I could not agree more than with your assessments.

Economies can be distorted for years, even decades we have found out, by artificial political manipulations and financial market distortions. Eventually however it must fall back onto its fundamental strengths or weaknesses, Equilibrium must eventually be restored.

These fundamentals are 1) human capital, 2) financial capital, 3) natural resources, 4) business/regulatory environment & institutions, 5) infrastructure efficiency and 6) accumulated wealth: financial, intellectual and propriety.

We should be asking ourselves how healthy are the fundamentals of our economy? We are in a global environment where all of our weaknesses will ultimately be exposed.

Agreed. It created the perception that risk was lowered while leverage was increased.

“I suggest the damage was caused by policies giving banks unbridled leveraging ability using both on and off balance sheet mechanisms.”

We cannot forget the role played by bundling securities and selling the bundles to move loans off the ledgers of the banks, in essence bypassing the restrictions on credit creation inherent in the capital demands of fractional reserve banking.

It seems to me that there is a group of people in the country who are intelligent but logic-challenged when it comes to their own ideology. A logically sustainable argument does not validate an invalid premise.

The only way we get back to sanity is to have cash savings mean something again. That you don’t have to take the chances with your retirement that are required to play the equities game.

There used to be a saying that the equities market floats on the sea of the bond market..of course the reason why was safety…but you take away the returns of the safe investments and “make” everyone invest in equities…not so much fun if we have another correction…and it would be an even more telling body blow to our economic foundation.

Boys at the fed…smart, I suppose so.

Common sense wise…not so much….

I suggest the damage was caused by policies giving banks unbridled leveraging ability using both on and off balance sheet mechanisms. As evidence, even after interest rates were increased, credit creation and liquidity soared. In fact the Federal Reserve was perplexed. You will recall the Greenspan conundrum.

These policies were the equivalent of handing an alcoholic the keys to the distillery. Banks literally got drunk on the new financial products that they could create in order generate income and fees.

There were essentially no limits to the amount of new “assets” that could be generated. Since there was no upset limit to the amount, there also was little concern about quality of individual assets or products. Everything that could be created, was created.

Hangovers are hell.

U.S. Savings Bind

“The prescription that we should save more isn’t wrong. Household saving is the total of what people earn less what they spend. If you want to describe the history of the U.S. economy over the last 50 years, in shorthand, you could do worse than this: Americans saved. Then they didn’t.

For the 35 years after World War II, Americans dutifully set aside about 9 percent of their income. Their savings were plowed into stocks and bonds and formed a pool of capital for investments and new technologies (and a couple of wars, not to mention the space program). They begat a golden era of productivity and growth and, eventually, the 1990s boom. But by then, habits were changing. Starting in the mid-1980s, the personal-savings rate declined. Credit became more available, and people became used to borrowing what they needed. (The commonplace phrase “saving up” — as in “I’m saving up for a washing machine” — all but disappeared.) Also, bubbles in stocks and real estate convinced people they didn’t need to save much for the future, since even a small nest egg would grow into a big one. By the late 2000s, the savings rate plunged to less than 1 percent.”

..and

“After so much lamentation about low saving, it may be a bit hard for the public to stomach economists’ new worries about a drop in spending,” Christopher Carroll, a Johns Hopkins economist wrote in June. Carroll, who has since joined the staff of the Council of Economic Advisers, likened the seeming paradox to the dilemma of St. Augustine, who after a youth spent in pleasure famously prayed, “Lord, make me chaste — but not quite yet.” The government faces a trade-off on financial chastity. This will enter into all sorts of policy decisions, like when to start paying down its deficit. It is the same trade-off — spending now or saving for later? — that the private sector thoroughly botched.”

…Good Sunday…this fellow misses the irony of his own article….that government actions since September 08 have nuked the efforts of the private economy to start repairing savings…that savings from column A have been transfered to government spending in column B. BECAUSE TAXES WILL HAVE TO RISE to pay for the transfer. So the private savings that must needs come, as they say, have been canceled aborning….

Finally a beautiful day in East Tennessee…31 degrees this am but gotta get out in it….

Later…