Implode-o-meter now reports that 145 lenders have gone out of business since late 2006. Lately the count has been accelerating with a few more reported each day.
The markets have now priced in a full half point cut anticipated in the US Fed funds rate on September 18. So party on Garth?
Unfortunately the current problems of over-leverage and reduced liquidity cannot be given a quick fix with some knee-jerk fed cuts. Today's problems were not created by too-tight credit so they can't be fixed by loosening the purse strings. Today's problems were created by fed policy that was too loose for too long.
Lately critics have been pounding their chest and gnashing their teeth that the Fed is waiting too long to cut interest rates and that this is a policy error threatening to drive the US into a significant slow-down or recession. I would point out however that the policy error here has not been in failing to cut fast enough. The policy error we are suffering from today is the one where the Fed cut their funds rate to less than inflation and left it at 1% for a year 2003-2004. Not only did they leave the floodgates wide open, but the Fed left their post completely. The should-be-guards failed to man the gate at all. They turned their back on the party that got underway and refused to step in to curtail the irresponsible lending and consuming that followed. This lengthy lapse of reason is the root of the evils we are now confronting.
This patient cannot be rehabilitated by handing out more opium (other people's money through credit). This patient (consumers and risk-junkie investors) will need to spend some time in rehab to clear this overhang and find their way back to healthful habits. People need to reign in their spending–sorry it will slow the economy,–but that is the inevitable outcome of spending our brains out on credit over the past few years. The markets may rally on the hope of coming rate cuts, but the fact is that profits will decline, growth will slow, and risk assets will need to be re-priced
For now, at least, the party is over.
Cory’s Chart Corner
- Boom-Bust repeat. History calls B.S on "it's different this time", it's always different.
h/t Jessie Felder
about 9 hours ago
- Very impressive...however, given we're a consumption led economy, robots will become just another channel of wealth… https://t.co/OcCREIZbuL
about 12 hours ago
- What determines an inverted yield curve w/QE distortions and a short end at 1.25%...does the 10 yr really have to g… https://t.co/9NEwz1H25x
about 2 days ago
- Boom-Bust repeat. History calls B.S on "it's different this time", it's always different. h/t Jessie Felder
“An explosive critique about the investment industry: provocative and well worth reading.”
“Juggling Dynamite, #1 pick for best new books about money and markets.”
“Park manages to not only explain finances well for the average person, she also manages to entertain and educate, while cutting through the clutter of information she knows every investor faces.”