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alstry (35.42)

Is there any way to stop the contraction?

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15

July 27, 2009 – Comments (4)

We built an economy based on manufacturing CREDIT CREATION and the profitability of products surrounding CREDIT CREATION.  What the proceeds were spent on due to the credit creation was not important so trillions of dollars were misallocated and squandered.  We are now left with a legacy of massive debt and revenues are evaporating as banks are no longer lending like before.

Why are banks no longer lending?  Because there are few to lend who either qualify or desire....those that are qualified to borrow don't want to borrow and those that want money don't qualify.  If you think about it, there are really very few ideas out there right now that are a satisfactory risk to borrow against.

From the WSJ:

Lending continues to slow as bankers and borrowers refrain from taking risks, a bearish sign for the economy. The total amount of loans held by 15 large U.S. banks shrank by 2.8% in the second quarter.

Last month, videogame sales plunged by a record 29% year over year and sales of consoles like Microsoft's Xbox 360 and Nintendo's Wii dropped 38%.

A 30-40% sales drop is HUGE....so is 20% for a major industrial.......

Enterprise Products Q2 revenue $3.51B vs $6.34B

Honeywell Q2 sales $7.6B vs $9.7B

Quite frankly, I am not sure what "economists" are looking at to justify any kind of turn around.  If banks are not lending, we have very little economy left...especially if you factor government cut backs as well.

4 Comments – Post Your Own

#1) On July 27, 2009 at 1:31 PM, dickseacup (66.90) wrote:

To stop the contraction, our "representatives" need only cut tax rates (all of them, not just some) and then cut government spending by a slightly greater amount. The reduction in tax rates will spur growth, consumption, spending, increase the velocity of money. The reduction in spending will allow for the reallocation of resource from the wasteful government sector back into the private sector. By cutting spending by more than the cut in tax rates, guaranteed debt reduction over time.

However, this will never happen. The country, States, counties and municipalities will all go bankrupt first. Why?

Because the politicians would have to relinquish the control that those bloated government budgets represent. They would have to loosen their stranglehold on the windpipes of the productive classes of this nation. Neither of which will they do.

QED.

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#2) On July 27, 2009 at 1:38 PM, alstry (35.42) wrote:

Tax receipts are contracting because incomes are evaporating. Incomes are evaporating because few are borrowing anymore.  What you fail to appreciate is that our entire economy was driven by debt creation and government spending, NOT productivity.

Cutting taxes at this point will have very little impact, pretty soon there will be few paying taxes anyway....incomes are evaporating as sales are delining.

Further, if we run $4 or $5 trillion dollar deficits as you suggest, interest rates would skyrocket, money would be worthless and few would have an incentive to work.

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#3) On July 27, 2009 at 7:55 PM, Varchild2008 (83.79) wrote:

You call it Credit Creation.... I like to call it "Ficticious Money."

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#4) On July 30, 2009 at 9:21 AM, skeptic86 (91.84) wrote:

exxon - profits drop 66%! geeze

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