Capitol Hill Blue Forums Political Issues Finance, the economy & Economics How will the financial crisis develop?

Nope, sorry...allow me to amend.
There WILL be lots of lost jobs, you're right Kap.
Okay now on to the rest.

You say "Bernake is correct. Credit has been the lifeline of our economy for quite some time. Why? Because a lot of the assets companies hold are not liquid thus cannot be used to pay for payrolls, raw materials, operating costs etc."

I say he is uttering the relationship between the Federal Reserve and the American people, that of Master to Slave.

If a lot of assets that companies hold aren't liquid, then they aren't proper assets. Somehow goods and services managed to be rendered in this and other countries BEFORE widespread use of credit became commonplace and eventually IRREPLACEABLE.
We muddled by.

Can I imagine having to fire workers because I made a hundred cars and couldn't sell them? What about all the customers who have to use THEIR assets to buy those cars.
At some point actual wealth has to trade hands, sorry if that's inconvenient.
At some point credit has to be regulated so that it is not used as a drug. The situation we are in right now is because there IS NOTHING BUT credit.
If my position seems extreme, it is because we are in a situation that is extreme to the opposite.
"Give me control over the issuance of money and credit and I care not who makes your laws"
"Modern banks pose a larger danger to this country than standing armies"
Kap, until we learn once again how to create goods and services with LESS credit and more actual wealth, I'm afraid nothing will be made, and the hard truth is that perhaps the best economy is one that does not rely solely on continuous growth but which can be healthy and stable in a growth state or a steady state.
Economies that are backed by sound interest bearing money which is based on intrinsic value are capable of that.
Economies which are backed by fiat currency
behave exactly the way you described in your post.
You are pointing out the symptom.
I'm trying to point out the cause.

Jeff H in Occupied TX

And think about this for a moment, Kap.
Assets that are not easily liquid are sometimes assets that aren't worth what someone claims they're worth.

Sound familiar?

CREDIT IS SLAVERY for one simple reason.
Our system of credit is based on debt money.
Therefore the control of credit is the creation of debt.
To be forever indebted is to be a slave.

I truly have mixed emotions about this bailout bill, I'm not happy with some of the language, including that which would allow our money to fund bailouts of foreign banks, still a large lack of oversight, and I would like to see much stricter caps on executive severence packages.

I did like the part where firms had to start paying into an insurance fund, but would like more taxpayer protection. What IF these firms we bail out turn a profit, what happens to those proceeds? Are they immediately applied to our national debt? Or do they disappear into the ehter of Washington spending?

I would like a lot more assurances on oversight, limits on how much will be bailed, and honestly, would like to see other routes tried before resorting to throwing more money into the maw of Wall Street. I'd like to see Glass-Steagel(sp?) reinstated.

My county is already in double digit unemployment, credit card use in my shop has dropped dramatically(a good thing in my opinion) my income is WAY down, but thankfully I have an awesome landlord who understands it's better to have rented property, than empty property and he's cut me some slack on rent till the economy improves(this without me asking for a reduction!!)I'm cutting back on 'extras' in stocking, and concentrating on getting by with the least possible. Does it hurt? Sure it does! But as long as I can provide food and shelter for the kids, we'll get by without the extras(which we didn't have anyway<G>)

I hope CS is right, that there is a resurgance in self reliance, and production. And on a purely local level, I sure do hope our current fuel crisis results in our state govt getting off their duffs and looking seriously at light rail transport. We are seriously crippled right now with empty gas station tanks, and folks panicking about being able to find fuel, it's truly insane down here!

Good post, Frazier. Right on. How quickly we forget that even if people can't get a home loan, they still have to live somewhere, and renters throw more liquidity into the market than buyers because they are paying cash up front for something they don't even own. Good thing your landlord didn't forget that. Hang in there!

I was wondering if someone would be addressing this point:
As Frazier says, we already have that. It doesn't always look that way on paper, because the gubbmint has come up with creative ways to define "employment" - for example, a person who has been without a steady job for so long s/he has stopped looking is now considered "employed".

And look at some of the jobs people take in order to pay the rent: any of you ever worked for a manpower agency? Is that "employment"?

I have two at the moment. I expect they will sell to two people who realize they won't be able to buy that hi def set with their maxxed out cards, and so will settle for a used receiver with mere composite video capabilities.

Lots of fingers and toes. Just kidding. I had already begun working on it when you made your first post. I found the numbers instantly suspect.

Exactly - like art pieces - which I have several that I'd like to liquidate but can't due to finding a buyer who'll pay me what I at least paid for them many, many years ago.

CS,

I agree that some of the evaluation models for some assets are outdated and frankly, some companies use some models that should not be allowed. But the point remains that Credit has been a huge part of our economy since WW2, if not before then.

The whole global economy is based on leveraging debt to raise the return on equity. Our government has FAILED us because it allowed financial companies to over leverage themselves. There is no reason why banks should have cash reserves as low as they had them when this whole mess started.

That is the worse example you could have used. Valuation of art is not even close to the valuation of fixed assets like factories, buildings and other assets that companies have.

Your art can be priced... you just don't like the price it is at. Mortgage Back Securities right now cannot be priced due to a lack of market for them.

True—but they are worth something. As are the houses secured by them. Figuring out the true value is the tricky part. I say go back to 2003 housing values and you’ve gotten pretty close.

What will the next weeks hold for us? Maybe this will come to fruition:


http://www.msnbc.msn.com/id/26958012/

People on "main street" have no idea how payrolls are financed and that most of them are on credit. They'll cry when they find out that because they didn't want to bailout the banks, the company that they work for can't pay them because they can't get a loan from those banks.

Main street and Wall Street are not parallel streets... they are curvy streets with loads of intersections between them.

Very well stated. About as pithy as anything I've read to date on the crisis.