Due to the lack of controls in the financial  system in the US and around the world there has been an inflationary gap between supply and demand. 

The sub-prime mortgage fiasco was a result of financial deregulation which allowed banks to issue out 100% finance with no repayments aka Ninja loans. 

Wages growth has spiraled out of control. Asset prices have risen dramatically and the asset bubbles have burst and fallen  down by 30% in most countries.  

In most countries around the world they have seen doubling of Unemployment rates. The credit crunch has slowed down business activity around the world. Due to the lack of controls in the financial  system in the US and around the world there has been an inflationary gap between supply and demand. 

The economic crisis has been directly related to the Peak in global oil production supply peaked in 2006 or 2007. The global demand for oil continues to rise and rise.  The main two developing nations insatiable demand for oil: India and China desperately need oil to continue development and feed its 1.4 billion population. Oil is a finite resource and is supply constrained. Expect the cost per barrel of oil to escalate as the oil supply slows down. 

Did the Community Reinvestment Act of 1999 hold a gun to the head of banks and order them to do what they did with the financing they did, to dice and slice and rebundle it and label it all AAA?  Did the government tell the rating agencies to make the ratings of the investments lower risks than they were?  Did they also tell then to engage in credit default swaps?

Personal debt, foreign debt and national debt are all growing issues around the world. The whole consumer based economy relies on an unlimited credit lines and accumulation of massive amounts of debt.

Debt is the assumption that the future will be richer than now (else wise, you wouldn't be able to pay it off). The rate that debt is growing suggests that people expect the future to be exponentially larger.

The problem I have with that is that a larger future, and a more complex society, requires more and easier energy. In fact, the correlation between human prosperity and oil production is almost perfect. How can we make the assumption of an ever-larger future based on things that require finite resources?

And it's not about the day when we run out of oil, it's about the day when we reach peak oil – that is the amount we can produce in a given time period for a certain cost starts to decrease. At the point of peak oil, 50% of total oil is still around.

I personally believe that we need to get off oil. Fast. Or, rethink our economic model. Either way, major difficulties are coming to our ways of life in the mid term (if we don't get off oil, and our economies can't keep growing at the rates that our ever-growing debts require us to grow at, we will see collapses of the financial sectors, and our currencies).

A constant global supply of oil has been critical in ensuring the economy runs smoothly. Every single recession and boom in the last one hundred years has been related to the global oil supply.

Yes.By repealing specific laws that were in place, separating the ability for a bank to issue the mortgage, package into a MBS or other security, as well as the rating agencies that were in on rating the bonds AAA, it allowed much of the problem to come into being within a 8-10 year period. In addition, the CRA has allowed banks to leaverage predatory lending practices, as you see in the second citation. 

http://en.wikipedia.org/wiki/Community_Reinvestment_Act#Legislative_changes_1999

In 1999 the Congress enacted and President Clinton signed into law the Gramm-Leach-Bliley Act, also known as the "Financial Services Modernization Act". This law repealed the part of the Glass-Steagall Act that had prohibited a bank from offering a full range of investment, commercial banking, and insurance services since its enactment in 1933. A similar bill was introduced in 1998 by Senator Phil Gramm but it was unable to complete the legislative process into law. Resistance to enacting the 1998 bill, as well as the subsequent 1999 bill, centered around the legislation's language which would expand the types of banking institutions of the time into other areas of service but would not be subject to CRA compliance in order to do so. The Senator also demanded full disclosure of any financial "deals" which community groups had with banks, accusing such groups of "extortion".^[60]

CRA interjected the Gramm-Leach-Bliley Act into law which allowed the investment banks to package these loans and offer insurance on them.

Further reading:

http://en.wikipedia.org/wiki/Community_Reinvestment_Act#Predatory_lending

In a 2002 study exploring the relationship between the CRA and lending looked at as predatory, Kathleen C. Engel and Patricia A. McCoy noted that banks could receive CRA credit by lending or brokering loans in lower-income areas that would be considered a risk for ordinary lending practices. CRA regulated banks may also inadvertently facilitate these lending practices by financing lenders. They also noted that CRA regulations, as then administered and carried out by Fannie Mae and Freddie MAC, did not penalize banks that engaged in these lending practices. They recommended that the federal agencies use the CRA to sanction behavior that either directly or indirectly increased predatory lending practices by lowering the CRA rating of any bank that facilitated in these lending practices.

CRA1999 created the beast that caused many of the maladies you argue about. There have been many Community Reinvestment Acts. I am not attacking the entire act. I am attacking the specific changes made in the 1999 version which was passed by a Republican Congress and signed by a Democrat president.

I had asked if the CRA happened to put a gun to their heads and DEMAND they get stupid.  As I see it, it didn't.  What the reforms did was enabled themselves to become increasingly stupid, by removing regulations on the system.  What I normally see when people bring up the CRA is say that the government held a gun to their head an demanded they do what they did.  Such demands that caused the system to crash weren't there.  Wall Street and the banks brought it on themselves.  In a nutshell, reforms to reduce regulations caused the meltdown to happen.

The rich-poor gap divide increased exponentially worldwide since 1980. The top 1% billionaires in the US became richer as the bottom 50% became poorer. Unfair distribution of the nation's wealth. 

Corporations are owned by super rich families. Under cutting workers pay and conditions, boosting share holders returns, directors and CEOs(company owners) boost their salaries and bonuses every year even if the company makes  a profit or loss. The biggest losers are the lowest paid workers who lose their jobs. 

Corporate Greed was to blame for the GFC. Deregulations sped  the widening rich-poor divide. It is not fair!

I am a Socialist and I believe people and the environment are more important that businesses maximising profits. Ethics is business is never practiced in the real world.

Increasing government debt will have to be paid off by future generations in tax increases and reductions in government spending. 

Workers struggle for pay and social status in developed nations. People in developing nations struggle to survive. 2 to 3 billion people worldwide live off $2 per day.  Think about that for a moment. That makes you really wonder how good your life is in comparison to the starving 50%. 

Like I say over and over, deflation is our biggest fear and risk, not inflation.

Fed Will Meet With Concerns on Deflation Rising

By SEWELL CHAN

WASHINGTON — The Federal Reserve will meet on Tuesday faced with a pivotal decision about whether to abandon its presumption that the economy is gradually picking up steam and begin to consider new steps to keep the recovery from sputtering out.

A string of developments, including the weak jobs report last Friday, has altered the sentiment within the central bank, leading Fed policy makers to stop worrying for the moment about the increasingly remote prospect of inflation. Instead, they are increasingly focused on the potential for the economy to slip into a deflationary spiral of declining demand, prices and wages.

Economists, including former Fed officials, say the central bank’s interest rate policy committee is likely, at the least, to acknowledge the slowdown in the recovery, and to discuss steps like reinvesting the proceeds from its huge mortgage-bond portfolio, which could help the economy by keeping more money in circulation.

Not since 2003 has the prospect of deflation been taken so seriously at the Fed, and not since the 2008 financial crisis have the markets been looking so closely to it for guidance. With Congress unwilling to embark on substantial new stimulus spending, the Fed has the only tools likely to be employed anytime soon in response to the economic warning signs.

The Fed’s chairman, Ben S. Bernanke, and other officials believe that the Fed, having lowered interest rates all the way to zero in 2008, still has the ability to avoid deflation. But they are also concerned that any new dose of monetary medicine could carry unintended side effects, making it harder to normalize policy in the future.

Complicating matters, a vocal minority of Fed officials is skeptical that deflation — a spiral of falling wages and prices, which Japan’s economy has experienced since the 1990s — is even a worry.

“The outcome of this meeting is more uncertain than in any in at least the last year,” said Laurence H. Meyer, a former Fed governor.

At the Fed’s last meeting, in June, the prospect of deflation was discussed for the first time this year.

Alan Greenspan, the Fed chairman for 18 years until he retired in 2006, said Friday that the economic outlook had darkened. “It strikes me as a pause in the recovery, but a pause in this type of recovery feels like a quasi-recession,” he said.

He added: “At this particular moment, disinflationary pressures are paramount. They will not last indefinitely.”

Mr. Greenspan said there had been “some evidence of a pickup in inflation” until the Greek debt crisis took hold in the spring. But the resulting uncertainty drove down long-term interest rates — the yield on the benchmark 10-year Treasury note fell to 2.82 percent on Friday, the lowest level since April 2009, and barely budged Monday — in a reflection of what Mr. Greenspan called continuing problems in the financial markets.

Mr. Greenspan declined to make recommendations or predictions for Fed policy, but on Wall Street, there is already talk that the Fed could begin a new round of quantitative easing — buying financial assets to hold down long-term interest rates and increase the supply of money.

Jan Hatzius, chief United States economist for Goldman Sachs, predicted on Friday that the Fed would begin a new round of asset purchases — which could include at least $1 trillion worth of Treasury securities — late this year or early next year. He revised down his forecast for the growth of gross domestic product in 2011 to 1.9 percent from 2.4 percent. He also predicted that unemployment would hit 10 percent in the second quarter of next year.

Among the voting members of the central bank’s policy-setting Federal Open Market Committee this year, the presidents of the Fed’s Boston and St. Louis district banks have warned recently about the threat of deflation, while the Kansas City bank president is known for his view that inflation, the Fed’s traditional enemy, remains the greatest threat. But it is Mr. Bernanke who holds the most say over the outcome.

Randall S. Kroszner, a former Fed governor, said the committee was certain to alter its outlook in its statement on Tuesday.

“I think the language will broadly change to acknowledge the moderation in the pace of the recovery,” he said.

Mr. Kroszner said it seemed increasingly likely that the Fed could announce that it would reinvest the cash it receives as the mortgage bonds it holds mature, rather than letting its balance sheet gradually shrink over time.

In March, the Fed completed its purchase of $1.25 trillion in mortgage-backed securities. A decision to reinvest the bond proceeds in other mortgage-related securities, or in Treasuries, would be largely symbolic but carry great weight, as it would signal concern about the economy, and also make clear that an “exit strategy” from easy monetary policy was not imminent.

The Fed might also be poised to discuss two other options: lowering the interest rate it pays on the roughly $1 trillion in reserves that banks are keeping at the Fed in excess of what they are required to, and altering the “extended period” language it has been using to describe how long short-term interest rates will remain at “exceptionally low” levels.

Frederic S. Mishkin, another former Fed governor, said that most recoveries hit speed bumps, and that economic indicators contained considerable statistical “noise.” He said the Fed would be prudent not to overreact.

“It’s not clear the Fed needs to ease at this point,” Mr. Mishkin said. “If the recovery gets back on track they are still going to have to worry about an exit strategy. Quantitative easing is not a trivial matter. The expansion of the balance sheet leads to many complications for the Federal Reserve.”

But Mr. Meyer, the former Fed govenor, said the committee should take into account not just the probability of various outcomes, but the potential damage associated with each of them.

“Because the cost of a slowdown in growth is so dramatic relative to that of higher inflation, they should follow the risk-management strategy that Greenspan espoused during the last deflation scare,” he said.

During that period, in 2002-3, the Fed kept interest rates low, as the economy recovered from the 2001 recession, to guard against deflation. Those fears did not come to pass. But some now say the Fed kept rates too low for too long, feeding the housing bubble.

“It is by no means a slam dunk,” Mr. Meyer said of the Fed’s decision.

http://www.nytimes.com/2010/08/10/business/economy/10fed.html?hp

Deflation is the greatest threat to the US economy and to the world economy.