Friday, January 18, 2008

Late Out of the Gate

Mish has a great amount of intelligent commentary in this Post, most of which I find highly relevant to the issues involved. He touches on one aspect which I want to reinforce. Can the Federal Government even mount a stimulus package that would be effective? We have had an extreme amount of expansionary, Second-source lending (utilizing Bank Reserves), while there has been a huge loss of Bank Reserves due to the Credit Crisis; the old Bean-Counter accounting element that does not recognize the difference between Reserves and Second-hand money creation. The Accounting models only register loss of Reserves (artificial contraction equally starting from the origin). This systemic fault, which cannot be corrected in any rational form, defines a multiplicity to the contraction of Credit. Stimulus may be impossible inside such a rigged deck.

Tim Schilling presents another Post which should be read by those interested in the stimulus dilemma. Tim assures Us that Congress will act too late to be of value; a Comment on which I could agree. I am of the conviction that a Recession actually started in July, 2007, and was only hidden from the traditional Index models by a combination of circumstances–expansion of Exports, Household creation of Immigrants and School Graduates, the Run-up of Energy and Food prices, and high expansion of Credit Card debt. All of the effect from these factors fully utilized the full impact of the heavy Inflation rate of 4%. The Households were already in trouble in July, and We had our heads in the sand. The key element, here, is the Two-Quarter impact of the Recession has already inflicted almost full Recessionary damage to the Households, and a stimulus package is already too late to aid. lgl

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