A sliver of good news about the economy.

Americans borrowed less for a 10th consecutive month in November with total credit and borrowing on credit cards falling by the largest amounts on records going back nearly seven decades.

The Federal Reserve said yesterday that total borrowing dropped by $17.5 billion in November, a much bigger decline than the $5 billion decrease economists had expected.

November’s $17.5 billion drop in total credit was the biggest amount in dollars terms since records began in 1943.

www.globalresearch.ca...

I've been saying all along that the only thing needed for a recovery is to restore debt levels to reasonable levels again. However, I get the feeling that governments around the US may have borrowed twice that amount, putting us in an even worse position. Unfortunately, this sliver of good news is overshadowed by an avalanche of much worse news.

According to the US Treasure at www.treasurydirect.gov..., federal debt alone increased by about $220 billion during the time consumers paid off $17.5B, a figure which only uses government accounting rules which are nothing like the GAAP standards followed by other businesses.

Isn't it just common sense that by taking out a loan of 200+ billion in month after month, year after year, our government is doomed? I wonder if other countries are doing so horribly as well. Obama's $700 billion defense plan is not just war-mongering, its a blood-lust suicidal mania. I'm surprised when we see Obama there isn't blood dripping down his jaw and when we we Bush Jr his hair is still kind of straight looking for a ravenous madman. To be honest, I don't blame them. I blame the people who voted for them. Voting these days can be more criminal negligence than anything else. I'm not trying to bad mouth democracy, just those who support the two-party fascist monstrosity we've got going by voting for blood-thirsty vampires like Bush II(Bush jr) and Bush III(Obama).

[edit on 17-1-2010 by truthquest]

[edit on 17-1-2010 by truthquest]

Actually this is horribly bad. Loans = spending and buying things and that = jobs so that people make money to pay bills and loans.

If less people are taking loans it probably means more layoffs. If you have no money coming in then that doesnt mean your debt amounts are going down it just means you cant get a loan or lost your job so you wont pay your billls you already have.

Originally posted by whoshotJR
Actually this is horribly bad. Loans = spending and buying things and that = jobs so that people make money to pay bills and loans.

If less people are taking loans it probably means more layoffs. If you have no money coming in then that doesnt mean your debt amounts are going down it just means you cant get a loan or lost your job so you wont pay your billls you already have.

What jobs you speak of are doing is transferring wealth from the poor to the rich, then that job is not a positive factor in the economy. When someone buys a deluxe slice of salami for example on credit card when they could be buying a 3-pound rice bag using cash, what happens to their economy? They get the joy of the Salami for that day, and one day they have to PAY BACK two or three Salami's worth of money back to the bank. The bankers are the rich ones. The salami fan is the poor one.

There are different types of jobs. Many jobs simply create cash churn, meaning all they are doing is transferring cash from on person from another without creating something of value. Does that make sense?

Federal reserve chart shows individual consumer within the year dropped from a high of 880 Billion in Feb 09 to 840 Billion in Nov 09. So 40 Billion loss of Individual credit.

Consumer (Individual) Loans at All Commercial Banks (CONSUMER), Monthly, Seasonally Adjusted
research.stlouisfed.org...[1][id]=CONSUMER&s[1][range]=1yr

Total Revolving credit dropped by 110 Billion dollars, from 980 Billion around Sep 08 to about 870 Billion in Nov 09.

Total Revolving Credit Outstanding (REVOLSL), Monthly, End of Period, Seasonally Adjusted
research.stlouisfed.org...[1][id]=REVOLSL&s[1][range]=1yr

Total Business loans dropped from 1,640 Billion to 1,360 Billion.

Commercial and Industrial Loans at All Commercial Banks (BUSLOANS), Monthly, Seasonally Adjusted
research.stlouisfed.org...[1][id]=BUSLOANS&s[1][range]=1yr

That's alot of momentum and energy that was taken out of the system.

A sliver of good news about the economy.

no this is not good news.

especially in the business sector.

Total Business loans dropped from 1,640 Billion to 1,360 Billion.

Most small businesses can not get loans to expand or cover new contracts.
this means small businesses are stagnant and not growing.

Many large businesses can get money from investors and bypass the banks if they have to so the banks lend them money.

Small businesses don't have this option and many have stopped or cut back on bidding jobs or expanding because they can not get this money.

This means less new jobs and in some cases job losses.
This also means that more big companies will shift more new product manufacturing to places like china where cost are less and in some cases other countries will pay part of the cost of setting up manufacturing to create jobs in there countries.

Originally posted by ANNED

A sliver of good news about the economy.

no this is not good news.

especially in the business sector.

Total Business loans dropped from 1,640 Billion to 1,360 Billion.

Most small businesses can not get loans to expand or cover new contracts.
this means small businesses are stagnant and not growing.

Many large businesses can get money from investors and bypass the banks if they have to so the banks lend them money.

Small businesses don't have this option and many have stopped or cut back on bidding jobs or expanding because they can not get this money.

This means less new jobs and in some cases job losses.
This also means that more big companies will shift more new product manufacturing to places like china where cost are less and in some cases other countries will pay part of the cost of setting up manufacturing to create jobs in there countries.

I believe the perfect balance for a maximum economy is a credit card balance of $0. Credit cards are simply not a good deal for consumers and do nothing but widen the gap between rich and poor. So when I was talking about good news, I was talking about consumers paying down their credit cards.

I do realize that there are a lot of other things about the economy that are bad. But I'm curious what do you propose the optimal number would be for small business loans? Obviously you think 1.4T is too low. Surely you do realize at some point you do realize it would be too much to be paid back? I've always thought that business capital is too hard to obtain, but I don't really know that or have any basis in fact for saying that small business loans are too difficult to get now.

I think a new trend that is a good fresh force in economies around the world now is the ultra-low amount loans going strong in areas with high poverty. I don't recall the name for them.

I think maybe the economic stimulus money would have been best served by loaning money to the smallest of businesses possible. But Obama would never serve the little people when he could serve giant megacorporations.

It is always bad to carry large debt.
However, the US does not hold the record.
Check out these numbers.

•US Gross Debt 2008 10,024.7bn 72.5% of GDP (EST) (US Debt)

•Japan National Debt 194% of GDP 2008 (est) 836,521 trillion yen 2007

Note: Japan’s Public sector debt is very high. However, Japan has a high savings rate which makes it easier for the government to finance the debt. 90% of Japanese debt is owned by Japanese individuals. US has a low savings ratio and 25% of US debt is owned by foreigners. Nevertheless the National Debt of Japan is a real burden for the economy

Econimichelp.org

If the US is heading in that direction it will be a disaster because of the lower savings rate. Not to forget China is not buying our debt now, and the US gov and the bailed out banks are. (read paying the national credit card with another credit card, read financial shell game.)

reply to post by truthquest


I'm sorry but you don't understand how economics works. Businesses use credit for things like payroll and inventory, it would be impossible to have small buisnesses in most industries to carry enough cash for those 2 things alone.

You would end up with only major corporations controlling everything and that isn't even feasible for every job needed.

In your other example you state that it is just transferring money to the rich but it still takes a person to have a low end job in productions to make that stuff. How would people buy homes without a loan? How about new cars? You want a balance of zero credit but that only works if we go back to the middle ages and tiny communities.

Originally posted by whoshotJR
reply to post by truthquest

 

I'm sorry but you don't understand how economics works. Businesses use credit for things like payroll and inventory, it would be impossible to have small buisnesses in most industries to carry enough cash for those 2 things alone.

You would end up with only major corporations controlling everything and that isn't even feasible for every job needed.

In your other example you state that it is just transferring money to the rich but it still takes a person to have a low end job in productions to make that stuff. How would people buy homes without a loan? How about new cars? You want a balance of zero credit but that only works if we go back to the middle ages and tiny communities.

You misinterpreted what I've said. What I said is that essentially all credit card debt is bad for an economy. All other credit may be good or bad depending on the circumstances. If the government is the one borrowing, in 90% of the time that is bad.

However, I'm annoyed that you are encouraging people to take out loans for new cars. That is financially suicidal. If you can't afford a new car, buy a used one. If you can't afford a used car then consider car pooling, bumming rides off of people, mass transportation, etc. And if that doesn't work you still shouldn't loan more than $3,000. Nobody in the USA should ever get a loan for more than $3,000 for a car. The idea that people need new cars in just the color they want and with just the right trim is ridiculous. Yes you do have to pay repair costs for used cars, and they almost never exceed the interest cost on any car loan!

I'm wondering if you think that all loans are always good in a down economy. Do you think that?

reply to post by truthquest


It's not if its good or bad its what effect are you looking for. If nobody buys a new car or takes out a car loan then that shuts down even more jobs. The reason we have the lifestyles we have is because of credit. You can argue that its a negative or positive thing but credit cards are very much like the credit stores are given.

I personally couldn't afford to drop 20k tomorrow on a new but I could however afford the payments with a bunch of cash down. I also couldn't afford to have an unreliable car for my job. You list a 3000 dollar car but if nobody is buying new cars then you changed the supply and demand model on used cars. Now a car that was $3000 has become $8000.

It's all a balancing act. Credit and credit cards in theory are fine. The problem is they need some reform so that people don't get screwed and the economy blows up.

Originally posted by whoshotJR
reply to post by truthquest

 

It's not if its good or bad its what effect are you looking for. If nobody buys a new car or takes out a car loan then that shuts down even more jobs. The reason we have the lifestyles we have is because of credit. You can argue that its a negative or positive thing but credit cards are very much like the credit stores are given.

I personally couldn't afford to drop 20k tomorrow on a new but I could however afford the payments with a bunch of cash down. I also couldn't afford to have an unreliable car for my job. You list a 3000 dollar car but if nobody is buying new cars then you changed the supply and demand model on used cars. Now a car that was $3000 has become $8000.

It's all a balancing act. Credit and credit cards in theory are fine. The problem is they need some reform so that people don't get screwed and the economy blows up.

The lifestyle that we have today has little to do with banking and much to do with technology. Are we no longer living on farms because banks started making extra-large personal loans? Or, is it because there are five ton combines doing the job for us? Banking is great method investing, but a terrible way of spending.

If you are in a position to pay $20,000 + $10,000 interest over the next five years for a new car, you are in a better position to save $30,000 over the next five five years for a car, minus the $5,000 in additional repair costs for a total of $25,000. See? In exchange for dealing with an old car for five years, you can buy a brand new one paying cash for the rest of your life. That is what I did when a few years ago and its been great. I paid more money for my second car than I did for my first one because I didn't have to deal with interest costs.

And because the interest expense is no longer there you are not stuck with a $3,000 car. In fact, instead of buying brand new $20,000 cars for the rest of your life using credit you can now buy $25,000 cars for the rest of your life using cash. Therefore, if everyone were to pay cash rather than credit for cars, cars do.

Home loans are just fine, so long as they are saving money compared to what the rental cost would be. In other words, if they are getting the loan as a way to save money rather than a way to spend money. In that respect banking has been good to many people. But on balance, I question the value of banking when people not only are borrowing to save or invest, but borrowing to spend.

The idea that jobs have to be created to make the economy more healthy is false. If you look at what happens during economic booms, you'll see that jobs are only created after the boom is in full swing. And jobs are only lost after an economic decline is in full swing. What this lag shows is that jobs are merely a byproduct of a healthy economy, not the underlying creator of economies.

For jobs to return without being force-fed through credit, an economy has to get healthy first. A healthy state means there cannot be excessive credit and bad loans. So by creating jobs in a credit bubble environment, you are just putting yourself in a permanent holding pattern of a bad economy. Look at what Japan did during the 80's. Did they allow credit to deflate? No, instead they created as much credit as was getting destroyed, and in the process created decades of economic ruin.

The current economic problem is not lack of jobs. Lack of jobs is the symptom of the problem. The root problem is excessive credit... a credit bubble. Do you really think it is a co-incidence that there was a credit bubble followed by a depression in the 20's and then another one in the 90's and 00's? We will never ever return to economic well-being until credit is under control. And if you create jobs using credit, you are making the symptoms of the problems better but the root cause worse.

The problem with borrowing $20,000 to hire auto-workers today (to support the economy), is that ten years down the road when it comes time to buy another car you have $25,000 LESS dollars to pay those same auto workers, which hurts the economy. You'll have $25,000 less money because while you saved $5,000 in repair costs by purchasing the new car you spent $10,000 of interest in the process. So in other words continuous use of auto loans to help an economy now creates an even bigger continuous loss of ability to help the economy at any given point in the future. You'd be helping the auto industry now using credit in exchange for hurting them even more in the future.

It would be better for the economy for you to save your money and cause some temporary unemployment in the auto industry, and in this way you can offer a more permanent and steady employment for them in the future.

The solution you advocate makes the problem much worse down the road because we are talking about people who already have maxed out their credit. They are scheduled to hurt the economy down the road quite a lot because they pumped in $20,000 for a new car at the expense of pumping back out $30,000 down the road. So no, the solution is not to pump in $30,000 now at the expense of having to pump out $40,000 down the road. That kind of thinking just creates an ever-growing stack of cards that collapses harder and harder each time something goes wrong.

What we have today is a problem with jobs but the jobs in turn don't exist because of debt. Eliminating the debt eliminates the obstacle getting in the way of job creation. You spending $25,000 on a car five years down the road is what our economy needs... not spending $20,000 on a car using credit today.