Wednesday, September 16, 2009

The media's still blowing smoke and we're breathing it in.

Statements recently to the effect that the "Recession is over" just because parents had to buy school supplies for all their k-12 and college students (which shows up statistically as an "increase in consumer spending") are puff-balls of fantasy. Two more years of mortgage resets await us, people are starting to be booted off unemployment rolls with no prospect whatsoever of finding a living wage job (or even a crappy part-time minimum wage job, for that matter), and the commercial real estate collapse is just now getting rolling - not to mention wages continue to stagnate for those who remain employed. This thing is NOT over - not even close.

Even many of those who traded in their perfectly good (and often debt-free) "clunkers" are feeling buyer's remorse and realizing taking on more debt was a stupid idea - some are now trying to get out of their new car deals. But those were the fortunate few who could qualify for financing in the first place - everybody else never even had a change to look at a new car, and household necessities and school supplies for their kids are about ALL they're going to be buying for a long time to come, because they simply have no discretionary income and no credit to buy big-ticket items.

UK Telegraph Online
US credit shrinks at Great Depression rate prompting fears of double-dip recession

Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.
By Ambrose Evans-Pritchard, International Business Editor
Published: 11:59PM BST 14 Sep 2009

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

..."For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

It is unclear why the US Federal Reserve has allowed this to occur.

...He is not a monetary economist, however, and there are indications that the Fed has had to pare back its policy of quantitative easing (buying bonds) in order to reassure China and other foreign creditors that the US is not trying to devalue its debts by stealth monetisation.

..."The current drive to make banks less leveraged and safer is having the perverse consequence of destroying money balances," he said. "It strengthens the deflationary forces in the world economy. That increases the risks of a double-dip recession in 2010."

Referring to the debt-purge policy of US Treasury Secretary Andrew Mellon in the early 1930s, he added: "The pressure on banks to de-risk and to de-leverage is the modern version of liquidationism: it is potentially just as dangerous."

...He predicted that the Federal Reserve and other central banks will be forced to engage in outright monetisation of government debt by next year, whatever they say now....

Of course - it's not like they can actually pay the debt, or can stand the thought of giving away all the national parks and other hard assets to China. So they'll attempt to inflate away their debts, and end up losing the parks anyway - if not everything else that isn't nailed down.

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