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The end of the cheap-money era
Life without cheap money
This change will produce strains on the global financial system on a scale that hasn't been seen in 60 years.
Many governments will be forced to address out-of-control budget deficits and unsustainable debt levels with higher taxes and austerity. Consumers will be forced to deleverage and cut spending. Investors will need to rediscover equities after a recent fascination with bonds. And businesses will need to do more with less capital.
If businesses will "need" to do more with less capital and consumers will be forced to deleverage and cut spending, then why on earth would investors "need" to rediscover equities?
This will mean the end of 0% credit cards, 0% auto loans, interest-only mortgages and low-cost auto leases.
For the record, the average credit card rate is actually 14.71%. Other than a teaser rate here and there the typical consumer is not offered free credit in this country. On average, there is always a price to be paid. Our banking system is not a charity organization.
I've written about how the capital base of the United States is shrinking as businesses let their factories fall into disrepair. The American Society for Civil Engineers gave our infrastructure a "D" grade in its latest report card and estimates that we need to spend $2.2 trillion over the next five years to rebuild bridges, fix water supplies and upgrade our schools, roads and energy systems.
And this is somehow a reason to be bullish? Seriously? Picture two cars on the used car lot. One is in nearly perfect condition and the other is in a state of disrepair. Which one would tend to have the lower price? Further, if all it took was disrepair to create prosperity then Detroit (in ruins) must be one of the most prosperous cities on the planet.
So while the end of the era of cheap money will make it harder for households and governments to live beyond their means, it will usher in a new age of global prosperity....
Disrepair combined with the end of cheap money are two hardships that will create global prosperity? I must be a prosperity heretic, because I'm just not a believer.
ICE: Mortgage Delinquency Rate Increased Year-over-year in October
-
From ICE: ICE First Look at Mortgage Performance: Serious delinquencies hit
17-month high while foreclosure activity remains historically muted
• At 3.45% ...
3 hours ago
3 comments:
Here's a bonus article to ponder.
America's downward slide
Until the housing and financial bubbles burst, of course, we enjoyed the illusion of prosperity through the days of wine and credit.
The credit remains but we've transformed wine into whine. D'oh!
The article was yummy pablum to get the MSN consumers fully invested in stocks.
The history of nominal interest rates 180 years before the Bank of England was founded hardly seems relevant. I'd rather see a chart of real interest rates (now negative) in the era of fiat money. When money costs zero to create, it can be lent at 0%.
Somehow, he manages to make the leap from poor infrastructure to WW2 reconstruction and the broken window fallacy. Haitian infrastructure was wiped out in an earthquake and look at the reconstruction boom they are having.
This writer must have been transported back in time from an Idiocracy future. All he left out of his article was Brawndo the thirst mutilator -- it's got electrolytes.
Mr Slippery,
Trade you a Thunder Muscle for a Brawndo! ;)
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