Like we don’t get it.
Tonight Senator Kit Bond on Fox News “Nightly Scoreboard” gave as his examples of the “credit market being locked up” the fact that the states of Maine and Missouri could not sell bonds to build highways. Is he serious? We need for congress to pass a $700B package so that a couple of states can repave some roads and build a few more? These cannot wait a couple of years? Please.
Dave Ramsey, on the same show, said that there are three tiers of credit: The top tier is the major players, LIBOR and such, which have slowed considerably. The second tier is the average Joe with excellent credit, who wants a mortgage or a car. That money is available. I should know: I bought a used car in July with no problem and while in a bank yesterday the offer of a home equity loan at prime+0% was still in full swing. The last tier was the poor credit folks that were involved in the sub-prime crisis to begin with. That market, of course, is gone. The reality is that there is credit, not a “seize up” like is talked about by every talking head.
The government has already approved $29B for Bear Stearns, $85B for AIG, and $200B for Fannie Mae and Freddie Mac, none of which has solved the problem. Washington, which gets virtually nothing right, now wants to print up more cash to make the American citizen the biggest owner of bad mortgages in the world. In addition to the aforementioned $300+B, the Federal Reserve has released, just this week, more than $600B of cash into the system. The taking over of Fannie and Freddie added $5T to your balance sheet and mine, or subtracted from, as the case may be. We are smelling the Fed’s printing presses burn up printing all the money being injected into the system which, as smart people know, causes inflation. Inflation is a hidden tax that affects everyone by reducing the buying power of your dollar and the value of your dollars in your savings account and 401(k) or 403(b).
The fear of the market has already been exposed. Mad Money’s Jim Cramer believes that “no bailout” will bring the DOW down to 8,800 or so. My retirement has already taken a hit in the order of 20%. The market wants money and probably will not be satisfied with less that a few more hundred billion put into the system. I’m patient enough to wait (but I have learned a little about how to plan when I’m sixty). Of course, the market is due for a correction. The DOW components might get shuffled around a little, but there will be new stars that shine in the shakeout. If Warren Buffet can find deals, so can we. Or we can buy Berkshire Hathaway-B shares and make money with him ;^)
If credit tightens for Main Street, as Princeton’s Paul Krugman said on MSNBC, then that means credit card interest rates could go up and credit limits could go down. And this is bad how? The fact that Americans are too far in debt is standard fare for the business pages. A lid on credit is just what some Americans need. If, as Donald Trump has mused, the price of oil will fall up to 70% with a large stock market correction, then we will all have saved enough money on gas to offset some of the credit we were having to use. If, that is, we can get the oil companies to acknowledge that the price of oil has indeed fallen and quit making up excuses to keep prices high.
The bad bill that was surprisingly defeated in the house of representatives has taken on a new life and new form in the senate. As is usually the case, add-ons now include energy tax breaks, movie tax credits, wooden arrows for children and mining subsidies or credits. Some think those add-ons will not be approved, but that the original bill will be passed. We’ll see.
My point is this: Those of us who are paying attention know that doing nothing is probably going to bring some rough times. We believe that we are ready to endure it. We know that both Washington and Wall Street are thoroughly screwed up and delaying the needed fix is not the answer. There is nothing to gain by continuing to buoy bad business decisions. The reality is that not passing the bill is not the same as “doing nothing.” Not passing the bill is saying that the market can work it out, though some will fail. Socialism is not the way to go. We can exercise patience.
If Americans are anything, they are these two things: creative and resilient. We are resilient enough to endure and creative enough to overcome it.
