A Review of the Economic Crisis

of 2008


I’d like to present a few facts as to how we got here, so that we may find our way back.


Looking back to 2008, the Federal Reserve had initiated a shift in its monetary policy that caused severely negative reverberations in this country and around the world. The ramifications weren’t intended. I watched the news in the spring/summer of 2008 when then Federal Reserve Chairman Bernanke lowered the Fed Funds Rate 1/4%, slightly inverting the yield curve for the first time.


The year was marked by repeated and aggressive decreases in the Fed Funds Rate.  Foreign money at the start of 2008 and prior, attracted to US banks for their stability, credit worthiness and returns, found falling Interest rates, followed by a mortgage crises, credit freeze and collapse of mortgage backed securities as good reasons to move elsewhere, further exacerbating the problem.



During the election of 2008, then Senator Obama and other Democratic candidates led this country introducing a construct of “Austerity”,  that would limit consumer purchasing to exclude excessive debt.  Their platform also included a shift in the GDP target range from the historic 3% - 4% to 2% - 3%, a “walk” from the Money Multiplier, the anomaly that had created cash in circulation without printing or borrowing of capital from the utilization of Fed Funds by banks that had been a part of this nation’s monetary structure since the 1930’s.  Their policy fostered the close of the Fed Funds as a short term borrowing instrument.


source: tradingeconomics.com


In the spring of 2008 GDP was calculated at 2.3%, with the US National Debt at approximately $10 trillion and printed capital at $850 billion. That summer the price of oil topping $140 per barrel, adding to fears and concerns as to the future of the American auto industry.


With the Fed Funds Rate reaching unattractive levels, banks reduced the submission of their own excess reserves to fund it. The result, those banks in need of overnight lending no longer had Fed Funds as a viable safeguard.


Credit froze.  While buyers for autos and homes sought to finance their purchasing, banks were not able to finalize loans.  As a result, sales of new and existing homes, and autos fell. The Money Multiplier, an anomaly that generates money through borrowing without an increase in printed or borrowed capital, also fell precipitously, furthering the impact of a lack of funding for loans.


Then Senator Obama, Senator Clinton and others cited the Money Multiplier and the “failed” policies of the Bush Administration as the reason for the collapse. However, since that time, this nation’s shift in monetary policy to exclude the effect of the Money Multiplier is now cited as the impetus that exacerbated a troubled banking system to a level of national economic crisis.


It was a time of crisis.  The Federal Government injected sums of capital in the form of TARP, Cash for Clunkers and a New Home Purchase tax credit. Initial fiscal stimulus initiatives cost over $1 trillion. I was not able to find an estimate of losses to consumers and net tax receipts.


In response to money fleeing the country, an extensive erosion of capital in the markets, and a falling money multiplier effect, the Federal Government printed capital and issued bonds.  Further monetary action included additional decreases in the Fed Funds rate and an increase in the Bank Reserve Requirement from 5% to 14%, further constricting credit and banks ability to lend.


The $700 billion TARP program was concluded in 2013 with a profit to the US Treasury of $1.1 billion as well as profits from mortgage backed security holdings close to $15 billion.


In conjunction with emergency funding and increases in printed capital and debt at unprecedented levels, the Obama Administration completed, in 2010, reductions in Medicaid coverage and  HUD availability to new applicants in the categories of families and individuals, as cost saving measures.


The elimination of Medicaid coverage of physical therapy, chiropractic care furthered the trajectory of the opioid crisis while HUD disbursements wained


Expensive with costs exceeding $2 trillion and costly in many ways that cannot be measured, the crisis of 2008 is over. Now it's time to finish cleaning up the mess.


Interested in the

US National Debt?


US National Debt as of December 30, 2019 now tops $23.1 trillion with additional borrowed funds from state and local entities across the country bringing the grand total above

$25 trillion.


In 2019 the US Treasury paid out $574.587 billion in debt interest.


Another important number to consider-- the current US National debt is 106.1% of this country's total Gross Domestic Product.


While the numbers appear bleak, this country is far from broke with the US Capital Account  including assets at the International Monetary Fund exceeding $127 trillion. ...Learn More


Despite this country's shear wealth, feel that it is time to pair down debt, utilizing some instruments in our Capital account to reduce this nation's debt exposure and debt interest expense.


Reducing this nation's debt level may also be fostered by other efforts.


I am pleased to present a sketch that may reduce  this nation's debt by as much as $8 trillion or more  over the next  two to three years.


US Holdings of Mortgage Backed Securities

The Federal Reserve as of June 13, 2018, $1.739 trillion in mortgage backed securities that originated from the TARP bailout in 2008.



Prior to 2008, the US had no holdings of mortgage backed securities.


While holdings of mortgage backed securities have been profitable as an investment vehicle for the Federal Reserve, as the overall interest rate trend has boosted principal values, from an investment standpoint, it is important to look at weigh the value of being indebted verses earning returns on one's assets from the perspective of optimizing total returns and availability of capital.


I urge lawmakers in Washington DC to reduce the Federal Reserve holdings of mortgage backed securities by $1.5 trillion and use those proceeds to retire debt.


IMF Reserves

The US dollar, as it is a pass-through currency, has extensive reserves at the International Monetary Fund for that purpose.


US dollar reserves, for pass-through purposes grew from $17.6 trillion in 2017 to $25.5 trillion this November 2019.


US holdings in Foreign currencies, over the same period fell from $42.7 trillion to $40.96 trillion.


Net cash balances grew from year end 2017 to November 2019 by $6.105 trillion or 10.09%..


I urge the Fed to utilize $1.5 trillion to reduce this nation's debt, helping to create an even more stable environment for the US dollar and world markets.


In listening to remarks from Fed Chairman Powell, I understand that a $1.5 trillion shift of funds out of the IMF would be well within the capital requirements for the account.


Gold Bullion

First, I'll begin with this nation's current position of gold bullion, totaling $11 trillion.


Gold is believed to be a valuable commodity and a safeguard in the event of world calamity.  However, countries around the world, including the United States, migrated away from gold decades ago as the backbone of their respective currencies.


Gold isn't directly interchangeable into any currency.  The primary use of gold, is, in fact, to make jewelry, a luxury item that would be far considered for purchase in the event of a world crisis. While gold may be the choice of engineers for certain components, or at times a dome on a state capital building, gold has few other tangible uses.


Gold, in the event of a world crisis, might actually crash in value relative to the value of a respective currency.  So that, if your money is in gold and the sky falls  when you translate your gold into money you will retrieve far less cash.


Sometimes the theorists are wrong.  The above is the contrarian belief among market analysts to the theory that gold should be hoarded as a hedge against market collapse or world crisis.


Let's Pay Off Some Debt


  • Reduce Federal Reserve $1.7 trillion position  in Mortgage Backed Securities by $1.5 trillion
  • Reduce Current Gold Bullion Level of $11 Trillion by $2.5 Trillion over the next two to three years
  • Reduce by $1.5 Trillion IMF Cash Holdings
  • Close US Healthcare- relieving $1.2 trillion in capital escrowed


Total: $6.7 Trillion


Gold trades independently of world currency values.  The price of gold is, in fact, tied to the price of oil, as Russia, Canada and other countries rich in oil and mineral deposits sell both.  When the price of oil is high, a country will likely sell more of its oil, thus depleting the available supply on the market of gold and, with that drive up the price of gold, while the increase in the available supply of oil on the market would tend to cause the price of oil to fall.


During a time of crisis, however, the demand side of the equation would be greatly affected.  The demand for gold might actually fall dramatically, unfavorably skewing the availability of its sale for a reasonable price.


I recommend to reduce the US Capital Account's gold position by $2.5 trillion, over the next two to three years, with the proceeds used to directly pay off the national debt.


Actions by the

Federal Reserve


In looking back at 2008, the monetary policy shift by the Federal Reserve from the utilization of the Money Multiplier to a combination of debt and printed capital has led to the enormous increase in the national debt that we see today.


From 2008 to its peak in 2014 the nation's printed capital (MO) grew from $850 billion to $4.1 trillion, while the nation's debt advanced from $10 trillion in 2008 to $23.1 trillion today.


MO is currently $3.42 trillion with the Money Multiplier index at 1.07, up from its low of .68 in February of 2014.



A reversal of Chairman Bernanke's policies that led to the economic crisis of 2008 would include a system of downsizing debt and reducing MO to pre-2008 levels.


Recently, the Federal Reserve lowered the fed funds rate to stimulate the economy after reversing the trend earlier this year.


Retiring debt with extensions of capital into the system, in place of lowering the Fed Funds rate earlier this summer would have helped to maintained the continued strength in the recovery of the Money Multiplier that peaked this past October at 1.18.


Not to reverse the course of reducing MO, a system of injecting capital by way of retiring debt, when the economy is in need of a boost,

thereby utilizing the money multiplier to further the positive impact on overall economic conditions, would allow the nation's debt to decline much in a reverse of the same way in which much of it grew.


Indeed, while a decrease in Fed Funds may attract home buyers and new construction, at the same time the action retards economic growth in other ways, such as detracting from M1, M2 dollars with the downward movement in the Money Multiplier and the deterrence of foreign money into US capital markets.


With a focus on MO and not this nation's debt structure, the Fed has allowed itself further latitude in printing capital in the future, while maintaining a debt laden balance sheet with heavy interest rate expense.


Given that simply retiring debt with printed capital in and of  itself would lead to a capital structure with excessive printed capital. Fed action may also include a retiring of capital to temper economic activity.


Keep in mind that overall adjustments may work within certain guidelines, such that would allow for a stable system of  maintaining a responsible level of printed capital with Fed Policy committed to lowering the national debt.


Note that in 2008, when a decline in Fed Funds led to a credit freeze, a simple reversal of Fed Funds would have freed the banking system.


The presumption that downward revisions in

Fed Funds rate will simply boost the economy, no matter how low it goes, is false.


Finally, tempering or advancing this economy with movements in interest rates can lead to increases in interest costs on our debt, should our economy begin to grow at excessive levels.


I urge the Fed to focus on the retirement of the nation's debt with the use of this nation's capital structure to foster growth, and hope that the fed will retire capital when economic growth needs to be dampened.  I do not make this recommendation as sole actions by the Fed, only as an inclusion.