The vicious circle that trapped America

[flashl]

The credit crunch induced by the sub-prime mortgage debacle was supposed to be easing by now. Yet there are increasingly worrying indications that it might be getting worse.

...

The latest Citigroup index shows that there has been a sharp deterioration in conditions since the Fed began to cut rates last autumn.

...

How can this be, given that interest rates are much lower — not only official rates but ten-year bond yields and most other market rates? The problem is that conditions are deteriorating on so many fronts that the official interest-rate cuts have been overwhelmed by negative movements elsewhere. Equity prices have declined, raising the cost of capital for businesses. Falling property prices have significantly eroded the value of household balance sheets.

...

And then, of course, there is the blunt reality of the credit crunch — the increasing reluctance of banks to lend money, even to relatively creditworthy customers. Last week the Fed published its quarterly survey of lending officers at commercial banks around the country. Almost one third of these lenders said that they had tightened their credit standards for loans to all categories of business customers — small, medium and large.

More intriguing was the reason these bankers gave for their greatly reduced willingness to advance loans. It was not, they said, because of any capital or liquidity concerns at the bank itself, but primarily because of rising concerns about economic conditions that could adversely affect the borrowers' ability to meet their obligations.

This suggests that the economy may now be in the grip of a vicious circle. The initial credit tightening from last autumn seems to have led to a sharp drop in confidence and a slowing in economic activity. But this, in turn, has made lenders much more reluctant to extend loans, even to high-quality borrowers.

Times Online

[ayeshahaqqiqa]

1. When they stop giving loans

on CDs I know we're in big trouble.

For those who don't know, you can go to a bank and ask them to loan you money using a CD you have with the bank as collateral. It is quick, easy, and relatively cheap, since the bank has the money to cover the loan from day one. We've been doing this for years--started out with a $1000 CD, and got it up to $2500 (accumulated interest) when we stopped borrowing on it. Rates have gone up-from 2 to 3% net interest.

[Vincardog]

2. The Kool Aid the REpigLICKERs have been sipping for the last 20 years

is Cheap Credit financed at OUR expense.
Now the bubble has burst just 1 year early to blame the "Tax and Spend" Democrats.
Instead the borrow and loot rePIGli9ckers are left holding the political bag.

Is everyone willing to admit that the "Trickle Down Voo Doo theory of economics" is as bankrupt as all their supposed "Conservative" ideals?

The last time the "Conservatives" had free reign they gave us the stock market crash and the great depression. The question is "Have you had enough yet?"

[Warpy]

3. They know nobody's job is safe any more

and as things continue to slow down, partly due to their reluctance to extend credit to financially secure borrowers, more jobs will be on the block. Offshoring is just adding insecurity to injury.

It was the vicious circle of job insecurity feeding a slowdown in spending feeding unemployment feeding job insecurity that the New Deal broke apart, adding protections so it could never happen again.

Unfortunately, it's happened again. The rich couldn't wait to get rid of the New Deal, depress wages, lower their own taxes, raise taxes on the poorest through Reagan's FICA tax hikes, and deregulate finance so that wealth could once again concentrate at the top and debt at the bottom.

The GOP is pure poison. They can't run a country, a war, an economy, or anything else. They've even cost the rich their ill gotten gains as the drop in the value of the dollar has eaten up 47% of what they got on paper.

Our job is to get them out of power and keep them out for as long as we can. Only in that way will this country get back to a solid footing in any respect.

[fasttense]

9. The bushes are going to leave their debt behind for us to pay.

So even after we shake off these criminals, like shaking off dead fleas, we will have to pay what the government borrowed. Debt enslaves a country and that is exactly what the bushes and Milton Friedman's of this world have done to the US.

[Celebration]

4. The truth is, though

That there are big time liquidity concerns at banks. Other than that the article is probably correct.

[LiberalEsto]

5. They're greedy

Banks can borrow money at low interest rates, but they won't lend it to us poor peons at low rates. They're pushing variable rates -- even for student loans! This way if the interest rates climb back up, they can squeeze borrowers into paying more.

[leftofthedial]

6. when you scratch away this pus-filled scab, you find the real vicious cycle

no good jobs, no middle class, no money

repukes and "free"-trade "democrats" sold our country to the lowest bidder.

[RLS21]

7. When Do You Think National Debt Bubble Will Burst?

It s my opinion markets are getting shaky because deficits are heading back up and the world knows it can't keep funding our out of wack budget.

Our debt to income ratio is getting rather high and its beginning to look like we can't pay back the debt.

[Fovea]

8. Either the day OPEC desides they have better customers

or the Chinese think they can run their economy making goods for the Chinese.

So I figure, June.