More debt is not the answer. And yet, from our world’s governments, more debt is now the answer.
Inflation is not necessary except to help keep the rich rich and the poor poor. Deflation works: the price of clothing and other commodities dropped when modern manufacturing methods were invented. That was GOOD. Then branding and advertising snuck in and those factories that churn out identical products started churning out non-identical products identically made except for some superficial changes, and charging more and more for them.
But that’s inflation of supposed ‘designer’ value. But deflation works. You pay half as much for twice the computing density of technology every few years. No one is bitching about that. No one should because it benefits us all.
So lets have debt, but sane amounts of debt, borrowed dollar per dollar saved, not 5 or 10 borrowed dollars per dollar saved. Leverage is potent potential energy. When it snaps, as it has now, EVERYONE HURTS.
In the news:
and
The IMF said in January that it expected the deterioration in US-originated assets to reach $2.2 trillion by the end of next year, but it is understood to be looking at raising that to $3.1 trillion in its next assessment of the global economy, due to be published on April 21. In addition, it is likely to boost that total by $900 billion for toxic assets originated in Europe and Asia.
and
BILL MOYERS: So you’re suggesting, saying that CEOs of some of these banks and mortgage firms in order to increase their own personal income, deliberately set out to make bad loans?
WILLIAM K. BLACK: Yes.
and
This debt derived from Americans spending more than their income, reflecting the positive wealth effect. Households felt wealthier … Now that wealth effect has reversed with a vengeance. … household balance sheets will not be rebuilt soon. Home values will keep falling through mid-2010 and there is no precedent for equity markets, still down 45 per cent from their peak, to make those losses up in just two years. It is illogical, therefore, to expect a full snap-back in the consumer sector in 2010 or 2011. This alone mandates a drawn-out, weak recovery.
The second key sector is the financial one. … losses are eating into banks’ capital and shrinking their capacity to add assets. Funds from the Troubled Asset Relief Program are only replacing lost capital, not increasing it. When might they end? With key categories of toxic assets still losing value, the answer is: not soon. The scale of lending needed to support a normal cyclical recovery will not materialise.
A third constraint on recovery may involve the federal balance sheet. The fiscal and monetary engines are currently on full throttle. But, within two years, concerns over budget deficits and inflation may revive, compelling the Federal Reserve to raise interest rates and Congress to adopt deficit reduction steps. These actions, contractionary by definition, could occur before a full recovery has asserted itself. On that basis, the federal balance sheet would also limit a full recovery.
and
“While certain mortgage problems are farther along, other areas are likely to accelerate, reflecting a rolling recession by asset class,” Mayo wrote in a report today. “New government actions might not help as much as expected, especially given that loans have been marked down to only 98 cents on the dollar, on average.”
Wow what a fucking Monday. All links via the incredible CR.
Tags: bitch bitch bitch, depression 2.0, no really we're really fucking fucked this time, we're fucked