurance did not have enough money to cover the payments and had to ask for help from the Fed.

Banks that held these bundles now have no income from these portfolios and are asking for help from the Fed.

Banks can't lend out to companies as their income has halted and those companies that only survive because of credit are calling to the Fed for help.

So now government needs to encourage more borrowing by the consumers who cannot afford to make payments?

To paraphrase, Einstein famously said that doing the same wrong things over and over is the definition of insanity.

The Keynesian economics of interference in the markets is utterly discredited. In order to afford these bailouts The Fed just prints, like counterfeiters, hundreds of billions of dollars to "encourage" banks to, at the very least, start loaning to worthy borrowers again.
Idiocy. While we're at it let's spark hyperinflation in order to "calm" and "encourage" bankers and speculators?

It is long past time to sweep away the entire Federal Reserve and it's fiat currency system, and return to sound money based on commodities such as gold and silver. Study the School of Austrian Economics for the true "change" that is need to fix this mess.

http://postpartisannews.com/

The Greider piece is linked on http://www.RealityChex.com (about half-way down the center column). Greider also got the "quote of the day" yesterday.