Quote:
Originally Posted by SeeGeeWhy
Very true, but if it was truly an economic crisis as many are proclaiming, we would still be in the position of nearly impossible project financing. Both debt, equity and institutional lending seems to be trickling back which makes me suspect that this whole kerfuffle was no more than a bunch of BS being flushed from the system.
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It damn well was/is an economic crisis of epic proportions. The Drano, if you will, to 'flush' everything from the system was trillions of dollars of future generations money. The only reason why things are flowing once again is because world governments took control/insured trillions in bad loans from financial institutions. The true costs of this crisis will be felt for generations. The money used to service this future debt will be taken out of the economy in perpetuity.
My example only consisted of companies that still had viable 'real' projects. Let's not forget that there have been entire industries previously viable business models made obsolete without liberal credit. Also remember that the BOC and the US fed rates are as low as they possibly can be. Which in essence means that anyone who can generate any sort of a return on rediculously cheap money has an incentive to do so. While there has been some positive response, it's not like GDP is growing like gangbusters because of these incentives. Also should we hit another bump on the road while rates are so low, how are central banks going to stimulate the economy? Furthermore any method they try will not be free of very negative consequences (They will only look better on a relative scale with doing nothing).
Economic growth in the scope we knew it pre-crisis cannot occur at the same rates most likely for the next decade or so because:
1) Money governments use to service recently amassed debt, will be taken out of other spending that would have otherwise provided economic investment.
2)Any business that benefited from freely available credit for customers will not see sales volumes recovery very quickly.
3)Lower market returns is kinda a self-fulfilling prophecy for more lower market returns. When markets are performing well, University Endowment funds, retirees, insurance companies, etc. have a lot more spending power and thus stimulate the economy, the opposite is true when returns are lower or negative.
4)Consumers are likely to be net savers in large percentages not seen in decades to make up for the wealth lost during the crisis, leaving much less money to spend.