Last year the world markets suffered a massive trauma that crippled most financial institutions. This trauma, led to; the US government to taking over Fannie Mae and Freddie Mac, form the ever popular TARP fund, the Federal Reserve to reduce the Fed Funds rate to 0 to .25%, President Obama to pass a near $800 billion stimulus and many more multi-billion (probably trillions) dollar actions.
This trauma was caused by a bubble in the credit markets. America and the world essentially took on too much debt. The US and most of the world have attempted to solve this crisis by filling the credit and demand gaps with stimulus and cheap money.
GDP in the 3rd quarter did showed its first positive growth (2.8%, revised down from the 3.5% first estimated) quarter of quarter since the 2nd quarter 2008. Most of the US consumption growth (in GDP) has been attributed to the Government’s cash for clunkers program and the first time homebuyer tax credit (along with the Federal Reserve supporting low mortgage rates). The “cheap money” has reduced the value of the US dollar thereby improving exports, which also has spurred some growth in the US GDP.
The question still remains whether government stimulus and cheap money can truly carry us over the hump. Most of this growth has come at the expense of more credit and reduced buying power. Matter of fact, most the Government’s programs seem to have targeted the only individuals left who had room to expand their credit. Who owns a car worth less than $4000 and typically is a first time home buyer? These programs look to have wrung out the credit from the last remaining source in the US economy, the youth, our future.
What happens when the credit towel is dry?
