Ok So the FED has increased the monetary base by 76% (added about $2T) but this $$ hasn't yet really "hit the streets" it is frozen due to banks not trusting each other etc etc yada yada. I have opened this discussion to make a few points, hopefully get some feedback, and to hear others points of view...For the record I have fought tooth and nail against every bailout package, but reality is what it is now...
1) Since Unemployment is rising, and defaults are increasing, it is safe to say that Credit ratings (personal & Corporate) are taking a big hit, and will continue to do so for some time. With this being said, Who will the banks ultimately have left to lend to ?? Will there have to be some type of govt mandated moratorium on credit ratings ??
2) The "purpose" of these bailouts reportedly was to spur new credit and to "stabilize" housing...BUT, it now appears we have 4 distinct housing situations in America...(1) No home ownership/renter (2) Negative equity (3) Positive equity (4) Defaulted mortgage. Moving forward it would appear that #'s 1 and 3 are the only hope to "save" the housing market., for #'s 2 and 4 are unable to sell or buy. Negative equity is sitting at about 40% of all homes and expected to rise. So essentially I would estimate that potential buyers will be about 60-70% less than they were about 2 years ago. (comments please)
3) If we examine people with positive equity in their homes, we have 2 types they either put down a big deposit, or have lived in the home for quite some time. If they put down a big deposit, we could probably assume that 50% may be "sitting" at a loss. So what motivation is there to sell other than downsizing or Upsizing. If you are a renter, why would you buy in this market ?? Why take the risk if unemployment is rising so quickly.
4) In regard to foreclosures, if one needs to foreclose, chances are they are foreclosing on more than their home...Logic would state that "if your credit rating is getting smashed due to foreclosure, why not default on everything?" Meaning a loss of credit cards, auto etc etc.
5) This massive loss of Credit Ratings is rarely discussed, this will have massive shock waves. Without a good credit rating, it is next to impossible to get a credit card or even a checking account...The internet is built on CREDIT, even paypal requires a bank account ! Without a checking account people will be forced to cash payroll checks, depleting banks of deposits. One cannot rent a car or a hotel without a credit card, and it is next to impossible to survive without a bank account....This will certainly crush earnings and spur new waves of unemployment....thus deepening the crisis.
Question: A foreclosure can stay on ones credit rating for up to 10 years....The staggering increase in the Monetary base on the surface SCREAMS of future hyperinflation, but in order for Hyperinflation to come about this $$ would need to be lent no ?? If credit ratings are destroyed, there are less qualified to acquire loans, so is it even possible to get this money into the system ??
I was just discussing this with forum member Lee. Eventually, when the economy gets better, you know that that money will have to be lent out. I'm not so sure about the short term, though. If the Fed keeps the printing presses on "excessive" mode, banks will have so much money that they'll have to do SOMETHING with it. That said, if the economy keeps on getting worse (which it will), banks might just NOT lend out any more money. Who knows?
In either case, I think gold/silver will be good long term investments. I'm not sure about the short term though (or how long the "short term" will be).
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