From Seeking Alpha:
The propaganda that the subprime debacle is not enough to derail an otherwise healthy economy fades into the distance when we see all the kings’ men, the Treasury, the Office of the President and the Federal Reserve banding together. Somehow this simple “crisis of confidence” has manifested so much momentum that our largest investment banks have to offer loan-shark deals, to hard capital sovereign countries, just to stay in business. The economy is sound they all say, it’s only a flesh wound – keep buying.
The embarrassment is that the (government sponsored) American citizens’ mandate seems to be to consume, regardless of increasing debt levels or ability to pay. Businesses have grown to believe that expanding credit will always get them through tough times. Their new game plan is to offset all the bad credit by loading up the more creditworthy to carry the load; in much the same way Citi diluted its junk. I have personally received hundreds of dollars JUST to keep lines of credit open and/or float any credit balance at zero interest till the end of 2008. This is a sign of desperate times and a failed paradigm.
The U.S economy has been made into a voracious credit pyramid desperately needing bigger bubbles just to stay afloat. This is the consequence of the illusion we have been sold – perpetual prosperity. Propping up asset bubbles with more fiat money ultimately threatens not more just inflation but a rapid deflation when the music stops. The dollar retracing the past 40 years’ growth is mainly due to the realization that financial engineering was accepted as organic growth. It wasn’t and the jig is up. The extent of that failed paradigm finally resulted in issuing mortgages like after dinner mints and showed just how desperate we have become to simulate (no T) growth.