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The credit crunch appears to be worsening.

Our economy runs on credit. The dollar is really a debt instrument. If you aren't creating debt you aren't creating dollars.

How can the economy expand if we don't have access to cheap credit ?

Why are we caught in this cycle where the banks inflate the money supply and asset prices, then deflate it later causing those assets to crash ?

Sounds like a scam to pick up cheap assets while still holding the debtors responsible for paying off their debts.

BINGO.

You get it. The US economy runs on debt.

All the people who were (and still are!) pooh-pooh’ing this credit melt-down, and thinking that it won’t take down the US economy, just don’t “get it” in the big picture.

The entire US economy is run on debt. There are very, very few companies or people who are debt-free. Those who are... sit back and wait. You’ll be able to buy a lot of hard assets for greatly reduced prices a year or two from now.

For those of you who are still pointing to the most recent growth numbers, or export numbers — you can keep pointing all you like. But when the credit markets freeze up as they have, and the money to make things move quits flowing, the economy grinds to a halt, because there simply are not enough smart people out there who have no debt to keep things moving.

In California, even borrowers with good credit are having trouble getting jumbo (> $417K) mortgages. In California, that means a lot of real estate has quit moving.

When one looks at the spread between conforming and non-conforming mortgages now, one sees the true picture of the situation: the only reason why mortgage rates aren’t higher still is that Fannie and Freddie are buying up lots of paper and keeping it - a government bail-out by any other name. The private sector is raising the cost of mortgage borrowing even as the Fed is bringing interest rates down - because the LIBOR rate isn’t coming down.

Very good analysis of what's at play. Most consumers are ignorant of the orchestration played by folks such as Buffet, Soros and the mega hedge fund managers.

As a response to your question:

"How can the economy expand if we don't have access to cheap credit ?

It's called real growth and supply and demand well managed by honesty of work, quality of work and efficiency.

Illegal immigration aside and immigration as a whole, real economic growth is tied my previous statement and the increase in population. A smaller government and the government running a balanced budget is a big key to to have cheap credit so industry and consumers do not have to compete for the dollars the government borrows.