There is No Recession, This is Planned Financial Demolition

[Crewleader]

Economics / Credit Crisis 2009 Aug 12, 2009 - 07:23 AM

By: Mike_Whitney

Credit is not flowing. In fact, credit is contracting. That means things aren't getting better; they're getting worse. When credit contracts in a consumer-driven economy, bad things happen. Business investment drops, unemployment soars, earnings plunge, and GDP shrinks. The Fed has spent more than a trillion dollars trying to get consumers to start borrowing again, but without success. The country's credit engines are grinding to a halt.

Bernanke has increased excess reserves in the banking system by $800 billion, but lending is still slow. The banks are hoarding capital in order to deal with the losses from toxic assets, non performing loans, and a $3.5 trillion commercial real estate bubble that's following housing into the toilet. That's why the rate of bank failures is accelerating. 2010 will be even worse; the list is growing. It's a bloodbath.

The standards for conventional loans have gotten tougher while the pool of qualified credit-worthy borrowers has shrunk. That means less credit flowing into the system. The shadow banking system has been hobbled by the freeze in securitization and only provides a trifling portion of the credit needed to grow the economy. Bernanke's initiatives haven't made a bit of difference. Credit continues to shrivel.

http://www.marketoracle.co.uk/Article12687.html

[Deja Q]

1. So I shouldn't start a business then?

:(

[RandomThoughts]

2. They are still paying out bonuses, so they are protecting their profits

above the good of society if they are not working to help economic recovery.

[On the Road]

3. None of This Equates to "Planned Demolition"

Banks are still tight with loans because of economic uncertainty and because sentiment rules just as much as it did during the bubble. Bank policies may seem perverse at time, but increasing foreclosures is the last thing they want.

[lordsummerisle]

4. Some good points

but frankly I'm getting tired of these "the world has ended" articles. By my recollection the world supposedly ended a year and a half ago. It makes for a great read, after all which would draw your attention more "Financial Armageddon Is Here" or "Crisis Averted, Very Long, Slow Improvement Ahead"?

I think that these financial issues can be discussed a bit more rationally and without the hyperbole...

Thanks for keeping us up-to-date...

[leftofthedial]

5. yup

people keep hoping the "down cycle" will end and the "up cycle" will kick back in.

Not gonna happen.