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Politics : Formerly About Advanced Micro Devices
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To: bentway who wrote (447596)1/14/2009 5:21:02 PM
From: Road Walker  Read Replies (2) of 1575725
 
The government seem incapable of loosening credit so borrowing can happen, or getting money into the hands of consumers who would spend it.

Banks are not stupid. They are struggling for their lives and they are not going to lend money against declining assets used as collateral. Would you? The entire economy runs on credit. Companies use lines of credit and buy stuff on terms (extended by supplier companies) and sell stuff on terms (themselves extending credit). NOBODY works on their own cash. Are banks going to extend lines of credit when companies are struggling to stay alive with huge accounts receivables?

Consumers are not stupid (well not always). Many have money to spend but they are hording it against hard times or paying down debt. A rational response to the threat of job or income loss and a huge 12 month decline in their net worth.

The natural process is that at some point all this frugal activity leads to really cheap asset prices, and lots of cash with a lot less debt. And then the cycle reverses. But in the meantime....

I'm not sure we can influence this cycle. I think I'm all for trying, because I do think this looks really dismal... the worst I've seen including the 70's stuff with double digit inflation. I think a depression with 1000's of BKs and huge unemployment is possible.

I just don't know. I don't want to spend most of the rest of my life in a depression.
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