Economy’s turnaround: (part 1)
From a Macro-economic point of view: Our society is rotten to the bone. All was bogus the last two decennia, we have been living beyond our means as a result of the debt-fuelled consumer binge. Borrow and spend today, pay tomorrow, whether never ‘tomorrow’ would come. But now this tomorrow ‘better-called’ day of reckoning has come. Its arrival was clear to me at the turn of the century; it wondered me that it took that long. Policymakers have no idea where they are talking about or do understand what is going on, let alone knowing what should be done to turn the economy around.
This is very frightening!
A request to policymakers, please give liquidation a chance!
The majority of those in charge are nuts and follow their leader like sheep. Apart from the fact the last economic depression took place about 80 years ago most of today’s economists don’t even have a clue, as they should!
This crisis was already in the making for over ten years and no authority had the courage to apply self-discipline and proceed with prudence in order to save our society from financial disaster. All those derivatives, hedge funds and structured products aided to inflate the bubble and were an open invitation for a tremendous tragedy to happen. They all jumped on the bandwagon and lined their pockets with fat commissions and bonus-payments, a process that was set off by the crooks from Wall Street, and the greedy bankers whom should have known better, but greed took the upper-hand, letting them believe this was the new economic era in which things were different. The sky became the limit, which never is, as educated well thinking individuals do know.
If it goes the way Japan went and still is going, we will have this economic crisis with its nasty side effects for at least the next 20 years upon us. Anyway it will never ever be the same again as before. People now are scarred to death and starting to pay down their debts and thereafter will continue to save their money for bad times that certainly are coming. Don’t be foolish by thinking this will be over in a couple of years as Governments and policymaker let us believe. Better to prepare for the worst and hope for the best. At last it will be a far more sober and modest society, than we know.
Consumer confidence is at an all-time low. Investors don't have much confidence either in this economy that would start to grow again in 2010! After the banking system has become stabilized says Mr. Bernanke of the FED! This is nonsense. Nobody knows when the economy will begin to grow in earnest again, and if it begins to grow it won't be because the banking system is stabilized. You can stabilize a ladder and prices. But stabilizing a shoddy bank won't help the economy grow. For that you need healthy banks. And the only way a bank can be healthy is if it holds healthy assets and earn decent money when it makes a loan.
Banks aren't making loans now because they don't know who will be able to pay them back, besides it is not known what the collateral is worth, until the process of price stabilization has taken its course. But this will not happen until deflation has run its course, after prices have come down to their lowest level. That process could happen quickly, or it could take years, depending on intervening forces as bailouts, stimulation packages, etc. Company by company, country by country, the whole world will first slide into depression.
Nationalization of banks is the better approach, by taking out the toxic assets, which is already in progress, will take time. Nearly the entire banking sector is insolvent. They don’t have any money to make loans. It might become a Japan-like slump that runs by now for 2 decennia! The banking system is in shambles. The process of deflation exposes the weak foundations of the banks’ assets. Until this process is completed the economy will not going to function again. First the banks have to be cleaned out, instead of being stabilized! Better to let the market doing the job, which already is occurring. It is wrong to use taxpayers’ money to bail out insolvent banks. It has never worked in the past and it will not going to work this time. Just let toxic banks go broke is my suggestion. Let them fail let them go defunct let them be liquidated. Instead of robbing innocent people of their savings, the establishment must allow the weak banks to go bust. All what is needed to do by Governments is to protect the bank’s depositors that they will not lose anything. Then the turnaround of the economy will start, and show far more quickly improvements we are desperately waiting for.
These will speed-up the process. Surviving banks could buy up the sound assets and still come out stronger. This approach is much better than the currently (in) actions of the establishment, which only is making matters worse and prolonging the pain. Moreover, by printing insane amounts of paper money, policymakers are setting everyone up for an inflationary nightmare! One thing is for sure… before this drama ends, the viability of the U.S. dollar, as the world's reserve currency will come under question. When the U.S. dollar starts to implode, hard assets will go through the roof. Money printing is the wrong medicine as the depression of the ‘30s learned under the Weimar Republic in Germany when commodity prices went ballistic.
Give the market the chance and intervene as little as possible, this seems doing a better job, as often is experienced. (Will be continued).
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