Monday, December 07, 2009

Why things go wrong!

A lot of people want to know how the Banks are managing to pay off the Government so rapidly, when they were supposed to be in trouble such a short time ago. The first item to recognize consists of the fact that mortgage failure has been much less than predicted, though still very high. The second element must be the Fed policy of ‘No Interest’ rate, so that Banks are paying not the previous 4% on average for funds to lend, but only something around 1% or less. Intelligent people must realize this concerns not just new loans, but all loans out there; after Banks pay off previous Depositors timed Deposits. The Fed is actually taxing Bank Depositors a hefty tax of around 3% of their Bank holdings through this policy. The Banks are set up to make a Windfall of heavy Profits as they need not lower their own Interest rates; Credit Card companies are actually raising their Charges, knowing that neither Treasury or Fed will intervene. Are you not glad that your Government is working on your behalf?

This article basically considers Why Oil Price shocks have less validity today, over previous Times. Translation of the article states that the Business sector managed to hold down real Wages, while at the same time pressuring higher Prices for Goods and Services; this draining the Profitability of the labor itself. Fed policy previously stated has drained the Profitability from Savings for the great mass of people. This later drain has led to Business gaining high capitalization from Stock sales, buttressed by the high Profits from Sales; gaining some degree of rising Stock prices and Dividend yields. It all means that the laboring classes are getting paid less, and spending more for their Goods and Service, all while having outside sources of Income shrunk, unless presenting greater capitalization potential for Business.

One can ask Why micro-financing is now proving to be a failure. The Answer is relatively simple: It has been taken over by a Corporate structure. Clients are chosen on their ability to repay the loans, granted only to Those expected to further some Lender interest, and secondary loans are rarely made to assure there will be adequate potential for repayment. Borrowers cannot expand their enterprise due to the lack of secondary funding, and repayments come before Gains for the Borrower. The Lenders want repayment within to short a Time-frame, and the Borrower must complete the cycle before consideration for further funds; an effect which rarely grows in magnitude of extended funds. One has to recognize that Business practice will suppress for reasons of profitability, and conquest of the sector of micro-finance by Business meant its downfall. lgl

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