

Credit in America

Slim pickings, no appetite

Constrained lenders and wary borrowers explain falling levels of credit in America

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Another concerning matter is that the current stock markets rally is disconnected with prevailing and expected economic reality. The role of stock markets is to more or less accurately reflect economic, political and social fundamentals. I fear one more bubble is again in making. when it will burst, it may have severe implications for economic recovery.

Alan McCrindle

Maybe this should be re-titled - Green Shoots Delusion or The Coming Depression, Worse to come or the Coming Wave of Company Collapse and Rising Unemployment.

Anyone who can read article this without coming to these conclusions must be an economic advisor to the Administration or someone else with a vested interest in trying to maintain the delusion that the recession is over.


America's shift away from consumption is overdue. We need to move towards more savings. Investment will probably have to take up the slack, and a lot of that will be public investment.

I also notice that several commenters in this thread are conflating America's overall debt problem with the much smaller issue of public debt. Public debt should be reduced, but the real threat to our economy is private debt.


hikeandski Thie idea that increasing fuel efficiency will destroy the economy is surely false.

Energy consumption has fallen as a percentage of economic activity in America since the early seventies, and will poropably continue to do so.

Energy efficiency of transportation and industry has increased at the same time. There is nothing new about this, and no reason why it should not continue.

Your technological pessimism is a bit silly. Thirty years from now the technologies we consider to be marvels now will look old fashioned.

elvis the pelvis

I think the article is too gray.
I believe the world economy including that of the USA is on the right track to balanced moving forward.
Most people have got to keep their homes and their jobs. We might have cut our Holidaying budget, but nothing has changed in our daily diets.

As for the liberal money printing by any bank theory, I was surprised to see it still exists, especially in such a forum. That would mean going back to the Civil War years (1960-1966). Think about tiny nations in Europe. If they had been all within the EUROZONE, they wouldn't been suffering by severe devaluations. Money is a financial asset. If it can not keep it's AAA rating, it goes down. Thanks God, USD has not lost that rating yet.

Regarding taxation for Carbon dioxide and other green taxes, we should learn to consider them like the taxes on cigarettes or on consumption of limited resources, like fuel. They also serve as a good source of income for government, where, them being a not direct tax, they are more acceptable than say, income tax. I would love to stroll in the streets of, say Washington DC, were there no polluting vehicles around. Let's accept it, electric cars will better the quality of lives.

Good night!

M. B. Moon

Good bye Economist, it was fun.

I've done my duty, you have been shown the correct way, liberty. A word to the wise and all that.

M. B. Moon

"Get rid of the old system and paper money altogether in exchange for electronic currency." tin head

Yea, that's the ticket, more centralization.



Here is wisdom Let him who has understanding calculate the number of the beast, for the number is that of a man; and his number is six hundred and sixty-six." Revelation 13:16-18

a tin can

My neighbor has a 1989 Ford Escort for sale. It's ran well for a couple hundred thousand miles. I'm sure he'd sell it for a couple trillion dollars.

I agree with what everyone is saying here. Isn't the United States one of the last countries that still uses checks for the majority of its transactions? The money would be better spent to build a Federal Money Exchange of some sort. Everyone gets their account, with a card and their payments are deposited to their accounts. Get rid of the old system and paper money altogether in exchange for electronic currency. All currency flows become available to see for borrowers and lenders which could be individuals. All flows linked which the IRS would love but so would investors that want to see what's really behind a debt based activity. Banks and their entire system are expensive, obsolete and prone to fraud. Just buy a new system for the type of money we're throwing around.

M. B. Moon

"To BluesChicago's point, how can we possibly return to a free market system? " d.r. usa

Vision and knowing where we want to go is part of the solution. It is critically important too that capitalism not take the fall for what is essentially a government backed counterfeiting ring.

Legal tender laws are the key. Once they are revoked, the chains will be off. No abolishment of central banking or fractional reserve banking is even necessary, IMO. All that is necessary is the allowance of competition. Liberty, in other words.

d.r. usa

This is a good forum. I think we're all in agreement here. I'm not sure why M.B. Moon likes to call people out for no reason, but it's fine because you seem to be more of an academic than myself at least.

Yes. Quantitative Easing is failing and the stock market rally is built on sand, with the Financial Services sector leading the way, flush with cash and a best friend in Washington.

With consumer spending accounting for over 60% of economic activity in this country, NY and DC will do whatever it takes to free up credit markets, even if it means the creation of an even larger financial bubble.

To BluesChicago's point, how can we possibly return to a free market system? While I completely agree that government intervention will in the long-run cause more harm than good, I think the genie is out of the bottle. I can't think of a single example when our government acquired power at some point only to give it back later.

We've reached the point at which more than half of Americans are directly dependent on the federal government, either as an employer or through entitlements. And Americans vote with their wallets. Therefore it is now in the electorate's interest as well as the government's interest to continue to grow the machine. Get out from under the tires...


Well, here is a taste of the credit markets in America. I have a near-perfect credit score and have had one for close to 10 years. Have had multiple CC's as well as store cards, where I carried the balance as the banks wanted, paying interest and making them money, but recently only have a Gold American Express and no other credit cards. I applied for a car loan over the summer and was declined. The letter sent my the bank explained it simply as (albeit in different words) YOU'RE NOT IN DEBT ENOUGH. So.....Let me get this straight: The country's financial system nearly collapsed because everyone was spending a vast amount above their earnings, but I was denied a $2000 credit line because I DIDN'T HAVE ENOUGH DEBT???

Which late night show do I tell this joke on?


I think most people already know the root causes of the current stock market rally, but its worth mentioning again to all the viewers.

Late last year the US Federal Reserve announced the launch of the new monetary policy called "Quantitative Easing" this policy took place after lowering Fed funds rate to almost zero percent.

Now what is Quantitative Easing. It basically means central banks resorting to printing unlimited amount of money or credit.
The Federal Reserve poured nearly 12 trillion dollars in the form of bailouts, guarantees and subsidies to the financial system inorder to counter the economic stagnation. Moreover, some of this money went directly to equity markets and this fuelled speculation in US and World Stock markets, Commodities and Real Estate and at the same time weakened the value of the US Dollar.
The main culprit to this rally is the "easy money" which will no doubt increase US national debt into unsustainable levels and sadly this is all done at the expense of the American public.
Finally, one year after the crash of 2008, the richer-then-ever compensation packages for bankers give the lie to Obama's occasional protests against Wall Street "excesses" and talk of tough, new banking regulations. It demonstrates that the administration's economic policis, including trillions into subsidies to the banks, have been devoted to paying off the bad debts of the bankers at public expense and protecting the wealth of a mini scule section of the population.
There is an element of provocation in the pay awards being doled out by the banks. Far from curbing their avarice, they are flaunting their wealth and power in the midst of soaring unemployment and deepening social misery for millions of Americans.

M. B. Moon

"Why do we continue to allow our government to borrow vast sums of money which the American taxpayer will have to repay."

Don't count on it. To the extent that the banking system created new money to purchase that debt, it is phony. The debt has already been repaid via inflation. It should be repudiated.


In America the problem is simple. Credit has been loose since the dot-com bubble which has been the source of numerous market imbalances. The players at fault are numerous including both political parties, The Federal Reserve, Fannie and Fredie, some bankers, many American consumers, reckless corporations etc. Now, despite policies intended to prop up the economy though government borrowing and spending, the markets are correcting themselves from the damage brought upon from 9 or so years of being over-leveraged. Banks are raising their lending standards, consumers are paying down their debt and balance sheets in general are being repaired. It will be a long and painful process for the American economy to return to health.

I'd like to propose that the lessoned to be learned here is that we should place greater trust in the free market based economy. Every major problem affecting the American economy has come about due to institutional intervention in the capital markets.

So with that I ask:

1. Why do we continue to expect our government to make wise decisions with regard to the economy?


3. Why do we believe that stimulus in the form of government spending is a good thing when it would be far more efficient and effective for the government to just cut checks to everyone with a social security card? Wouldn't the stimulus already be in the economy?

I propose that the free market based economic system is not the problem here, but rather excessive government intervention in the free market economy itself.

M. B. Moon


The banks are directly responsible for our misery. By suppressing interest rates via fractional reserves and the central banks they:

1. discouraged honest saving
2. encouraged speculation
3. encouraged consumption.
4. drove up housing to artificial levels.

The banks thus created a bubble. That is the nature of fractional reserve banking. It has killed millions.

M. B. Moon


The burden of proof should be on those who oppose liberty in money and banking. Don't expect me to understand every ramification of liberty. I have proven to my own satisfaction that by cheating no one a money and banking system can be profitable without an expanding and contracting money supply such as we have now.

Our current system is based on looting purchasing power from all money holders through money creation via loans. It is exactly equivalent to a counterfeiter loaning out his "money" in exchange for collateral and interest and then destroying the "money" as it is repaid. This expansion/contraction corresponds directly with the boom/bust cycle. A central bank greatly enables a bank to extend credit since it then need not fear "bank runs". This amplifies the boom/bust cycle and spreads it nation wide.

Keep the central banks such as the BOE and the FED but allow competition. Where is the harm in honest competition? The Brits since 1694 and the Americans since 1913 have been ruled by cheap counterfeiters who wrap their craft in mystery like the Greek priests of old. Allow competition and the slavery is over.


So if the securities markets are in effect-decoupled from and in effect compete with currency markets then presumably they would have to be benchmarked against a commodity or basket of commodities of value. But how is common or preferred equity for example really any different than fiat currency. Granted it would represent diversification from monopolized money of central banks (i wouldn't guess that you would be an advocate of SDR's). However, under the assumption of finite commodities, presumably the market would be more able to equitably manage use of those resources, than the govts to which central banks represent? I would revert to this years Nobel- economics winners. Oliver Williamson has just demonstrated certain situations in which market driven price discovery wouldn't be preferable...

But although it's another topic, in regards to liberty. Many private companies are likely the most influential offenders on the infringement of liberty. Big-brother big business is alive and well...and at a micro-level decision making within an organization has no pre-requisite for being done in a consensual manner.

simon says

OK, so if I understand it correctly, the crisis we were in resulted from banks being too loose with lending and consumers being way too willing to borrow. So now banks are tightening their credit requirements because they've been stung with big loan losses. Consumers have cut borrowing as they have seen themselves stuck with negative home equity and 10% unemployment has put the fear of banruptcy, if not God, in them. It seems to me the system is working just fine to correct two factors which led to the credit crisis in the first place.

So why is this somehow a bad thing? Yes it means we'll be stuck in the doldrums for another year or two while consumers get their debt down to a sustainable level so that they can meet the new more stringent (i.e. sensible) bank credit requirements. But our elected followers will surely be panicing if the economy isn't going flank speed by Nov. 2010 (election time). So, you can expect more stimulus, laws to force banks back into lending to high risk borrowers, and more big tax credits to encourage consumer borrowing.

My prediction - just as in the 1930's, we'll find ourselves starting to work our way out of this and then the gov't will do the exact run thing and drive us down worse than before. In the 1930's, the gov't suddenly decide to raise taxes to balance the budget at all cost which took hundreds of millions of sorely needed $ out of the economy, depressed prices, and did the real damage which changed a likely 2 or 3 year recession into a 10 year depression. This time, gov't will force and increase in debt which will put us into another round of credit crisis when the defaults start but printing even more $ to get us out of the second round will simply set off the worst inflation this country will have ever seen. My suggestion - if you have cash now, it would be a good time to by farm land. It's an asset that will rise rapidly in an inflationary era and, unlike gold, it produces something everyone will need and will be paying more for.


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