Posted on 10/31/2009 3:54:18 PM PDT by blam
The US Recession Is Not Over, But The Stock Market Party Is
Economics / Recession 2008 - 2010
Oct 31, 2009 - 08:17 AM
By: Andrew_Butter
“Technically” it’s over, perhaps, but that 3.5% annualized was entirely due to the government borrowing money and giving it to people to spend on things that will not generate long-term economic value:
Cash for Clunkers (1%) + $8,000 New Homebuyers (1%) + Government Spending (0.5%) + This and That (1%) = 3.5%.
To achieve that superb magic trick the government took on how much debt? I’m not going to bother with trying to unpick the deliberately obscure numbers, but if it was more than 1:1 I’d be very surprised.
And how did they get the debt? Well since no one wants to lend them any money these days, certainly not at the ridiculously low interest rates they pay, (and it’s not inflation risk potential buyers are worried about, it’s the trashing of the dollar and sovereign risk), they had to find someone else to lend them money.
Of course that was easy, the banks showed up at the Fed discount window with a load of toxic assets that no one has a clue what they are worth, and the Fed said:
“OK I’ll lend you, lets see…how about 90% of face against that “security” (LTV = 90)? And just for you, since you have been so good, and you are obviously such a good credit risk, and since we used to party together down on the AIG shindigs to Las Vegas, now those were something hey!! Tell you what; I’ll let you borrow at 0% or thereabouts”.
Then the banks all trotted down to the Treasury and bought a load of Treasuries at 3.5%, and then they gave themselves huge bonuses for being so smart. Some of them were even smarter and put it in the stock market or speculated on oil.
[snip]
bump
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