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Strategies & Market Trends : The coming US dollar crisis -- Ignore unavailable to you. Want to Upgrade?

To: THE ANT who wrote (15970)	1/2/2009 4:51:28 PM
From: Elroy Jetson	7 Recommendations Read Replies (2) \| Respond to of 71463

Once the deflation of a credit bubble occurs, it is very difficult to change public sentiment. After all this change in sentiment is based on the very real fact that most have too much debt relative to their incomes, and the collapse of a credit bubble creates a decline in incomes which further worsens the problem. When asset prices are rapidly rising people see debt as a tool to obtain vast wealth. When asset prices begin to fall, both the assets and the debt become wealth destruction bombs. I believe the problem Obama faces is he may be 2 years too soon. When FDR took office, the stock market and home prices had hit bottom six months earlier and were trading sideways. Government spending quickly put life into the economy. It would have been hard for Hoover to have done the same in 1930, and he tried, contrary to public perception. If you have too much debt and your job is at risk, will you feel like buying a new home, car, or washing machine because the government is now building a bridge in your community? Perhaps to a degree, but not to the degree imagined by McCulley. Waste and fraud are not required for this bridge to fail to cause you to spend. What's also overlooked is the loss of credit quality. Issuing a new commercial property loan, or a new car loan to a person with a 550 credit score may have seemed unlikely to result in a loss a year ago, but both loans seem like guaranteed losers today as commercial property prices decline and the auto buyer is unlikely to have enough income to pay the loan. Banks are not lending in part because there are few borrowers who currently seem to be a good risk. These borrowers are not being pushed out by government borrowing. People with money would rather earn zero interest on government debt than lend to these borrowers at 8% or 19% interest. Home mortgage lending continues only because the government owned Fannie Mae is buying the loans from the banks, effectively bypassing the banking system. The rates for non-conforming home loans carry shockingly higher interest rates and are designed so very few qualify. The government can eliminate any squeeze-out of private borrowers by "quantitative easing" aka printing the money they spend, but this will still not make those with money lend to people who previously seemed like good risks, but don't seem so now. And the spending from these programs will only slowly restore confidence. What will ultimately restore confidence is when people feel they have their debt under control, either through repayment or bankruptcy/foreclosure, and they have some savings - and they feel their income prospects are good. .