Wednesday, October 01, 2008

Financial Woes

Look, there are a lot of fingers being pointed about. Each side is blaming the others and trying to yell louder to make their arguments sound more convincing. I think there is a little truth to be found in what both sides are saying. I wonder if the basis for our current situation could be placed into a summary that is no more than a medium length paragraph.

Credit Crunch - Reuters reported today [source] that auto sales have plummeted due to the credit crunch. If this is truly due to the lack of available credit, then this would be the beginning of a problem as described by President Bush and others. Is the loss of easy credit a bad thing, though. Easy credit seems to have been part of what caused the problems the country faces today.
“U.S. industry sales leader General Motors Corp, which was more aggressive in discounting its vehicles, managed to keep its September sales decline to a relatively small 16 percent to take a larger share of a rapidly declining market.”
The drop in auto sales might be based more on other factors and still aggravated by problems with credit as well.

Inflation or deflation - I've heard comments about inflation problems and deflation problems. You cannot have both at the same time. It will certainly be one or the other. The problem with deflation is that so very little is known about how to deal with this problem. Inflation is bad enough but a lot has been documented on strategies for dealing with the financial markets and inflation. Inflation has been the main fiscal concern since the end of WWII. Deflation hasn't. If we're heading into problematic deflation will the Fed know what the best options are? Will the Fed do something that will make things worse? How about the legislature?

The Senate looks to be working on a very large bill that will provide the Treasury with the authority to purchase bad paper. It is a rescue package that will burden our Children's grandchildren. They've decided it is the only way to avoid a larger problem. Governments do not generally solve problems. We'll have to wait and see.

The cause of our current circumstance is described differently depending on to whom you listen. The common consensus among liberals is the under-regulation as advocated by the conservatives over the course of the last eight years. However, if you listen to the conservatives speak you'd understand that banks were regulated into offering higher risk loans by the policies of the liberals. Everyone saw it coming, yet nothing was accomplished to eliminate the peril we face today. Some commentators suggest there is enough blame to go around.

Why doesn't the people who feel so strongly that something must be done listen to people who have been successfully making money in the real estate market for advice. We've been lectured by Bernanke and Paulson on this single option. Where are the second opinions? Why are we being forced into this one way?

I just hope we are going to be facing another bailout in six months.
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