Another credit problem

The woes of the credit industry that are dragging down the economy cannot all be blamed on the housing sector. According to this article, banks are finding it impossible to unload some $220 billion of corporate buyout debt. No one will buy those bonds, so banks are having to keep all of that debt on their books, making it harder for them to make other loans.

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • http://www.bikebubba.blogspot.com Bike Bubba

    Woo-hoo! The Fed’s attempt to further inflate the money supply is being thwarted! A little blow against inflation has been struck!

  • http://www.bikebubba.blogspot.com Bike Bubba

    Woo-hoo! The Fed’s attempt to further inflate the money supply is being thwarted! A little blow against inflation has been struck!

  • WebMonk

    That’s why you’ll see various bailout loans and buyouts and other masses of money moving around between banks and funds. They’re trying to retain liquidity and allow a continuance of standard operating practices.

    I’m not sure about any blows against inflation, but it’s definitely a cramp on making loans. If the cramp on loans in big enough, then it might have a temporary effect on inflation, but it will also have a lot of other very nasty effects on the economy. As long as it’s not the government coming in and taking over the debt, it’s a very good thing for banks and financial institutions to be able to get back to more regular operation.

    Really, those movements are just a re-balancing of debt and money, but the shifting around can take the burden off active institutions and shift it to less necessary areas where it can be gradually handled without hampering the operation of large business.

    Of course, if the debt trouble is too big compared to the available room for debt movement, then they’re well and truly stuck for a couple years which will have a chilling effect on business and economic growth.

  • WebMonk

    That’s why you’ll see various bailout loans and buyouts and other masses of money moving around between banks and funds. They’re trying to retain liquidity and allow a continuance of standard operating practices.

    I’m not sure about any blows against inflation, but it’s definitely a cramp on making loans. If the cramp on loans in big enough, then it might have a temporary effect on inflation, but it will also have a lot of other very nasty effects on the economy. As long as it’s not the government coming in and taking over the debt, it’s a very good thing for banks and financial institutions to be able to get back to more regular operation.

    Really, those movements are just a re-balancing of debt and money, but the shifting around can take the burden off active institutions and shift it to less necessary areas where it can be gradually handled without hampering the operation of large business.

    Of course, if the debt trouble is too big compared to the available room for debt movement, then they’re well and truly stuck for a couple years which will have a chilling effect on business and economic growth.

  • http://www.bikebubba.blogspot.com Bike Bubba

    WebMonk, inflation is, properly speaking, not a rise in prices, but an increase in the supply of money. If banks are unable to make loans, there is no “multiplier effect” whereby the money supply can be increased–and less inflation, and fewer price increases.

    Yes, that’s not good for debtors, but it’s good for savers, and it’s the savers that drive the economy, not the debtors. This is awesome news.

  • http://www.bikebubba.blogspot.com Bike Bubba

    WebMonk, inflation is, properly speaking, not a rise in prices, but an increase in the supply of money. If banks are unable to make loans, there is no “multiplier effect” whereby the money supply can be increased–and less inflation, and fewer price increases.

    Yes, that’s not good for debtors, but it’s good for savers, and it’s the savers that drive the economy, not the debtors. This is awesome news.


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