Credit Focus Masks Deeper Issue

Karl FitzgeraldCommentaryLeave a Comment

Poundbusters
Creative Commons License photo credit: TheeErin

Some A$2 trillion has been pumped into banks globally. Last night saw a record amount of commercial paper sold in the US, with the Fed buying some US$60 billion in debt. A record day in the US sharemarket followed. How many more days like that will last until the Fed’s kitty needs to be replenished?

The Republican administration has ensured that banks worldwide are cashed up. But what do small businessmen think? Will they borrow all this cash to keep investing? Or are their expectations different to the short term political aspirations of politicians?

Business will be hesitant to invest when property prices are expected to drop, but yet policymakers do all they can to avoid this occurring. The resultant hesitation will delay the true market corrections needed.

David Hirst comments on how women are doing the straight talking needed, with the Federal Deposit Insurance Corporation’s Sheila Bair saying:

“We’re attacking it (the crisis) at the institution level as opposed to the borrower level, and it’s the borrowers that are defaulting. That is what’s causing the distress at the institution level … So why not tackle the borrower problem?”

Whilst banks are propped up, copying Enron style accounting by keeping assets marked up beyond their market value, the latest commentary on retail sales figures vindicates our probing. The people’s sentiment is reflected in sales. No matter how well cashed up banks are, they won’t be able to help retail sales.

FURNITURE and electrical retailer Harvey Norman says trading conditions were still tight three weeks after the Reserve bank delivered a surprise 1 per cent cut to official interest rates.

The company said yesterday that written sales at its Australian franchise stores fell 3.6 per cent over the four weeks ended October 26 compared to the same period a year earlier.

Retail sales will only improve when we are spending less on rent. Land and property prices must fall. It will be ugly. The easy profits land speculation delivers led to over-investment.

The government’s of the world are engaged in a blame game, diverting attention away form the prime issue.  Bankers know the real cause. Perhaps deregulation is partly to blame. However, the much bigger issue at stake is the Government’s failure to capture the economic rent delivered to prime locations. This led to the frothing-at-the mouth over investment in land.

We challenge the first banker to stand up and call it as it is!

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