Another look at the origins of Credit Crunch in July 2007

Another look at the origins of Credit Crunch in July 2007

a. the Fed kept interest rates too low for too long despite the obviousness
of the housing bubble
b. Fed policy was enabled by a continued global demand for the dollar as reserve currency
c. there was a global demand for the securitized debt which was based on and furthered the us credit bubble (this preference was based on the lower perceived risk of these securities and higher return compared to other investment choices


Credit was easily available and penetrated more deeply than ever before within the us population

much of this securitized debt has not been written down from the balance sheets of financial institutions. the value has in many cased been artificially propped up by the feds balance sheet coming to the rescue of big finance.

treasuries are sold and debt increased in an effort to continue payment on debt based on much overvalued assets.

A Future investing trend

a. global capital flows will reroute from us securitized debt and treasuries to bonds and currencies backed by natural resources rather than housing.

b. the rise in the prices of resources will soon sqeeze profits globally

c. the break up of this standoff structurally will require tech substitutes for dwindling natural resources.

d. any global restart will be faced by rising resource costs and inflated foreign fixed assets (e.g. china's housing market) squeezing profits and global pollution costs.

I. A way Forward


a. underperforming debt must be revalued, cut 10-20%
b. large banks must take on smaller, failing ones with gov tighter regulation of now too much bigger to fail.
c. the securitization regime is broken, credit will remain tight for consumers
d. there has to be an income maintenance program. there is no other way to make a living.
e. fed money directed to work programs such as organic agriculture. would we want the cheaper option of under-employed work force eating industrial food?

f. resources are under priced, the social costs of their use is under priced. alternative energy can be competitive in the future.

g. world continues to buy treasuries. this allows us to refloat debt for little cost. additionally the dollar continues its fall, making repayment cheaper.

h. the world will require a strengthening dollar in order to protect export market.


II Stock Market

a. stock market rise can be seen as a dollar play. world assets revaluing higher rather than confidence in resurgent economy

b. will dollar continue down as assets, resources pushed higher threatening global profits