The Great Dispossession Part 3

Paul Craig Roberts

In Part 1, I explained that the next financial crisis will be bailed out not with central bank money creation but with our stocks, bonds and bank balances.

In Part 2, I explained the multi-year quiet regulatory changes that dispossessed us of our property.

In Part 3, I explain David Rogers Webb's conclusion that a massive financial crisis is pending in which our financial assets are the collateral underwriting the derivative and financial bubble and will result in the loss of our assets but leave us with our debts as happened to those whose banks failed in the 1930s.

Webb begins with the economic formula that the velocity of circulation of money times the money supply equals nominal Gross Domestic Product. V x MS = GDP.

The velocity of circulation is a measure of how many times a dollar is spent during a given period of time, e.g., quarterly, annually. A high velocity means people quickly spend the money that comes into their hands. A low velocity means people tend to hold on to money.

Velocity impacts the Federal Reserve's ability to manage economic growth with money supply changes. If the velocity of money is falling, an expansionist monetary policy will not result in rising GDP. In such a situation, the Federal Reserve is said to be "pushing on a string." Instead of pushing up GDP, money supply increases push up the values of financial assets and real estate resulting in financial and real estate bubbles.

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The Great Dispossession Part 4

Paul Craig Roberts

Under the 5th and 14th Amendments to the US Constitution the transformation of our financial property into collateral for secured creditors constitutes a taking. I don't know whether the taking that exists in the regulations can be taken to court and ruled against prior to a taking actually occurring. Probably not.

The question therefore is how effective will a court ruling be in a situation of financial chaos. Clearly, those who devised the taking regulations either were ignorant of the taking clause or do not expect a Constitutional ruling to prevail.

If the legal profession were to take up this matter, perhaps the discrediting of the regulations would render them useless and force financial regulators and Congress to find other solutions to the problem. Clearly, the ability to create endless amounts of derivatives must be abolished.