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Global Crisis (2): Who Gets Hurt?

Posted by Virtapay

Note: This is a fairly long blog post. You may want to take a minute to grab a refreshing drink, then sit back, relax and enjoy part 2 of our blog post series on the Global Crisis.
Recap: In our last blog we covered some of the events of the global economic crisis. We mentioned how these events were just the tip of the iceberg, and that the root problems are seated much, much deeper than most people are aware. As you’ll learn in this Global Crisis blog post series, the root causes of the global economic crisis are woven into the very fabric of our current financial system. If you haven’t already, we suggest you read part one  of this blog post series before continuing here with part 2.

Causes, effects and opportunities

As mentioned in part 1, we have recently spent months deeply researching the global economic crisis. We started by looking at the effects and worked our way backward to locate the causes. The trails of evidence led us down many paths. Some of these paths led nowhere, most seemed designed to mislead and obscure the truth, while a few led us deeper and deeper into the mostly unseen and mysterious realms of international finance.
Ultimately, we arrived at some surprising conclusions.
The global crisis has had many effects, such as those listed in part 1, and quite often they are obvious. Every day in the news we see stories of rising unemployment, massive government debt, closing factories, burst housing bubbles, government bailouts of corporations, failed retirement funds, crisis in Europe, etc.
But, the causes (and some of the most disturbing effects) are not so obvious. In fact, they are hidden behind an almost impenetrable web of lies and deliberate distortions. If the real causes were obvious, it would be easy to fix the problems right now. But, looking back, if the causes had been obvious, the problems would have been fixed long before they became the crisis they are today.
The problem is, hidden causes are nearly impossible to fix. Much like a doctor treating symptoms instead of curing the disease. One must know what is broken in order to fix it.
We have been working diligently since our last post, to organize our findings and conclusions into a format that can be easily understood. At this point, we expect this blog post series to contain at least 6 parts, maybe more. This should give us enough room to fully explain the conclusions of our research.
Toward the end of this blog post series, we will present the unprecedented opportunity which became apparent from our conclusions. It’s an opportunity we expect will allow VirtaPay users to directly benefit from the global economic crisis for many years to come.

In a crisis, who gets hurt?

When a nation—or the world—experiences an economic crisis, like our current situation, who gets hurt? Does everyone suffer an equally damaging blow? Do some emerge unscathed? Does anyone benefit? For the remainder of this post, we’ll explore these questions, giving you some points to ponder until we post the next part in this series.

Our conclusion: The rich get richer.

Our research led us to conclude that recessions and depressions generally only hurt the middle-class and poor. The wealthy, despite their claims otherwise, usually benefit massively from economic troubles. The bigger the crisis, the more they benefit.

Only % matters — not $

In news reports we repeatedly saw a certain claim keep surfacing…

During economic troubles, the wealthy always seem to claim that “everyone” is being hurt by the situation, not just the poor and middle-class. They boldly claim the economy is hurting them too. To support their claim, we are shown some charts or figures representing the falling “net worth” of the wealthy due to the economic slowing.

This lie works particularly well, because it appears to be true — on paper. Claiming that they’re getting hurt too is a tactic used by the rich to keep the lower classes from rising up in violent revolution. The real truth is, even though their net worth may be falling, they are actually getting richer in terms of real wealth.

How can that be?

Their lie takes advantage of the common misconception that today’s national currencies have an absolute value. They don’t. Yes, in a financial crisis, the nominal net worth of the rich may fall by millions or even billions of dollars, euros, yen, etc. But, those currencies are all relative in value. And so, their supposed losses can be used to divert attention from the real issue — percentage of ownership in real wealth.
When the net worth of a wealthy person falls by millions or billions (as measured in today’s national currencies) during an economic downturn, it doesn’t mean anything once you look at the fact that their percent of ownership of the world’s real wealth has increased!

How it works for the wealthy…

The wealthy, by definition, own far more real wealth than the average person. This real wealth usually includes things such as real estate, stocks, bonds, precious metals, etc. They generally earn the bulk of their income from capital gains in the stock market… ownership in companies. So, when an economic crisis hits, the value of stocks falls (because companies are selling less), the price of real estate falls (due to less buyers in the market), and so on.
This is why the net worth of the wealthy falls in an economic crisis. This is the basis of their claim of being “hurt like everyone else”.
So, for example, if they own 10,000 shares of “XYZ Company” and the stock price has fallen from $500 to $400 per share, they can call it a $1 million loss. But only on paper. When the crisis or recession (or whatever it is) ends, the stock market always goes back up and usually beyond where it once was. So, as they complain of being “hurt” by the market, they are actually busy buying up stocks, real estate and every other item of real wealth while the crisis has temporarily lowered the prices of these things.

How it works for everyone else…

On the other hand, the poor and middle-class own far less real wealth per person than the wealthy. An economic crisis directly limits the ability of the poor and the middle-class to provide even the basic essentials of life. In order to sustain their families, they are often forced to sell the few items of real wealth they hold (this includes real estate, stocks, bonds, vehicles, jewelry, and more). In order to sell those possessions, there must be a buyer who still has money to spend during the crisis. Can you guess who it is? Of course, it is the wealthy.
To add insult to injury, because the market is in crisis, the items sold off by the lower classes usually sell at greatly depressed prices. For example, jewelry, stocks, vehicles, homes and other property are often sold at a loss by the lower classes just so they can survive.

An ever widening gap

When looking at any recession or depression throughout history, the wealthy elite nearly always come out owning a greater percentage of the world, while the lower classes generally emerge with less than they had going in. Economic recessions and depressions allow the wealthy to consolidate their power and grab up more of the world’s wealth. This process of wealth transfer from the poor and middle-class to the rich is actually accelerated by economic hard times.

An example: The U.S. housing bubble

Here we’ll take a step-by-step look the recent housing bubble in the U.S. to show a real-life example of exactly how the rich get richer from an economic crisis.
Note: The full details of the causes and effects of the U.S. housing bubble could undoubtedly fill thousands of pages. We have intentionally simplified and summarized the housing bubble below. We believe that governments and the elite try to portray such situations with extreme complexity in order to keep the middle-class and the poor from understanding what really goes on.

1. The central bank manipulated the market. In the U.S. the Federal Reserve fills the role of central bank. To start inflating the housing bubble, they set the interest rate for loans at a historic low level.
2. Investors jumped in. As a result of the low interest rates, greedy investors who qualified for the low-interest loans began using the money to buy up houses across the U.S. They did not buy these houses to live in them, they bought them as an investment… to make a profit.
3. House prices rose. The buying frenzy drove up house prices. Limited supply with massive demand naturally causes prices to rise.
4. Wealthy investors earned big profits — repeatedly. As house prices continued to rise, the investors sold off the homes they had bought at lower prices and quickly bought even more new homes with the profits.
5. Innocent people got trapped. With house prices outrageously high, and rising, many middle-class and poor people and their families were caught in a trap. These people simply needed a place to live. They weren’t investors, but they were trapped in an investor’s bubble. So, with no other options, they agreed to take out loans for homes at prices they really couldn’t afford.
   The banks were engaging in predatory lending practices. This means that the banks actually knew these middle-class and poor people didn’t earn enough to repay the loans. But, corruption and greed drove them to approve the loans anyway. (A side note: The banks would then quickly turn around and resell these loans to other unsuspecting investors. Thousands of these bad loans were packaged together and sold to hedge funds. That is part of the reason so many retirement funds lost money when the housing bubble burst).
   Once the innocent people moved into their new homes, they lived in a state of continual stress and fear for a few years as they desperately tried to stay current on their monthly mortgage payments. Many applied for government assistance just so they could still feed their family and have a place to live.
   To continue making house payments, they borrowed from family. They took out murderous “payday” loans. They lived paycheck to paycheck, burned through any savings they had, and still came up short every month. Many resorted to running up credit card debt just to pay the bills. They stayed afloat for as long as they could, until one day they sunk. They simply couldn’t make the house payment any longer.
6. The bubble popped. Inevitably there came a tipping point… once enough of the common people who had been stuck in this horrible situation defaulted on their home loans. At that point, the housing bubble burst.
7. Innocent people were financially destroyed.
   • Those who couldn’t pay got evicted.
   • Many became homeless.
   • Many now have a black mark on their record that will follow them for life.
   • Many will find it impossible to get a loan at a decent rate ever again… if they can get a loan at all.
8. The bankers were rescued. The U.S. government declared that the biggest banks involved in this scandalous behavior were “too big to fail” and they were summarily rescued with tax dollars. The bitter irony here is that tax money from the innocent people who got trapped in this situation actually went to rescue the very banks who hurt them. Imagine being ordered to pay a criminal who robbed you on the street. The U.S. government rescued the bankers from the natural consequences of their own greed and corruption — using taxpayer money. Many of the top executives at these banks went on to earn multi-million dollar bonuses for their “performance” during the housing bubble.
9. Investors win again. After the bubble burst, the house prices crashed back down, and the banks turned around and started selling the now vacant, foreclosed homes to investors at rock-bottom prices. The investors win again.

What did we learn from this example?

We learned that it’s a good life if you’re a wealthy investor, or banker, or someone with power. That way you can win both while the bubble grows (continuously buying and selling at a profit, while helping to drive prices higher) and after it pops (suddenly there are a lot of low-priced empty houses to buy). It’s also nice to have power in the government because you can manipulate the market and then save your favorite people when they get in trouble.
However, it’s very unfortunate if you are an innocent, average person who just needs a place to live. If you lived through the above example, it means that you may have been hurt both as the bubble grew (when the only houses on the market were priced unreasonably high) and when the bubble burst (which is about when you might have been evicted and had a financial black mark put on your name). Plus, let’s not forget, your tax dollars will now go to rescue the banks who hurt you.
This was just one real-life example demonstrating how the rich get richer while the middle-class and poor can get severely injured in an economic crisis.

Get ready for Part 3

In part 3 of our Global Crisis blog post series we will dig deeper into the root causes of the global crisis. We’re working to present the big picture of what is going on in the world and invite you to join us in taking advantage of the unique opportunity it presents. Those who don’t take action are likely to get caught in the coming storm.
source; virtapay