Is the Credit Crunch Growing?
We've all known for several months about the sub-prime/ARM mortgage debacle, and how it's forced lenders to tighten their standards. Better late than never, I guess.
Now we're seeing a reduction in lending with credit cards. Exhibit A is the British Internet bank, Egg, withdrawing credit to 161,000 customers it believes pose an 'unacceptably high risk.' Peter Schiff, head of EuroPacific Capital, also sees credit-card lenders in the US ratcheting up their standards after seeing their profits go down, and their stocks downgraded.
As I've said before on this blog, excess credit and speculation have been the two main drivers of the dot.com and real estate manias - and ultimately, the US Economy. Once the credit begins to contract, the overall economy will follow suit. If you understand the fundamentals of Austrian Economics, it's pretty easy to predict. If you don't know these fundamentals, get up to speed on them as soon as you can.
Go to: 321Gold.com, Financial Sense Online, Prudent Bear, Daily Reckoning.com, and Kitco for starters. If you just want entertainment, eye candy, and escapism from the real business and economic world, go to Fox Business News or CNBC. Liz Clayman and Erin Burnett are definite hotties.
Where was I at? Oh yeah, credit and the economy. It was inevitable that we'd come into a recession because of low interest rates, easy credit, and the increase in money supply. The yin and yang of business cycles, if you will - whatever goes up must come down. It should be common sense... you can't just borrow and spend your way into prosperity.
If we're not in recession already, it's not very far away. The skyrocketing foreclosure rates around the country, and the emptier bars and restaurants I see in the Denver-metro area indicate the economy is slowing down. Last week's ISM non-manufacturing index number confirmed this suspicion as well.
It doesn't matter what kind of stimulus package Congress or the President passes, or how low the Fed pushes interest rates. The only cure for this credit-induced party, is an extended recession that will probably last several years. My hope is that Americans eventually realize that government intervention in the economy (and any other part of society) isn't the answer to our problems, but the cause of them.
Get Paulson, Bernanke, Bush, and the whole crew out of the way, and let the financial hangover begin.
Now we're seeing a reduction in lending with credit cards. Exhibit A is the British Internet bank, Egg, withdrawing credit to 161,000 customers it believes pose an 'unacceptably high risk.' Peter Schiff, head of EuroPacific Capital, also sees credit-card lenders in the US ratcheting up their standards after seeing their profits go down, and their stocks downgraded.
As I've said before on this blog, excess credit and speculation have been the two main drivers of the dot.com and real estate manias - and ultimately, the US Economy. Once the credit begins to contract, the overall economy will follow suit. If you understand the fundamentals of Austrian Economics, it's pretty easy to predict. If you don't know these fundamentals, get up to speed on them as soon as you can.
Go to: 321Gold.com, Financial Sense Online, Prudent Bear, Daily Reckoning.com, and Kitco for starters. If you just want entertainment, eye candy, and escapism from the real business and economic world, go to Fox Business News or CNBC. Liz Clayman and Erin Burnett are definite hotties.
Where was I at? Oh yeah, credit and the economy. It was inevitable that we'd come into a recession because of low interest rates, easy credit, and the increase in money supply. The yin and yang of business cycles, if you will - whatever goes up must come down. It should be common sense... you can't just borrow and spend your way into prosperity.
If we're not in recession already, it's not very far away. The skyrocketing foreclosure rates around the country, and the emptier bars and restaurants I see in the Denver-metro area indicate the economy is slowing down. Last week's ISM non-manufacturing index number confirmed this suspicion as well.
It doesn't matter what kind of stimulus package Congress or the President passes, or how low the Fed pushes interest rates. The only cure for this credit-induced party, is an extended recession that will probably last several years. My hope is that Americans eventually realize that government intervention in the economy (and any other part of society) isn't the answer to our problems, but the cause of them.
Get Paulson, Bernanke, Bush, and the whole crew out of the way, and let the financial hangover begin.
Labels: consumer credit, credit cards, credit crunch, sub-prime mortgage
posted by Brian Ochsner | 4:18 PM
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