Wednesday, April 18, 2012
Credit-topia 2012 style
Back in 1980 when Ronald Reagan introduced the world to Morning In Credit-topia, it sure seemed like a good idea. All you had to do was:
A) get the Fed to keep real rates negative for ever,
B) reduce the reserve requirements at the banks to nothing.
C) you just had to kill all those nasty regulations that kept the banks from gambling 10, 20, 80 times their non existent reserve requirements in the RISK MARKETS.
Morning in Credit Topia. Easy as ABC.
And it was. America was turned into a casino. The wealthy - those closest to the Banks - became stinking rich, and even those in the middle class who were willing to take enormous risks with borrowed money could become fabulously wealthy - WITHOUT WORKING.
ASWESOME. Morning in Credit topia. Even now pundits on Fox news and CNBC tirelessly long for those good old days of free money and no work.
So - where are we today, 40 years later? Credit Topia 2012 style.
Well now the Credit Market is 50 TRILLION dollars larger. Now the economy has to grow at 2 percent just to SERVICE ALL THAT DEBT.
And Now the Credit market must grow at 4 percent for the economy to grow at 2 percent as all economic growth is predicated on Credit Growth.
And now the middle class has lost all that risk money in the housing bubble crash, and the internet bubble crash, and they are already loaded up with 12 Trillion dollars of debt.
The corporate sector is carrying another 12 Trillion dollars of debt.
And the banks are loaded with 16 Trillion dollars of debt - and 600 Trillion dollars of notional value Debt Derivatives.
Gee, tough to tap them for the 2 Trillion of Fresh Debt needed to create 1 Trillion of new GDP needed this year to service all that debt.
Guess the Government will have to run a deficit of 2 Trillion Dollars
OH - Yeah, the Politicians finally have decided - after 40 years - they don't like that idea. It's not fiscally responsible.
Gee- what's a Credit-topia to do?