And then the bubble(s) burst.....

So what creates a bubble? A bubble, is created by huge amounts of debt. The Nasdaq bubble, the real estate bubble were all created by cheap money and human greed. Now, the mother of all bubbles, the creator of baby bubbles, THE DEBT BUBBLE has the G8, The G20 and the G whatever scurrying around trying to soften the fallout. This bubble, different from others, is international in scope and has financial analysts talking about soft landings, hard landings and double dips. So what is happening and why? Lets look at it from an administartion's point of view, lets say the US Goverment. The bubble shakes and the markets are in freefall. Panic reigns. So priority number one....slow the fall. Prevent the burst. Let the air escape slowly from the balloon. If the balloon collapses, it will be the end of civilization as we know it. Interest rates drop to zero, giant companies saved by Govt loans, the rest can be saved later. If the financial system collapses, chaos will prevail, therefore, save the banks! They called it TARP. Banks were allowed to borrow from the fed at close to zero interest rates with the explanation that they would then give loans to business at lowered interest rates, and get the economy moving. Now really!!! Anybody who buys that nonsense (call it 'lip service' or 'tongue in the cheek' if you like), knows nothing about how a banking system functions. No bank on the planet will give out loans if the liability side of the balance sheet is hundreds of billions in the red.
So what did happen? The banks took the billions of fed funds at zero interest and purchased US treasury bills paying more than 3% p.a.  pocketing the difference. This suited the Fed, since the huge budget deficit needed to be financed. At the same time, the system is stabilised and John A. Public is left holding the bag (Give a name to the 'bag' if you like). Anybody who tries to get cheap credit at an American bank will understand the above. It is said that while mankind sleeps, banks make decisions.
Our first indication of a reviving economy, is when the banks initiate credit.(and don't let the politicians fool you with empty promises). Until then, stagnation is the name of the game.
To be continued.....
H