The American consumer/debtor/homeowner appears to be taking Shakespeare's advice (albeit a bit late in the game). Banks and other financial insitutions too seem to be taking the bard's sage advice (very, very late in the game, we would opine). Of course, neither borrower nor lender is abating of his characteristic behavior VOLUNTARILY. Borrowers, it would seem, can no longer pile on any more debt; lenders, for their part, are plumb out of lendable capital. This state of affairs is reflected eloquently in the monetary base, which has shown virtually zero growth since the beginning of 2007. This state of affairs is eerily reminiscent of the Japanese situation. The BOJ created heaps of liquidity, but the banks declined to lend, and the borrowers to borrow. Thus, the liquidity accretions were not operationalized, and the Japanese economy remained mired in the new style depression for two decades. It would seem that, in one respect at least, banks are NOT like geese (or turkeys, might be a more accurate analogy). In other words, you cannot force-feed them and expect success. The provision of unused liquidity reminds us of Coleridge's famous line: Perhaps someone should awaken the Adminstration -- soon to depart Washington, Praised be the Lord -- to the fact that the failure of both the banking system and the generality of borrowers to respond to liquity creation efforts of the central bank is not exactly too insignificant to notice. It is a tad more important, we would respectfully submit, than the latest news from the 1, 2, 3 TRILLION DOLLAR WAR. Moneysage 2008 © |
|||