“How an Economy Grows and Why it Crashes,” “Too Big to Fail” and the 2008 Recession

The film “Too Big to Fail” takes viewers down the 2008 financial meltdown, also known as the “Great Recession of 2008,” and emphasizes its impact on the economy. The crisis was avoidable and caused by “widespread failures in financial regulation (Fed’s failure to stem the tide of toxic mortgages); dramatic breakdowns in corporate governance including too many financial firms acting recklessly by taking on too much risk; an explosive mix of excessive borrowing and risk by household and Wall Street that put the financial system on a collision course with crisis; and simply lacking a full understanding of the financial system they oversaw.” ( University of North Carolina). The book “How an Economy Grows and Why it Crashes,” by Peter Schiff, comically interprets the effects of inflation, deficit spending, central banking, foreign trade, and the housing bubble and credit crunch of 2008.

The U.S. economy boomed during the 2000-2007 period, as the global pool of fixed-income securities increased greatly from $36 trillion in 2000 to $80 trillion by 2007. In “How an Economy Grows and Why it Crashes,” the Usonian economy starts with production and trade soon follows. Usonia now had savings and credit, an increase in savings decreases real interest rates and an increase in credits increases demand, hence, there was expansion in the Usonian economy. As the economy prospered, it created a paper currency backed by fish, similar to currency backed by full gold reserves in the U.S. However, fractional reserve banking develops and only a fraction of bank deposits were backed by actual fish for withdrawal. The government decided to delink the paper currency from the fish. Usonia degraded the value of the fish by creating more fish out of the value of one. This process of “shrinking fish” eventually leads to “fishflation.” As people start spending more and producing less, the economy stops blooming and crashes.

A king from Sinopia, an island that still had no savings, bank credit, or business, observed Usonia and saw their luxurious lifestyle of credit and commerce. The king thought that the possession of Fish Reserve Notes was the key to advancement. Notes were then used as money across the entire ocean, and the economy was saved as Sinopia traded their fish for Usonia’s fish reserves. Thus, Usonia was again piled with savings and credit, causing a spending binge atmosphere in Usonia. This is similar to when China supplies the essential items for U.S. fiat currency. Usonia largely consumed and Sinopia produced, hence, the trade relationship was skewed. However, as Goodbank said, “The people will get wise. They will worry about their savings and withdraw their deposits,” which is exactly what happened next. Foreign islanders realized that the fish reserve was worthless with no backing at all. Therefore, islanders started to withdraw fishes with their fish reserves all at once. In truth, there really were not enough fish in the economy, so Usonia had no choice but to close the fish reserves window. It is fiat currency and worthless, backed by nothing but the faith in the government.

Producers were harmed by the expansion of the