The run on Northern Rock bank in Great Britain, the short run on Countrywide, and now the collapse of Bear Stearns show how weak the banking system has really become. Of course, that is also a reflection of how much doubt there is about the mortgage crisis -- banks are not lending to each other because they are not able to gauge even their own exposure to the subprime mess.
Taking lessons from Enron in how to securitize and hide debt was apparently not a good idea for large banks, as they now have to deal with trillions of dollars of potentially bad debt. Even worse, no one can quite figure out who owns this bad debt, or how to get rid of it.
But the Federal Reserve has stepped in to take care of even that problem, by offering to trade bad mortgage debt for Treasury securities. This deal is only for the largest banks in the country, so average homeowners will not see any benefit from this self-defeating action by the central bank.
On the contrary, the average American should see a continuation of the decrease in his standard of living. The central bank of the country is inflating the currency and destroying the value of the dollar, which will make it difficult to afford even the most basic necessities, such as food and energy.
Thus, it should not be surprising that the prices of commodities are increasing in terms of devalued dollars. Oil and gold are just two of common measurements on the health of the currency. Producing nations will not want to continue trading oil, the most energy-dense fossil fuel, for worthless paper. And the price of gold has always been a reflection of the level of confidence in paper currency, which is why it has been suppressed for decades.
Now that the price of gold has been escaped the control of the world's central bank manipulators, though, the Federal Reserve is focusing on keeping up the appearance of economic health for as long as possible. A recession is probably the best they can hope for, as opposed to an inflationary depression.
But the Fed is walking the path of inflation by lowering rates weekly and injecting essentially free money into the banking system. For some reason, they do not seem to grasp the fact that it was artificially low interest rates that helped grow the housing bubble to such heights. Fixing the problem of inflation with more inflation is not even a short-term band-aid, let alone a long-term solution.
It should not surprise very many people that the bubble has now collapsed and the project of suburbanizing America has slowed down dramatically, even reversing in some areas. Building homes dozens of miles away from any reliable source of energy, food, water, or gainful occupations was never sustainable as an industry, but its tragic collapse has put many former homeowners who were unable to stop foreclosure out into the street.
But even with the slowing economy, loss of jobs, and high foreclosure rates, Americans are being stolen from to bail out the large banks that helped foster this environment. After all, it is America's place in the world to consume through debt the worthless products of the rest of the world, and without healthy banks to trap people into debt slavery, the entire system would have to find some sort of sustainable future not predicated on endless growth to finance interest payments to the banks.
Unfortunately, it is only a matter of time before the situation goes completely out of control. The Federal Reserve, in an effort to avoid the extreme lack of money during the Great Depression, seems to be going in the just-as-extreme direction of hyperinflation experienced in Germany in the early decades of the twentieth century. Except now, they are doing it on a global scale by devaluing the dollar, which will hurt America more than any other country.