Boat loads of money looking for return

10. A second long-term process is described that contributed to speculation and

debt build-up. For the past forty years wages have been flat for 70% of all households

but productivity continued to rise. Since 2000, productivity grew at a historically high level.

Yet, during this period U.S. wages actually declined 2%. Rising productivity and flat or falling wages

resulted in huge corporate profits and massive incomes to the wealthiest households..

These profits and incomes were far more then could ever be spent by their owners.

The build up of new wealth flowed into wealth management firms and banks as wealth owners sought return

through further investment. The financial sector was awash in cash and sought to lend lost wages back

in the form of credit cards, college loans, home refinancing loans (often used to pay for college tuition),

and other forms of lending. All along, risk increased and the balance sheets of banks became ever more fragile.

Finally in September of 2008 the financial system collapsed due to its own internal dynamic not some "external shock."

 

Why didn't they see it coming?

11. Below is a photo of the Queen of England at a briefing on the financial

crisis in September, 2008. She was said to have asked why she wasn't provided

a memo six months earlier alerting her to a coming crisis. In fact, almost all

mainstream economists were not predicting a financial crisis.

We visit why economists are often blind to financial instability and crisis. Insights from

Steve Keen's Debt-deflation blog are provided. Insights that should have warned everyone

that the system was on the verge of a crisis.

What's amazing is that powerful financial crises were not uncommon during the

decades leading up to our current crisis. Each time, however, the Federal Reserve was

able to intervene and paper over the crisis with more money and debt creation.