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Credit Liquidity is the Problem

The real driver (such as it is) of the current American and global recession is the lack of available credit. It was Benjamin Tal from CIBC who pointed out that Ben Bernanke, the chariman  of the US Federal Reserve is a student of the Great Depression. His diagnosis, (via Ben Tal, which I agree with), is that the fundamental issue, and the one thing that would have lessened the severity of the depression is the constriction of credit. (If you can’t sleep tonight, try Berdanke’s 150-page PhD thesis. You’ll be asleep in no time.)

There are lots of bubble bloggers and pundits out there who rant and rave about how easy or exotic credit is what caused the US recession. Really, it was caused by a number of things. However, the one thing that will make the difference between a 1-2 year recession and a 3-5 year severe recession will be how the credit markets shape up over the next few months.

Credit is essential to business. Yes, the US went too far, with mortgages, ABCP and similar issues. However, without credit, products don’t get shipped, things don’t get built, and people don’t get paid. Credit is the vascular system in which the life-blood of the economy gets pumped. Let’s not fuck it up.

And that’s my rant for today.

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