Quote:
Originally Posted by floridasandy
basically you have the government, which is roughly 20% of the economy, trying to replace the 70% of the economy which was consumer driven so the numbers will never add up. this is a depreciating asset recession as opposed to the usual economic cycle recession over the last few decades. No stimulus relying on renewing consumer lending is going to work... there's a lot of deleveraging to be done.
you have bernanke in charge of the fed stating that dollar devaluation can be a good thing and helped us get out of the depression. well, it may be a good thing for him but it is not a good thing for most americans!
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Hi floridasandy,
I don't entirely agree with this. I do agree a consumer debt recovery is played out. One needs to understand that consumers have become debtors with no capital output. A strong contracting currency is not good for such a society. What needs to happen is the actual debt in those dollars needs to be maintained not artificially increased by deflation.
By creating sub prime credit we created money that drove up prices and thus monetized sub prime debt. Even sound loans in such a contraction can be impacted by this. Now we have demonetized sub prime debt so we have a money contraction problem that needs to be addressed. So we need to replace this money supply. It really does not make any difference what the government does from a monetary stand point. If your debt is the monetary base all you need to do is owe. They could create a monument to absurdity and so long as it prevents a depressing money supply we will prevent creditor take all.
The truth is government debt is far better than bank credit for us but not for banks because they want us to use their bank credit money at interest. That 300 billion will sit in the Federal Reserve and by law all those profits go back to the treasury. Its interest free money.
As far as a new debt carrying capacity I see that government debt will rise but you can be sure they want bank credit, not federal reserve created money in this system. So I expect the national debt rhetoric to come on strong. Hopefully we can somehow pay down the consumer debt but they will try to thwart such attempts. The more we can pay down commercial credit the more we can expand government debt. Along side government debt my guess is some new debt absorbing industry will be created with the same government guarantees that made billions for banks in the housing market. Perhaps a green energy Fannie and Freddie. That is what I would do if I were an Oligarch trying to keep siphoning off the wealth. So perhaps they will make massive loan guarantees into green energy to absorb new commercial credit.