The Credit Crunch....Hoax

Discussion in 'Economy' started by Skull Pilot, Jan 10, 2009.

  1. Skull Pilot
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    Skull Pilot Platinum Member

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    The Great Credit-Crunch Hoax of 2008 - Robert Higgs - Mises Institute

    $CreditCrunchCereal.jpg


    Remember the credit crunch? Of course you do. We'd never seen anything like it, or so the highest financial authorities and their lapdogs in the news media told us — not in a cool, calm, and collected way, either, but in a breathless delivery that suggested imminent economic doom unless the government immediately undertook to "do something." Which it did, of course, on a scale never before witnessed in US history.

    So, looking back, as people are prone to do at this time of year, we can clearly see the telltale signs of the financial disaster that struck the financial markets last autumn: the terrible credit crunch, the "frozen" credit that portended a complete economic "meltdown" unless the government took drastic measures to head it off. (The government's spokespersons and the media's talking heads never got straight whether the thing was very cold or very hot, as they reached for horrifying metaphors in all directions at once.)

    But, wait, something is terribly wrong in the statistical record! The devastating credit crunch, the greatest threat to this country since the Russians exploded an H-bomb, the most menacing economic event since the stock-market crash of 1929, the … (sputter) … (sputter) … (words fail me in the face of such terrors as it evoked in the minds of government ministers and financial titans of all stripes). Well, I am rather embarrassed, on behalf of all these giants of the ruling elite, to inform you that in retrospect the Monster from Lack-of-Liquidity Lagoon doesn't really show up as such in the most relevant statistical series.

    Probably the most important measure of credit-market conditions is the amount of commercial-bank credit outstanding. These figures show that although the middle part of 2008 does stand out in the long view, it does so not by virtue of credit's frightening contraction, but only by virtue of its hitting a six-month plateau from April through September.

    At no time during that interval, however, did the amount of commercial-bank credit outstanding fall below the amount outstanding at the beginning of the year. In short, credit was actually ample, indeed, at an all-time high; it simply stopped growing as usual for six months, stuck at about $9.4 trillion, while one Wall Street wizard after another told NPR that "no money is moving, the credit market is completely shut down" or some such cock-and-bull story.

    After the six-month pause, commercial-bank credit zipped upward again, so that by the end of the year, the amount outstanding stood more than 8 percent higher than it had a year earlier. Some credit crunch! Année terrible, indeed.

    But don't write off this silly little hoax too fast, because, however baseless it might have been in economic reality, it was manifestly good enough for government work. And that work has now placed US taxpayers on the hook for trillions of dollars of additional Treasury commitments and put all holders of US dollars and other dollar-denominated assets at risk of tremendous losses of their money's purchasing power.

    The beauty of the Great Hoax of 2008, from the perspective of the ruling class, is that is was also a Great Scare, and such scares invariably serve as pretexts for the rulers' most audacious assaults on the peasants' lives, liberties, and purses. You'd almost have to admire the elite's ability to spook the rest of us into blind, unreasoning panic on such a flimsy basis, if it weren't for the fact that after the episode has passed, we find ourselves enormously worse off, our economic prospects diminished greatly, and our liberties throttled more tightly by an even bigger Leviathan, with nothing to show for it on the upside but the further enrichment of a handful of big bankers and other malefactors of great wealth and power.

    Speaking as a self-appointed representative of the peasantry, I'd say that notwithstanding the thrills and chills we got out of it — the terrific excitement it brought to the boob tube while it lasted — the whole shebang now seems hardly worth the trouble it's caused us, not to speak of the trouble it holds in store for us as its consequences play out over the years to come.
     
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  2. Paulie
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    Paulie Platinum Member

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    I always suspected it was overblown fearmongering.

    These bastards scared us into handing them our asses.

    It really IS quite genius when you think about it.

    All it takes is a little help from the media.

    The only ones not getting credit right now are the ones who have no business getting it ANYWAY.
     
  3. editec
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    editec Mr. Forgot-it-All

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    This is a vry interesting post, skull. Thanks for bringin it it our attention.

    Now let us assume that this deflation threat is in fact nothing but a great big hoax, okay?

    So what that means is this:

    That our government is nothing more than one gigantic conspiracy.

    Seriously, think about it..there's not other explanation for it, if as the Mises Institute suggests there is no credit crises.

    And if that is true, what other things that lefties like me have been saying for years, and things which we lefties have always been called conspiracy theorists for suggesting, are ALSO true.

    Is our rate of employment really only 7%? Doesn't look like it to me

    How about our rate of inflation? Was is really only 5.9% in 2008? Didn't look like it to me in that case either.

    Nowhow about what percentage of the Federal taxes are paid by the super rich? Also a great big lie?

    How about how much they actually have to claim as income?
    Also a great big conspiracy?

    YOu see where this is headed don't you?

    You see, I have long thought that we were in a CLASS WAR, and the government is the means by which this class war is being conducted.

    The rich are getting enormously welthier in comparison to all other classes.

    And now suddenly they're all broke?

    And we, the taxpayers need to go into a couple TRILLION dollars debt to save that class of people?

    So bear with me for a moment.

    What does that tell you about the whole god damned system?

    Do you see now, why the poor refuse to go gently into the night like so many of the ashole classists on this board so often wish they would?

    The whole fucking system is bent, if as you suggest, the credit crises is a hoax.

    The whole fucking system rewards the rich at leave the bills to be paid by the rest of us.

    And when I say the rest of us, I am really talking about 99% or so of us.

    If you make $250,000 a year?

    You are no less a victimized class by this corrupt system, than the people who go to work every damned day and can't make ends meet.

    And if the whole system is and has been corrupt to benefit of the superwealthy, then please explain to me again why YOU object ot taxing the every loving shit out of that class?

    Why, why do you care about the plight of the superwealthy?

    They obviously don't give a fuck about you or yours.

    See my point here?

    If the system has been corrupt, then some reason compensation needs to be given to those people who have been fucked the worst.

    Of course you might think of that as socialism, but I think of that as social JUSTICE.

    Those who were cheated their entire livves need a freaking break and they need it sooner rather than later.

    So if you're right...revolution makes as much sense as libertarianism, sport.

    Because libertarianism is prdicated on the assumption that them what has got it HONESTLY, and then what ain't don't have because they don't deserve it.

    Except they do.

    Because those people who our resident class traitors have such comtempt for ALSO make the trains run on time.

    They contribute FAR MORE in aggegate that the class of social parsites who people like you usually suck up to.

    Suck up, editec?

    What are you talking about?

    The death tax that I suspect you object to on libertarians principle; the progressive income tax, I suspect you object to on libertarian principle; Tthe welfare system I suspect you object to on libertarian principle; the FREE TRADE system which I suspect you support on libertarian principle; the decreasing minimum wage I suspect you support on libertarians principle....all of them ALL OF THEM, are forms of CLASS WAR and every one of those the SUPERRICH (and their libertarian wannabe supporters) support because they all tell us..

    there's no conspiracy to fuck over the American working class.

    Except NOW, you suddenly can see that CONSPIRACY, can't you?

    I love reality.

    It inevitably proves the truth of the old adage

    THE TRUTH WILL OUT
     
  4. Paulie
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    Paulie Platinum Member

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    Ed, no one's arguing that there's deflation.

    A lot of people AREN'T getting credit right now. But that's a GOOD thing.

    The claim that credit is "frozen" though, really is more of a myth than anything else. If you have a good credit score, you're getting loans. It's that simple.
     
  5. Skull Pilot
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    Skull Pilot Platinum Member

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    Nice rant Ed.

    The point of the article is to show that there was no drastic decrease in the amount of credit. There was merely not an increase in credit for a period of time.

    In fact if the Fed had not artificially suppressed interest rates, we would have seen the decrease in lending that we should have seen which in turn would have slowed down the real estate bubble which in turn would have slowed wild speculation which in turn would have kept mortgage backed securities from imploding.

    But the benevolent government lied Ed just as it is lying to you now that we need trillions of dollars in deficit spending to avert the "crisis"

    Instilling fear in the populous is the tried and true tool of government manipulation and you're falling for it yet again.

    And yes ed, I oppose the death tax, I oppose excessive taxation of ALL people. Personally I think EVERYONE should keep more of what they make and the government should be smaller and not have its fucking tentacles in every single aspect of our lives.

    I neither need nor want the government to save me from myself.

    The fact that right now there are approximately 40% of the population that receieve more from the government than they pay in taxes bothers me.

    The fact that the government wants more of us to be utterly dependent on its largess bothers me.

    Seriously Ed if a guy makes 5 million dollars a year, a month or a day, how on earth does that guy make your or anyone's life worse?

    If you kept more of your money, how would that make someone who earns less than you be worse off?
     
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  6. editec
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    editec Mr. Forgot-it-All

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    Thanks, Skull. It's really a LOT more than just a rant, though.

    It really is my world view of what has been happening to this nation for the last 40 years or so.

    We really have been in a class war and the people (that's me AND you probably...even if you are in the 5% of income earners) are losing that war to the SUPERWEALTHY, whose primary contribution to this society is that they ride on its back like parsites sucking off the wealth while leaving us THEIR debts.

    Understood.

    Oh that is absolutely true. And what else would NOT have happened?

    Well...the stock market wouldn't have blow up to the absurd numbers it did, either.

    And the people wouldn't have bought so much on credit to make up for their diminishing wages, so the stock market might have gone DOWN, instead of going up, too.

    And the whole insane derivatives markets that blossomed in the last decade or so would never have happened, either.

    You see, I know you believe that the whole problem stemmed from Fannie and Freddy and real estate, but the interest rates really benefitted the SUPER WEALTHY CLASS much much much much much much much much more than it did the working classes ORT homebuyers since they were paying far too much for their homes (in comparison to wages, I mean) and the interest rates they were asked to pay were ABSURDLY HIGH, given how much the loaning banks paid for the money they were lending out, too.

    Welcome to my world, Skull.

    You've got about half the picture, but the fact that this bailout is starting to wake you up to the games the government has been playing is a GOOD thing, from my perspective.

    Yes, it is.

    It ALWAYS is the best method of ramming crap down our throats. Weapons of Mass DEFLATION are really not that much different than Weapons of MASS DESTRUCTION, are they?

    If you believe in ANY government at all, you must believe in SOME form of taxation, sport.

    So our debates are never about principle, merely SCALE.

    None of us do. But you do need government for many things, whether you know it or not.

    Me too. And the fact that the top 1% make more than the 40% combined is a trifle upsetting too, isn't it?

    Me too. I would much prefer that we had a system in place that made welfare totally unnecessary.

    That starts by giving workers the right to collective bargaining, and the power to protect their jobs during that bargaining process.

    It ALSO starts when one realizes that the purpose of government is to protect and enhace the life in this nation for its CITIZENS...not its consumers.

    Seriously, Skull I never said that if a guy makes 5 million dollars a year he was a villian, nor did I say that a guy making 5 million was making anyone's life worse, either.

    Where do you folks get this insane belief that I object to people making a pile?

    That is never what I say -- never.

    They would if they ended up having to pay my taxes, Skull. That is EXACTLY how the system of taxation works right now, you know.

    And that is exactly what has been happening (to you more than me, BTW, because you make more than I do) because we have systematically given the SUPERWEALTHY one tax and trade and regulatory advantage after the other for the last 40 years or so.

    I know that you deperately want me to be an unthinking communist, or something, but I am not that at all. I believe in the benfits of capitalism just as much as you do.


    I just don't think that CAPITAL should be given EVERY advantage in EVERY case, like many of you libertarians do.

    The CLASS WAR is in the details of policies and regulations, and tax laws, and trade laws that have systmatically given the SUPERRICH far far far more money than they ever DESERVED.

    How do I know this?

    Because I KNOW superwealthy people and pal, they are no smarter, they don't work harder than you or I. Some of them are VERY NICE PEOPLE, too, but still much of their wealth comes from the fact that their capital gives then unfair advantages in the game of life.

    But they are (as a class, now, not as individuals) in a position where their CAPITAL advantages give them not only most of the wealthy but ALL of the power.

    You bitch should NEVER be with the poor or the working class. They are the victims of the system at ever fucking turn of the wheel.

    You are NOT paying too much taxes because of those people. That is now and has always been a MYTH that the RICH have been feeding us.

    YOU are paying far too many taxes so that the SUPER-WEALTHY don't have to pay their FAIR SHARE of the overall tax burden.

    The FED is THEIR baby, dude, not yours or mine. The government is their tool, Skull, not yours or mine.

    The FED is a PRIVATE BANK that serves the interests of the BANKING MAFIA that took over this nation officially in 1913.
     
    Last edited: Jan 10, 2009
  7. Toro
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    Toro Diamond Member

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    The OP is silly. What planet is the author at the Mises Institute on?

    Credit spreads are at all time highs, even higher than during the Depression. That does not happen because liquidity is abundant. It does not matter what metric you look at - investable bonds, junk bonds, inter-bank lending, the TED spread, swap spreads, debtor-in-possession financing, collateralized mortgage backed securities, and so on - the yield by which investors must pay is at all-time highs.

    [​IMG]

    For example, junk bonds were yielding 20% a few weeks ago. Yet, the index which tracks junk bonds was yielding 16%, a 400 basis point difference. In normal times, that spread is 30-40 bps. Arbitragers will buy the junk bonds and sell the index through a swap, and finance in the overnight repurchase market. But the financing is unavailable, or it is available at 300 bps, an astronomical amount reflecting the lack of liquidity in the system.

    Financing for debtor-in-possession financing - the financing companies use in bankruptcy - has shrunk by 80%. Companies that historically have offered this financing, such as GE and CIT, have pulled back completely. Here we are, in perhaps the most opportunistic time to finance bankruptcy proceedings, yet nobody wants to do it!

    Repeat, there is no liquidity in the system.

    I have not looked at the latest Fed data but what was happening earlier in the year was that companies were tapping credit lines. This is not a good thing because tapping credit lines is usually a sign that companies are in trouble and cannot tap credit elsewhere. The fact that credit is rising at the bank level does not reflect what is actually happening in the credit markets because companies have been rushing to tap lines before they have to.

    Companies are coming to market financing BBB debt at 12%, an enormously high yield. Bank executives in surveys are reporting that credit continues to tighten. Treasury paper was offering negative yields a few weeks ago, i.e. investors were paying the government to have the privilege of holding US debt. The municipal bond market is pricing paper that is insured at a higher yield than non-insured paper, which is ridiculous.

    I thought the Mises Institute believed that the pricing system was the only system by which resources should be allocated. Yet, they can't even look at what is happening in the pricing of credit to have an understanding of what is actually occurring in the real, live market?
     
    Last edited: Jan 10, 2009
  8. Skull Pilot
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    Skull Pilot Platinum Member

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    data from the Mises article

    http://research.stlouisfed.org/fred2/data/TOTBKCR.txt

    $bank-credit.gif

     
  9. Toro
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    Toro Diamond Member

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    First, bank credit is not the only source of credit. The primary source of credit in the United States are the capital markets, which account for something like 70% of all credit in the economy. The capital markets are frozen. The number of new issues that have come to market over the past three months is down ~80%-90%.

    For example, the commercial paper market was frozen until the government guaranteed it. This is not the sign of a healthily functioning market. For example, the largest issuer of commercial paper, GE, was having trouble rolling over its paper.

    General Electric: Genuine Risk of Collapse? - Seeking Alpha

    Second, again, the fact that bank credit is rising does not mean it is being lent. In fact, it is being hoarded.

    [​IMG]

    And why is it being hoarded? Because total bank reserves have collapsed and are now negative, which is astonishing.

    [​IMG]

    Banks' ability to borrow rests on their reserve base. The reserve base of the banks have been depleted.

    There is a liquidity crunch. I see it every day I go to work.
     
  10. Toro
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    Toro Diamond Member

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    Here is another graph I found. It is the money multiplier. It measures the creation of money for every $1 increase in bank reserves.

    [​IMG]

    Greg Mankiw's Blog: The Disappearing Money Multiplier

    It is now $0.95.

    This graph is stunning. It is evidence of money hoarding and of a credit crunch.
     

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