The reasoning behind the acceleration of the credit crunch is simple and needs to be reemphasised. The unwinding of the grotesque debt excesses of the last decade have only just begun (see chart above)! Rapid expansion of government debt and QE will not and cannot prevent the revulsion that is now underway (the Fed publishes the Q2 update of the debt data today, Thursday.
In addition, banks are retrenching their loan books as policy makers force higher capital requirements. In all probability this process would occur irrespective of government involvement as banks inevitably act pro-cyclically, exacerbating both boom and bust. But as we repeatedly highlight, one of the lessons from Japan is not to mistakenly believe that banks are the problem. Similarly a healthy, recapitalised banking sector is not the solution. As Japan experienced before, it is de-leveraging that is the problem and retrenchment takes many years, rendering the economy extremely vulnerable to rapid relapses back into recession when any reverse or pause in extreme stimulus occurs. The Great Moderation relied on the debt super-cycle which is dead and buried.
LINK HERE
US credit shrinks at Great Depression rate prompting fears of double-dip recession
Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.
LINK HERE
This article does not make sense because, recent data has shown that lending has increased to both individuals and businesses. Liquidity has indeed increased. Looking at inter-banking lending rate which is very low shows that banks has been lending between each other again and that money is making its way through the economy. Recent improvement in housing data is also pointing to increased liquidity and not a crunch.
ReplyDeleteAn increase in Government debt will not intensify the credit crunch as more spending by government means more money available on the market and increased liquidity.(I think the EA or the Author of this article should review their basic economics).
As far as Bank required to have a greater capital ratio, we all know that all major banks have increased their capital through the market by issuing more shares and at the same time Americans have increased their savings with banks which will increase liquidity and make more credit available to the market.
The debt and buried comment does not make sense otherwise the US and the west would have been buried after the 1930 depression (debt was more than 100% GDP and it was paid and the US and the west came out to be the elite economic nations).
This bust has passed and we are growing stronger just as we did the last time and we will grow even stronger when the next bust comes.
I figured it out.
ReplyDeleteIt's Ben Bernanke.
1:10AM is Ben Bernanke.
He's taken it upon himself to try to combat the 'growing tide of false propaganda' concerning our economy.
What are your opinions on how to make money off of all of this? Short the Dow? Buy more metals? Invest in the green movement? Just looking for opinions at this point. Money is always made off of the rise and fall of man.
ReplyDeleteNorthwest Territorial Mint.
ReplyDeleteAnony 5:56, I have to say your comments were very intelligent in discrediting 1:10.
ReplyDeleteHowever, if you can please provide more explanation as to the fact that it is false propaganda. Do you have any information that can prove that what the media are saying is false?