Timba,
In a lot of ways I see issues with increasing default rates and record bankruptcies as symptoms of the real problem. Too much debt. The practice of individuals and companies figuring they can dig themselves out of debt by borrowing more money just plain doesn't work. Somewhere along the line the debt becomes due. The strong economic conditions of the 90s caused a lot of over confidence in assuming debt. The cost of living was under control, unemployment was low, wages were high, and the stock market was going to keep going up forever. An instant replay of the roaring 20s as close as I can tell. It sets up a model that can only be maintained under perfect economic conditions. A slight wobble in the economy and the dominos start to fall. Consumers, companies and governments got drunk on spending easy money credit, and when the bubble finally burst, everyone was buried in debt.
Perhaps I'm looking too hard at the dark side, but I'm having a hard time seeing anything likely to prevent a depression under current conditions. Over $7 trillion in market cap has been eliminated from the economy, and even though margin rules have changed since the 20s, that asset was still indirectly and highly leveraged through accumulation of debt in other areas. Buy a house with 3% down, max out the Visa at 14%, take out a second at 9% when housing prices go up, run up department store cards at 18%, then load up the 401K with mutual funds.
IMO, the policy of easing over the past year in order stimulate spending has only exaggerated the situation. Eventually a much lower standard of living will have to be assumed to repay the debt. An instant replay of the 30s.
At any rate, the fact lenders are trying to find ways to reduce their exposure to defaults is a pretty clear sign something is seriously wrong. |
