Sep 16, 2009 What Took You So Long? Karl Denninger 321gold ...inc ...s

What Took You So Long?

Karl Denninger
Market Ticker
Sep 16, 2009

Gee, it took this long for someone over on the other side of the pond to figure it out?

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

You're the one who's mad.

The problem isn't lending capacity. Lord knows with a doubling of base bank reserves at The Fed there is plenty of "money" (credit or debt) available to be lent out.

The problem is that there are no qualified borrowers.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

It is unclear why the US Federal Reserve has allowed this to occur.

Bernanke has no choice.

He would (certainly) prefer this not occur. What would you call a zero percent Fed Funds rate and printing new bank reserves like a madman?

But just as occurred in the 1930s, Bernanke cannot change the dynamic because there are no willing and able borrowers left.

THAT is the dynamic that sets off deflation and makes it pervasive. This is the condition that Bernanke has ignored and claimed does not exist, but the fact remains that it does.

It is the dynamic that I identified more than two years ago in April of 2007 when I showed analysis right here on The Market Ticker talking about the "terminal shift" of consumer borrowing onto credit cards in a desperate attempt to keep the game going.

Bernanke, Geithner, Paulson, Bush, Obama.

All have gotten this mess dead flat wrong.

The debt collapse necessary to clear the system once you have hit the wall on borrowing capacity given your free cash flow cannot be avoided.

It can only be made worse - much worse - by trying to tamper with what is an essential corrective process that clears the system of unsupportable debt that must be defaulted.

We have spent two years trying to avoid the truth.

Trying to avoid taking the inevitable pain.

Trying to avoid the inevitable economic contraction.

We have only made the problem worse.

What sort of worse? Well, you could start here:

The running joke in Singapore, Hong Kong, Bangkok, and Kuala Lumpur is that the U.S. is the place where even your pet could get a credit card or a home mortgage.

So to Asians, the crisis we’re going through is our own fault. And although it was also caused by blunders in Western Europe and other regions, truth be told, they are mostly right.

The message is clear: We need to immediately stop living beyond our means.

That's not funny.

It is, however, true - and an exact copy of the path that I have been preaching since The Market Ticker began publication.

We have blown several trillion dollars in a futile attempt to stave off the contraction in debt outstanding and GDP that must come.

The contraction is still coming, but the several trillion we wasted in an ill-advised attempt to prevent the inevitable is all gone.

Make sure you thank Bernanke, Geithner, Obama, and of course Paulson and Bush.

Sep 15, 2009
Karl Denninger

source: http://market-ticker.denninger.net/archives/1433-What-Took-You-So-Long.html

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