Note I said "perceived." I wasn't arguing it was always good.
In general, debt consumption takes away from future growth, as people are borrowing from future earnings. To a certain extent that's what we're dealing with in the debt deflation environment.
credit growth is perceived as "good" ... because it creates economic activity
Yes and no. Some credit growth is for expanding businesses and directly leads to hiring and other economic activity.
Other credit growth is more about consumption. Yesterday I heard a radio ad where the guy had taken out a loan so he and his wife could take the "honeymoon we never had". If he's taking a loan out for that, it's because he doesn't have the cash to pay for it. Very easy to overdo that kind of borrowing as it seems the whole world has done over the past decade.
Farmers hate debt because they've seen what debt can do whenever the crop prices or crop yields don't meet rosy projections. (Which is usually.)
Re: ONLY $1.5 Trillion
Value Hiker
12/8/2011 10:41:01 PM
"I've joked casually among friends at at this point why doesn't the Fed open up an application on Fed.gov to get money at .25% since that's what all the banks are getting? That why all of us gets money a lot cheaper and you cut the banks out of the loop."
Good point, Scott. The banks ARE the middle men, obviously not even good ones. I just don't understand why we need them in the home mortgage business at all.
Re: ONLY $1.5 Trillion
Value Hiker
12/8/2011 10:41:01 PM
"I've joked casually among friends at at this point why doesn't the Fed open up an application on Fed.gov to get money at .25% since that's what all the banks are getting? That why all of us gets money a lot cheaper and you cut the banks out of the loop."
Good point, Scott. The banks ARE the middle men, obviously not even good ones. I just don't understand why we need them in the home mortgage business at all.
Interesting numbers. Why is farm debt so low? It' makes me want to go buy a farm...
Value,
Thanks for the input and feedback. The government would never allow that to happen (direct lending) because it looks like socialism. Even though, for all purposes, if they are guaranteeing the loans, it's socialism anyway, as we've learned, since the government has been on the hook for mortgage losses.
I've joked casually among friends at at this point why doesn't the Fed open up an application on Fed.gov to get money at .25% since that's what all the banks are getting? That why all of us gets money a lot cheaper and you cut the banks out of the loop.
--Scott
Well, the bottom line is that credit growth is perceived as "good" by the system because it creates economic activity. To a certain extent, you want some credit growth to spur the economy, the question is what is a healthy and stable amount.
We all know now what happens when it becomes unsustainable!
Given that it is SO painful to bring those curves down, I'm surprised that our leaders and experts didn't do more to keep them from climbing so much over the last 10 years or so.
A good CFO provides a constant eye on the debt load and debt markets. Doesn't anyone do that for the USA?
P.S. One way to look at those charts is that they are classically emblematic of a deleveraging credit and banking crisis. You can see in the charts that lending and credit fell off the cliff, which froze the economy in 2008.
The Fed's strategy -- whether you like it or not -- was to "fill in the hole" of lost money in the banking crisis. They extended to credit to make sure there was not total collapse.
The problem now, of course, is that lending may be coming back bug the Fed has a multi-trillion $ balance sheet that they did not have before the crisis. So now that they have taken on all this debt what do they do with it.
Yes, great charts Noreen!
I have not looked at those charts in a while. Actually there's good news in there. You need loan growth to jumpstart the economy and show that the banking freeze is over. This appears to show that there is a thaw in the banking world... now if we can just get beyond Europe...
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