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Posts Tagged ‘credit availability’

What is the Fed Really Buying?

Posted by Larry Doyle on November 8th, 2010 7:41 AM |

Quantitative easing is merely another tool to adjust monetary policy, correct? Perhaps. The question begs, then, after an initial round of a trillion-plus quantitative easing failed to stimulate the economy why should we expect any differently this time. Great question. Let’s navigate.

Quantitative easing involves the purchase of Treasury and mortgage securities by the Federal Reserve in an attempt to inject liquidity into the system, prop asset prices, and spur consumer demand. Or so they say. Well how is the overall level of credit in our economy trending?

The downward slope in the graph is an indication of both lessened credit availability and also lessened credit demand. The quantitative easing should directly address this reality, correct? I am not so sure about the “directly” aspect of that statement. In fact, I will go a step further and say I think the Fed is being less than forthright with the nation. If the Fed truly wanted to inject liquidity and capital into our economy and allow it to flow through to small businesses directly there are much better ways of doing it than by purchasing overvalued Treasury and mortgage securities. (more…)

Rick Davis Explains ‘Double Dip’ Dynamics

Posted by Larry Doyle on July 15th, 2010 7:30 AM |

Are you sitting down?

Rick Davis recently wrote, “Unless the economy begins to pick up quickly, a double dip is likely — with the second round milder but lingering longer than the first.” How can our Sense on Cents Hall of Famer make this projection?

Rick sheds tremendous insights on the credit contraction ongoing and seemingly worsening in our nation’s economy. Davis paints a cogent picture as to how we are within weeks of the 2010 economic slowdown being worse than the 2008 recession at the same point in the cycle. You think I’m exaggerating? Hats off again to the fabulous work done by Rick Davis at Consumer Metrics Institute. Let’s navigate.

July 13, 2010 – Behind the Credit Numbers:

During the past week there has been a flurry of Federal Reserve reports and commentary concerning the levels of credit in the current economy. The two most notable were: (more…)

Gimme Credit

Posted by Larry Doyle on March 20th, 2009 8:56 AM |

In the midst of all the wrangling in Washington, Wall Street, and literally all around the world, the biggest concern for everyday Americans is the accessibility of credit. I am sure everybody reading this post has either had issues gaining credit or knows of people who have had issues gaining credit. The knee jerk reaction for this lack of credit is to lash out at those big, bad banks. Well, those big, bad banks along with their smaller counterparts only provide approximately 50% of the consumer credit in our economy.

Where did the other 50% of credit emanate and where did it go? Welcome to the world of asset-based financing and in turn Asset-Backed Securities. I highlighted back on November 12th that the Wall Street Model is Broken…and Won’t Soon Be Fixed. Well, the breakdown and discontinuation of the ABS market is truly the equivalent of the total collapse of one of your lungs. Try to go about your daily business and all of your activities with access to only half the oxygen supply as normal. Might get a little winded? Might struggle to perform? Might tire rather quickly? Might be less efficient and productive? Well, folks, given the shutdown of the ABS market that is exactly what our economy has been experiencing. (more…)

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