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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Claude Cormier who wrote (96547)	4/17/2009 4:54:45 AM
From: mishedlo	6 Recommendations Read Replies (3) \| Respond to of 116555

Credit has been extended that cannot be paid back. Banks cannot make more loans with those impending writeoffs. Unless there is an expansion of credit the Fed could print $40 trillion tomorrow and it would not do a damn thing. It's important to understand that. It's also important to understand psychology. Businesses do not want to borrow and banks do not want to lend. The amount of credit that has been extended dwarfs base money supply even with this massive launch by Bernanke. Inflation in a credit based system depends on an expansion of credit. Credit in my way of thinking is contracting. And my way of thinking includes future expected writeoffs. Banks are sitting on tons of foreclosures and other poor loans not marked to market and all the pretending in the world does not change that. That negative capital (banks are insolvent) prevents lending. I think what you are missing is there is no money in the system. There isn't. Credit was extended on nothing. It acted as money. It is a balance on someone's sheet. But it is not money. Base money is money (fiat money, but money). Everything else is credit and it cannot possibly be paid back. That means it wont be paid back. This did not matter until it did and now it does. And IMO we are not going to have inflation until after that debt is written off. So note the big mistake Bernanke and Geithner are making. They are recapitalizing banks but they are doing nothing to eliminate consumer debt. Even if banks are able to lend (recapitalized), who will banks want to lend to? Cash strapped consumers out of a job? This is how you have to approach the problem. This is a complex issue but my model is continuing to work. Mish