Credit Where Credit is Due: We’re not out of the woods yet
By Mike Whitney
The financial channels are abuzz with talk of a recovery, but we’re not out of the woods yet. In fact, the deceleration in the rate of economic decline is not a sign of recovery at all, but proof that the economy is resetting at a lower level of activity. That means the recession will drag on for some time no matter what the Fed does. The problem is the breakdown in the securitzation markets which has cut off the flow of easy credit to consumers and businesses. The credit-freeze has caused a sharp drop in retail, auto sales, furniture, electronics, travel, global trade etc. Every sector has been hammered. Fed chief Ben Bernanke’s lending facilities have helped to steady the financial system and Obama’s fiscal stimulus will take up some of the slack in demand, but these are not a cure-all for a broken credit system. If the system isn’t fixed, asset prices will continue to plunge and hundreds of financial institutions will face bankruptcy.
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