Economy is bad. Recession is declared over, but unemployment is still high and we are still spending borrowed money. So what can the president do to fix the economy? The truth is 'not much'. It is not about Obama. There is not much Obama or anybody can do. The best they could do is do nothing and get the government out of the economy. Today's problems are not about what we are doing now, but what we have already done for the last 70 years. We have expanded credit to unsustainable levels. Now it is deflating. And we want to get sober with more debt. It won't work. It will make things worse after a brief calm.
In order to postpone recessions, FED made credit for decades and we, the people, kept on borrowing from the future. Now the future has arrived. It is pay back time. Debt has reached it's limit and people cannot afford to borrow more. Here is how total credit expanded exponentially higher compared to GDP:
This credit expansion is one of the causes of deflation. Banks have been lending to the wrong borrower for decades. Since 1980s loans to the businesses have contracted, and loans to the consumer has expanded. Business loans are used to create value. They contribute more to the real economy. The likely hood that they will be paid back is higher. But consumer loans do not provide value. Consumers consume. They do not produce. Today, banks are 98% invested in consumer loans. The collateral for consumer loans depreciate in time. They do not create value. This is the cause of bank troubles today. 50 years ago banks would be invested in pristine US government bonds. If that was the case now, a housing market crash would not effect the banks much. Alas, it is too late. The mistakes have been made. The effect will follow. Most are preparing for inflation thinking that central banks will be printing money to pay the debt. What if someone told you inflation is not the immediate danger, but deflation is? Why? Because our money supply is not printed money. It is debt. When debt deflates, it is money supply that deflates. Most of the world's debt is denominated in US dollars. Creditors are asking for US dollars to be paid back. Not gold, not stocks, not houses. This creates demand for US dollars. This is why when there is a debt crisis, US dollar goes up. Deflationary depression is coming.
Economy is bad. Recession is declared over, but unemployment is still high and we are still spending borrowed money. So what can the president do to fix the economy? The truth is 'not much'. It is not about Obama. There is not much Obama or anybody can do. The best they could do is do nothing and get the government out of the economy. Today's problems are not about what we are doing now, but what we have already done for the last 70 years. We have expanded credit to unsustainable levels. Now it is deflating. And we want to get sober with more debt. It won't work. It will make things worse after a brief calm.
In order to postpone recessions, FED made credit for decades and we, the people, kept on borrowing from the future. Now the future has arrived. It is pay back time. Debt has reached it's limit and people cannot afford to borrow more. Here is how total credit expanded exponentially higher compared to GDP:
http://www.kondratieffwavecycle.com/economy/deflation-how-to-survive-it/
This credit expansion is one of the causes of deflation. Banks have been lending to the wrong borrower for decades. Since 1980s loans to the businesses have contracted, and loans to the consumer has expanded. Business loans are used to create value. They contribute more to the real economy. The likely hood that they will be paid back is higher. But consumer loans do not provide value. Consumers consume. They do not produce. Today, banks are 98% invested in consumer loans. The collateral for consumer loans depreciate in time. They do not create value. This is the cause of bank troubles today. 50 years ago banks would be invested in pristine US government bonds. If that was the case now, a housing market crash would not effect the banks much. Alas, it is too late. The mistakes have been made. The effect will follow. Most are preparing for inflation thinking that central banks will be printing money to pay the debt. What if someone told you inflation is not the immediate danger, but deflation is? Why? Because our money supply is not printed money. It is debt. When debt deflates, it is money supply that deflates. Most of the world's debt is denominated in US dollars. Creditors are asking for US dollars to be paid back. Not gold, not stocks, not houses. This creates demand for US dollars. This is why when there is a debt crisis, US dollar goes up. Deflationary depression is coming.