There is such desperation now to keep credit expanding it is perplexing to me. There was this massive credit bubble, the largest in human history, and nobody did a thing about it and now they are doing everything in the world to keep this bubble that is full of holes from deflating. I can’t even begin to pretend to understand it. If we were back in the tulip bubble days the Fed would be propping up tulip prices and have a balance sheet full of tulip bulbs.

With my limited mental capacity I try to figure it all out and have it make some sense but I have failed miserably. I can’t understand why it is such a great idea for people to be spending such a large part of their paychecks on homes. It seems to me if you have a consumption based economy you want people spending their money on everything else but the mortgage. You would think you would want all these overleveraged people, each a singular zombie bank, to shed their debt and do it right the next time. You would think you would want the lenders underwriting to real market based guidelines instead of the, clearly, uber-loose government sponsored guidelines. But no, credit must only expand and asset prices must be maintained.

I understand the Fed trying to recapitalize banks but I don’t understand why they are doing it the way they are doing it. Banks are reporting profits engineered by a combination of reducing their building loan loss reserves (!) and the free money which they get to lend out or just plow back into Treasuries.

I read in the paper the other day China was giving us criticism for interfering in the markets. China!

Like I said, I don’t understand any of it. Every new day brings something new I get to shake my head in disbelief at.

Thanks for the link. From the title, it looks interesting, and the authors are top notch. The link is not working this afternoon. It gets me the title page, then it collapses. I’ll try again in the morning.

Bill

http://www.minneapolisfed.org/research/sr/sr331.pdf