The Mighty Debt Purge of 2009

The Mighty Debt Purge of 2009

by Mike Whitney / April 23rd, 2009

The Fed’s $12.8 trillion of monetary stimulus has triggered a six-week long surge in the stock market. Think of it as Bernanke’s Bear Market Rally, a torrent of capital gushing from every rusty pipe in the financial system. The Fed’s so-called “lending facilities” have gone far beyond their original purpose, which was to backstop a broken system. Now they’re leaking liquidity into the equities markets and sending stocks soaring while the “real” economy sinks to the bottom of the fish tank. That’s how the Fed does business these days: plenty of tasty crepes for the Wall Street kingpins and table scraps for the lumpen masses.

Bernanke has provided generous “100 cents on the dollar” loans for Triple A mortgage-backed collateral that is now worth 30 cents on the dollar. The Fed stands to lose trillions of dollars on these loans because the assets will never regain their original value. Eventually the taxpayer will have to pony up the difference in higher taxes, fewer public services and a weaker dollar.

Bernanke’s liquidity injections may have sparked a flurry of speculation, but they won’t end the recession or slow the downward spiral. The relentless system-wide contraction continues apace and all of the leading economic indicators point to a deepening slump that will last for two years or more. Here’s a clip from a recent statement from the IMF:

Recessions associated with financial crises have typically been severe and protracted. Financial crises typically follow periods of rapid expansion in lending and strong increases in asset prices. Recoveries from these recessions are often held back by weak private demand and credit reflecting, in part, households’ attempts to increase saving rates to restore balance sheets. They are typically led by improvements in net trade, following exchange rate depreciations and falls in unit costs.

Globally synchronized recessions are longer and deeper than others. Excluding the present, there have been three episodes since 1960 during which 10 or more of the 21 advanced economies in the sample were in recession at the same time: 1975, 1980 and 1992 . . . Recoveries are usually sluggish, owing to weak external demand.

http://dissidentvoice.org/2009/04/the-mighty-debt-purge-of-2009/

Personally, I have adopted an extreme austerity mindset for my finances and I am not ending it anytime soon. I don't want "dime one" of any more of their debt.