The Fed's attempts to lower the cost of capital for American consumers and banks won't work in 2009. THE PROBLEM ISN'T that we can't get access to cheap credit. If you have a good credit history and solid personal balance sheet then you can get a sub 6% mortgage (super cheap). Of course, you're probably saying: "But given our cultural proclivity for debt most of us can't get this loan because most don't have solid personal balance sheets."- AH-HA! There's the rub my friends.
THE PROBLEM IS REALLY that we already have too much debt and CAN'T AFFORD to add any more, even if the Fed drives interest rates down to 0%. America has hit its debt ceiling and is now in the process of paying it off, not taking on more. Besides, who will borrow $300k to buy a house or borrow $20k for a business venture when more than 30% of Americans polled are worried about losing their jobs and the housing market it not stabilizing? Rather than encouraging Americans to "fatten" up and eat more from the debt trough, the government should use the money to provide debt/principal reductions and lowering interest payments on existing loans (not new ones).
So regarding credit in 2009, the Fed will find itself in the same position it has been in since 2007: Pushing on a string.
Time for some music. Have a good night.
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3 comments:
I am reading a good book right now, it's called I.O.U.S.A.
IOUSA is actually a documentary, but this book about the documentary has been pretty interesting. I'm only on page 75 and I love it so far.
http://npc.press.org/video/player.cfm?type=lunch&id=16709
Paul Krugman explains this pretty well.
Thanks for the link John!!! Hope you're enjoying the Holidays :)
I need to read I.O.U.S.A. Saw the movie but I am sure the book is better.
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