Understanding the credit crisis

Posted by on Mar 10, 2008 in Blogging, Economy | 7 comments

The credit crisis we’re currently enduring has been a long time in the making. Arguably, you could stretch all the way back to 1971 when President Nixon removed the United States finally from the gold standard, making our currency a fiat currency. Since then, and especially since the late 1980s, we’ve been inflating our currency and sloshing around cash from one bubble to the next, as investors chased yield and strategy shifted from long term to short term.

Consider the bubbles we’ve had:

  • Defense spending
  • S&L
  • Dot-com
  • Real estate

Each bubble larger than the last.

It’s like… like the United States has been bar hopping, and the real estate bubble was the final bar before last call. Then someone stood up and yelled “Drinks are on me!” only we don’t know who. Doesn’t matter, drinks are on someone, so drink up!

The credit crisis is the hangover for 37 years of excessive drinking at the fiat currency bar. As the song goes, you don’t have to go home, but you can’t stay here…

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  • http://chelpixie.com Michelle/chelpixie

    Best explanation I’ve read yet of the current crisis.

  • http://chelpixie.com Michelle/chelpixie

    Best explanation I’ve read yet of the current crisis.

  • http://linkedin.com/in/danieljohnsonjr Daniel Johnson, Jr.

    Has there ever been a major push to get the US back on the gold standard? I’d have to imagine 37 years of alcoholism doesn’t shake off very easily.

  • http://linkedin.com/in/danieljohnsonjr Daniel Johnson, Jr.

    Has there ever been a major push to get the US back on the gold standard? I’d have to imagine 37 years of alcoholism doesn’t shake off very easily.

  • http://creditcardforum.com Steve/Credit Card Forum

    Christopher I accidentally stumbled across this posting while I was doing research for an article about credit cards and am glad I did! I’ve had your EXACT same thoughts about bubbles. Americans seem to need and desire a bubble all the time. Dot com moved to real estate, and real estate/credit moved to commodities… wonder what the next one will be? It is very much like bar hopping as you said. We need to tighten up all kinds of lending practices, from mortgages to credit cards – the amount of easy credit out there went overboard.

    We knew we were in a bubble when people with recent bankruptcies could buy mansions with no money down…

  • http://creditcardforum.com Steve/Credit Card Forum

    Christopher I accidentally stumbled across this posting while I was doing research for an article about credit cards and am glad I did! I’ve had your EXACT same thoughts about bubbles. Americans seem to need and desire a bubble all the time. Dot com moved to real estate, and real estate/credit moved to commodities… wonder what the next one will be? It is very much like bar hopping as you said. We need to tighten up all kinds of lending practices, from mortgages to credit cards – the amount of easy credit out there went overboard.

    We knew we were in a bubble when people with recent bankruptcies could buy mansions with no money down…

  • http://www.alcoholism-detox.com/alcoholism_withdrawal.php Dave Stages

    Great post, I really enjoyed it.