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Banks do want to lend!……

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But only to people with great credit. Running a little short on that. But time heals all wounds and as time goes by people’s credit scores go up. All you have to do is quit borrowing, pay down your outstanding debts on time and in a year or so the banks will lend you more.

Lenders look at us as income streams to be tapped not subsidized or discarded. They want you to borrow the max and pay on time forever. They don’t want to lose money. Period. So that’s why they use credit scores which which predicts that if you pay your debts in the past on time, they figure you’ll do it in the future.

The problem they’ve had is that we were tapped out. We’ve borrowed more than we could comfortably pay back. Being spoiled millions of us simply walked from these loans as we panicked from the last oil spike in ’08 which triggered the crash.

Broke dicks can’t buy shit with out credit!

But the banks have to stay in business. So they bought enough politicians and took our tax dollars to pay the crooks on Wall Street with bailouts. Then they buy government debt with these welfare funds that pays more than their borrowing cost (0%). Why should they lend us money when they know we can’t pay it back.

Because Oba mama call them names?

Until we pay off enough debt to bring up our credit scores the economy stays in the tank. Which brings up a point I’ve made before: if the government really wanted to stimulate the economy they would have simply cut everyone on the Social Security tax rolls a check for let’s say $ 200000 and let the good times roll!

By the way, Australia is booming. Guess what they did?

In the mean time, the penalty we have to contend with is that  we can’t borrow from these guys for awhile because they don’t need us. But,  as I’ve said, time heals all wounds. Another way of saying we will simply be borrowing again for Chinese trinkets and Japanese cars as soon as house holds deleverage . Maybe even buy a new house! And BOOM.  Another economic explosion.

Until the next bust.

Yes we will !

Federal Reserve to start the deflation fight next week, expert claims – Telegraph

I think it is a sort of double whammy situation – banks not willing to lend but also many people not wanting to borrow. So its more and more starting to appear that it is not just one sided but both a supply and demand issue when it comes to credit.

So the question is can there be a recovery without further expansion of credit? And how can further expansion of private credit really be desirable in a debt soaked economy?

There would be ways you could create a recovery but they would be so outside the current economic paradigm that they wouldn’t be considered. One of the few countries who did and who recovered better than most (although they do have a very different situation anyway having a small population and being very rich in natural resources) is Australia.

What the Australian government did was most definitely brave. They gave 10 billion dollars away directly to families – most of it to the poorest. They – in their own words decided to ‘ ‘Go hard, go early, go households.’ ” As soon as they saw the financial tsunami coming their way.

Pensioners were at the top of the list. Carers were added in, too and those on sickness benefits. Families were next. The handout was based on recipients of the means-tested family tax benefit. It was a way to get a lot of money out quickly tou households who would spend and therefore straight back into the economy. It was a gamble but it worked (along with other things) and Australia had a much easier time of it than other countries.

Of course Australia had the leeway to do this because it had no huge deficit.

However it has to be noted that the wider stimulus measures and the QE etc have all added to our and the US’s deficit without actually doing much. I remember at the time one – actually a right wing too – US economist saying that the best thing to do would be to increase benefit payments to the poor for a period of around six or 12 months as this would cost less than the QE etc and would also result in real spending in the economy as the poorest always spend money when they get it – they have to they need stuff – the rest of us just save.

But politically he recognised it would be unacceptable in the UK and the US so the one thing that might actually kick start demand – which is the real issue – was never done.

Now we are in a situation where we possibly risk being stuck in a long slow zombie ‘recovery’ but with prices for certain things rising – worst of both worlds really.
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capitalist
Today 09:55 AM
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19 people
Paul Sheard, Nomura’s chief global economist, argues that the current conditions are ripe for the American central bank to take affirmative action to put the US recovery back on track.

There is no “recovery”. There is simply a mass of overleveraged, overpriced assets whose prices have been propped up for a little while longer.

Bernanke can keep giving juice to the debt addicts but it won’t make any difference. One way or another the Keynesian and monetarist fools are going to learn that you can’t build a sound economy on unlimited credit and a permanently distorted cost of capital. All that misallocated capital has to be redeployed – Bernanke is simply ensuring that the misery goes deeper and lasts longer.
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berthavanation
Today 09:55 AM
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4 people
This article by Bob Chapman on The Market Oracle is as succinct as it gets with regards to the terminal path the US economy is travelling.

http://www.marketoracle.co.uk/Article21553.html
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simon_coulter
Today 08:53 AM
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6 people
Does anyone really believe that an economy can be made to look more buoyant by the central bank / government printing money to spend? You expect to exchange the fiat results of the printing press – or balances magically appearing in bank accounts – for tangible goods?
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andrewx
Today 09:16 AM
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5 people
Yes it can be made to LOOK more buoyant, but of course its not physical tangible real wealth, so suck up all the cash, pay down your debt, own physical assets and live off every other sucker who is stupid enough to want a guaranteed job paid for by inflation of their savings. Its not capitalism, its crony capitalism so jump on for the ride!
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paulw
Today 08:51 AM
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25 people
The US economy isn’t going to recover. They have a $13T debt that, even to service the interest on, requires economic growth of 10%. The US are going to default one way or another.
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berthavanation
Today 09:49 AM
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7 people
By hyperinflation
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stephenmarchant
Today 08:39 AM
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11 people
If endebted Govts are not able to fairly take the pain of deflation then further funny money will find a home in hard and soft commodities. The Chinese are already starting to buy up foreign resources and trade routes into Eastern Europe. The real danger is that there will be a series of supply panics causing consumers to hoard scarce resources. Eventually people will rightly panic, quickly diverting any cash into assets – hyperinflation will be the result!
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Richard_Spain
Today 07:23 AM
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29 people
I would welcome a bit of deflation. It would encourage me to buy things and boost the economy. As it is, with raging inflation (not the government figures, of course, but reality) and near zero interest rate on savings, we are afraid that in the future, our savings will not be sufficient to maintain us (without government handouts, which, then, may not even be available) and so are afraid to spend. Of course, Quantitative Easing is just printing money and further devaluing any money saved out of taxed income.

(Edited by author 9 hours ago)
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CastIronWithRustSpots
Today 01:04 PM
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2 people
Hello Richard;

There are few of us on these pages who have voiced an opinion in favour of deflation. Most people who stand to benefit are those who have been lifelong, careful savers, who probably didn’t get involved in the property casino in the mid-decade.

The usual counterpoint is that a few would benefit, while many would suffer. The argument would go that in fact deflation would NOT encourage you to buy things, it would encourage you to hold on to your cash, secure in the knowledge that the same things would be even cheaper next week. This is the argument that it is the flow of cash that greases the economic engine, not the existence of cash itself.
The Chairman of the Fed in particular has been characterized as a student of the 1930s and is said to be determined the same thing won’t happen on his watch. As hard as it is to argue with that sentiment, the so-called “lost decade” in Japan, painted by economists as bleak on a macroeconomic scale, was hardly “The Grapes of Wrath”, and certainly better than hyperinflation.

QE is also a recognised acronym for “quick escape”, and I suspect this is the recognized form down at the Fed and the BofE.

With regard to your point on interest rates, for myself I have recently looked into Brazilian government bonds. A relatively stable currency, positive interest rates and a growing economy, the Brazilian Fed is serious about protecting their economy and currency.
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Richard_Spain
Today 03:05 PM
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1 person
The argument would go that in fact deflation would NOT encourage you to buy things, it would encourage you to hold on to your cash, secure in the knowledge that the same things would be even cheaper next week.

With respect, I know that this is the “standard argument” regarding the “perils” of deflation but I dispute this on the grounds that, every week, computers, flat-screen T/V, mobile phones, digital cameras and almost all electronic state-of-the-art gadgets get more sophisticated, faster, and cheaper, and this with an inflating economy, but I don’t see people delaying their purchases because, next week, they will be better and cheaper. It just isn’t so.

(Edited by author 2 hours ago)
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CastIronWithRustSpots
Today 04:19 PM
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1 person
Richard;

Your point is well made. I tend to agree with you anyway, hence my point about Japan in the original post.
Few of us now are old enough to have lived through the 1930s, but many more of us were raised by children of the depression. Not to make light of what was no doubt an awful period for many who lived through it, I can’t help feeling the specter of the 1930s is overplayed by those who would perform QE. Rampant consumerism, globalisation and the service-based economy make it a different world.
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Richard_Spain
35 minutes ago
Hello CIWRS,
Thank you for your replies. I think, in my case anyway, it is more a case of confidence in the future than anything else. If you think that you are reasonably secure and independent of government handouts (I hate that expression) you will tend to buy things that you want. After all, I know that I shan’t live for ever but not knowing just what is going to happen does put a damper on things.
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Richard_Spain
40 minutes ago
I was born in 1938 (an excellent year I believe) and I do remember hardships but I think that those which I remember were more due to the Second World War than the 1930s crash.
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destroyerofworlds
Today 06:59 AM
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37 people
The Fed is concerned about INFLATION, so to actively combat inflation they are going to resume their process of QUANTITATIVE EASING.

Well to the uninformed all QUANTITATIVE EASING actually is, is merely INFLATION by another name.

This is the equivalent of attempting to put a fire out by throwing PETROL on it.

Hyperinflation here we come.

Bernanke is a fool.
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andrewx
Yesterday 11:33 PM
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24 people
Another reason I am glad to own gold.
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Brattbakk
Today 08:02 AM
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5 people
Hmmmmm…..You own a piece of paper that says you own gold? Remember The Gold Confiscation Of April 5, 1933?
http://www.the-privateer.com/1933-gold-confisca…

The person you bought this gold from….where does he invest your cash?
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andrewx
Today 09:14 AM
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4 people
Yes, and i own other types of physical assets too. I appreciate the risk, however prefer this to the risk of theft by holding physical gold. Also, the gold is held in australia, which does not have a history of confiscation. And, I dont really care where the person i bought it from invests their money. What matters is where I decide to invest mine.
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Brattbakk
Today 10:46 AM
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3 people
Invest in:
Gun
Bullets
Water
Tinned foods
PS3/XBox to pass the time whilst holed up.
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andrewx
Today 11:44 AM
Just because one invests in physical assets like property, gold and shares etc, does not mean one is assuming its the end of the world. Up until 1971, in the US if you saved in cash in USD you effectively owned gold, so its no different to buying gold now. I certainly believe that the world economy will continue, but I just can see that the inflationary effects of money printing will cause physical assets to rise. Gold is but one of those assets.
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Written by mrcauser

August 4, 2010 at 4:15 pm

Posted in Uncategorized

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