In a previous post entitled "Banking 101", I explained that the U.S. banking industry engages in fractional banking. This means that only a small amount of the money "deposited" in a bank is required to be kept in the bank's vault. Most of the money is loaned to other customers.

When a customer obtains a loan - let's say for $1,000 - the bank records the amount of that loan as an asset because the bank will collect interest on the loan. The amount of the loan - $1,000 -is also recorded as a liability by the bank because the money is now in circulation. The banks books are in balance (pay-out of $1,000 equals the loan asset of $1,000).

If the borrower is unable to make payments on the loan it ceases to be a bank "asset" and the $1,000 loan asset disappears from the bank's books. The $1,000 liability remains, however, because the money is circulating through the economy.

Regretfully, things are seldom the way they should, and much less as we
would ideally like them to be. Therefore, if we want to resolve a
problem we have no other choice but facing it head on, even if we have
to pinch sensitive nerves focusing on the taboo issues that invariably annoy our sacred cows and their interests.

Digging into my elephant's memory I recalled the last few months of George Bush Father's campaign
for the Republican nomination. Although he never used this slogan, it
was very popular among his not-so-conservative followers: "We've got to stop Governor Reagan because he's too conservative". Remember?

Regardless, Ronal Reagan wisely united the Party appointing Bush as his running mate. Remember?

The federal reserve is a bank for bankers. It is a central bank just as The Bank of England is a central bank for the United Kingdom. The federal reserve is, in fact, the third central bank which has plagued the citizens of the United States. Both of the others were dismantled because they destroyed the nation's money through inflation.

The primary function of the federal reserve is to create money. If a U.S. government security for $1,000 is held by the federal reserve it can then have the Treasury Department to print $1,000 worth of federal reserve notes which Treasury then gives to the federal reserve.

The federal reserve now has $1,000 in cash, or more properly "fiat" money. The federal reserve retains a percentage of this cash, say 10%, and loans the remainder to a second bank. This is known as "fractional banking" because only a fraction of the money is actually on-hand at the bank.

This might come as a shock to those of you who have old-fashioned ideas about why the economy isn't so hot right now.  You may have notions that the problems are things such as too much consumer debt, a housing bubble caused by sub-prime mortgages...enabled by the government via Fannie Mae & Freddi Mac, or even too much money made available by the Fed, but you would be wrong. 

The folks in the Obama administration have identified a new culprit.  Big businesses.  Specifically, those that dominate their markets.

As if commandeering the banking, finance and auto industries weren't enough, a couple of weeks ago the Obama administration decided to throw a bomb at modern antitrust law.

Assistant Attorney General for Antitrust Christine Varney claims that the Justice Department can aid economic recovery by prosecuting businesses that have been successful in gaining large market shares. In her announcement last month she argued that "many observers agree" that our current recession reflects "a failure of antitrust" and "inadequate antitrust oversight."

So, the problem with our economy is businesses that have been so successful that they have gained a dominate share of their markets?  "Success" is our problem?

Out of 535 members of the United States Congress, only 3 Republicans (all liberal Republicans) voted for Barack Obama's so-called "stimulus" bill, H.R. 1, the Democrats' number one bill for the 111th Congress and for Obama's presidency. That means Obama's Democrats now own 99.4% of the American economy and will be responsible for the expected decrease in America's gross domestic product and the continued unemployment. Even Democrat policy analysts predict this if Obama's stimulus bill becomes law.

Indeed, the stock market experienced a Great Crash today after the Democrats passed their pork-filled non-stimulus bill which will cost the American taxpayers way over $1 trillion (including interest.) The Dow Jones Industrial Average nearly dropped a whopping 400 points.

At Obama's press conference, the Associated Press reporter who asked the first question of the evening, actually asked a reasonably tough question asking whether or not Obama is talking down the economy with his Cassandra-like talk about catastrophes if Congress does not pass his bill. Obama, in his answer to her question, referred to Japan's "Lost Decade" and that America is in danger of duplicating that.