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Politics : Welcome to Slider's Dugout
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To: ecrire who wrote (11229)8/21/2008 1:45:22 PM
From: jim_p  Read Replies (3) of 50326
 
The record decline in M3 is due to the contraction of credit and has nothing to do with the fed's action or lack of action. The contraction will continue over a long period of time as we unwind the largest credit bubble in the history of the financial markets. It becomes self feeding and there is very little the fed can do to reverse the process. As the losses continue to mount the banks have less capital to loan against which results in a further contraction of credit. The further contraction of credit then leads to more losses which then results in further contraction of credit and so on and so on and so on.

Every depression in history has been preceded by reckless credit expansion and we just witnessed the mother of all credit expansions. In the end we will go from extreme over leverage to extreme under leverage and the process will be very long and very painful.

Economic expansion is a function of abundant credit and abundant energy and the trend is not favorable for either in the foreseeable future.

Jim
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