Look specifically at the rates from the early 2000s. I drew a line from those levels all the way back to the beginning of the chart. Notice that rates were not that low for about 40 years.
Let's look at what else happened during that time. Here is a chart of total household debt outstanding:
And here is a chart of the last 10 years of total household outstanding:
Notice the mammoth increase? Total household debt outstanding went form about $8 trillion to a little under $14 trillion, or an increase of about 75%.
All of that debt has to go somewhere -- it doesn't exist in a financial netherworld. It has to become an asset to somebody. And it has -- in the form of a massive amount of securitizations which are currently being written down by literally every financial name in the business. So far we've seen about $100 billion or writedowns in the financial markets and we are going to see more. That's the central problem right now; it's not interest rates but the amount of crap on the books of various financial players (hell -- all the financial players).
In other words, the problem isn't the need too underwrite more consumer debt -- we are already choking on consumer debt. The problem is the system made too many loans that are now going bad. And the only way to wean us off of that problem (easy money) is to feel the pain so we don't do it again.
5 comments:
What do those charts look like when inflation adjusted? Just thinking that the total debt outstanding looks like it's growing in pace with population growth.
We do not possess a responsible central bank. One would think that foreign investors could figure this out and act accordingly.
How can the petroleum exporting nations continue to allow their global product to be priced in a currency not run by an objective, rational central bank? A currency whose strength is secondary (by far) to the demands of that nation's financial barons?
Even if the rate cut provides a band aid solution, which is the intent, what will happen if the intended outcome doesnt occur, ie increased spending, and borrowing?
What will be the next step, given it's Bush?
Bush has already signaled his intent to print more money and give it to the poor and middle class in a vain attempt to prop up retail markets. What confounds me the most is that this idea makes several large assumptions.
1) That americans would spend the cash.
2) That americans choice in spending will improve the economy ( having an oil change vs buying a sony PS3 ).
Honestly each time they do this they further dig the deficit hole out of which we will eventually need to climb.
The problem is the system made too many loans that are now going bad. And the only way to wean us off of that problem (easy money) is to feel the pain so we don't do it again.
PERHAPS it would help if the top 1% paid back their rapacious carpetbagging transfer of wealth out of U.S., and created jobs for U.S. workers in U.S. paying wages that supported middle class Americans rather than siphoning their real income and flying off to the Bahamas with it and their bonuses after going accidently on purpose bankrupt. WEAN THEM OFF THEIR IMMORAL GAIN. An honest middle class businessman knows how to balance his books at least. These crooks should be stipped of citizenship and deported after their assets are seized. This is the true terrorist class. And look who is abetting them! By George!!
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