On "Restoring" The Credit Markets

So let's assume the government removes the majority of the toxic assets from the financial system. After the sunshine breaks through the clouds and manna finishes raining down from heaven will individuals and “real” businesses be able to finance cars, college, business loans, homes, etc.? After all, this bailouts all about giving the banks billions for questionable assets to help the little guy (trickle down economics at its best). Here's a wild guess, no.

What kind of terms do you think the average American with:

• $8,000 in debt
• Minimal savings
• A home thats declining in value (if they own one)
• A weak job market
  

is going to get from a (now) risk-averse banker? How about a business selling premium clothes, electronics, or anything beyond basic essentials to that tapped out consumer? The same kind of offer a hooker with a herpes outbreak and a yellow discharge running down her leg gets. A rough one.

People that don't need the money will get reasonable offers, but I doubt their the ones propping up the economy buying 50 inch screens and taking them home in their new Ford F150 that watching Knight Rider convinced them would pay for itself in the advice it would give them. Check this show out before it gets canceled. Its easily the worst show I've ever seen.

I'm about to impart the most concise definition of economics ever devised. Adam Smith stumbled upon it, but didn't have the sack to publish a one page book. Here goes.

Good Economy - People buy shitloads of crap

Bad Economy - People realizing they don't need or can't afford the crap

Don't believe me? Read an econ book. 70% of our GDP is derived from consumer activity. Along with supply and demand I just summarized what your typical business major spends 4 years and $60,000 struggling to learn. If you'd like to thank me for saving you the time and money the email address is at the top of the screen. Remember to include your bank routing number.

To further enforce my point here's an example of a proud citizen doing his part to make America great:

My brother buys DVDs like a fiend. If its $5 it doesn't matter what it is, he just clicks BIN. Its just too good a deal for him to pass up. He brought his collection home and we popped a new Laurel and Hardy disc in.

My brother popped massive wood when he saw this on eBay for 6 bucks

Within 2 minutes it was headed to the microwave. It was unbearable. I wouldn't even re-gift it. He had bought 5 or 6 more discs by the same guys that he hadn't seen, but was sure when he bought them would be good. Some people would look and say he's being wasteful. And they'd be wrong. People like my brother are supporting an army of distributors, truck drivers, and packagers. They are single handily waging a daily war against unemployment. They are fucking Patriots. PERIOD.

Loose and easy credit, combined with the ability to draw hundreds of billions out of appreciating home prices created a perfect storm of consumption. Where could we find the money for the next consumer orgy?

On our present course business earnings will fall as consumer purchasing declines, which will in turn depress stock prices. Asset deflation hits below the Beltway (this one hurt even me), chiefly in lower tax revenue due to fewer capital gains and constituent anger. What will Washington's reaction be when banks have the ability to lend, but not the desire?

The worst reaction is also the most likely. Politicians will run the presses and flood the system with money through stimulus acts, additional asset repurchases, and pork until people start acting irrationally again. The system will lose some stability since we're taking the dollar behind the barn. Raw materials prices will rise. Flip a coin.

Heads We join Zimbabwe and Post WW2 Germany in the wheel barrow club.

Tails We get lucky. In another 10 years when fundamental problems arise again Washington will be ready to condemn foolish, greedy individuals.

Best case, we ride out a painful period of adjustment and come out with a renewed, less leveraged foundation.

Personally, I'm buying gold.