财经观察 2072 --- The Myth of Deleveraging

 

The Myth of Deleveraging by Tom Lindmark

It’s pretty much an accepted article of faith that the world — governments, business and individuals collectively — must deleverage (God I will be glad when that word along with systemic and second derivative are no longer in vogue). Any day now it’s going to happen, there will be hell to pay and we will all be much better off despite the pain.

I’m rather rapidly beginning to believe that it ain’t going to happen. Not because it’s not necessary, but simply because no one wants it to happen. Not governments, not business and not individuals.

Let’s take a look at a couple of things that have transpired lately.

As I noted here FHA is bringing back the 100% no downpayment mortgage. We know this makes houses sell like hot cakes and hot cakes tend to lead to bubbles, but, hey, the bubble was a lot more fun. It’s sure a lot better than having all of those homes sitting around in the burbs with weeds growing in the yard.

And as long as we’re talking about housing, don’t forget the mortgage modification business. Got a home that is under water, no problem. The government is going to help you get back to a healthy no equity position. Now that might seem risky, but note the FHA program to inflate things all over again and you might, at least for a few years, see that simple abode put you back in the black and finance a flat screen or new bathroom. You didn’t want to walk away and get out of a mortgage that’s going to tie you down for the next thirty years did you?

And credit cards. Now there’s a lot of gas from Capitol Hill about how unfair the terms are and must be made more consumer friendly. Pass it out of the House and over to the Senate where the fix is in. Yeah, make the type bigger on the disclosures and maybe take out a few of the gotcha’s but the consumer still needs that access to credit. Why, as one senator remarked Tuesday, “… so long as the interest rates are under 36% I don’t see a problem.”

Auto loans, well don’t worry. It might be a bit tough for a few months while the car companies clear Chapter 11 but the good times are right around the corner. With government ownership of the companies and GMAC under their thumb the days of 0% interest and no money down are just around the corner. Hell, there’s probably going to be an incentive to get you to trade in that old gas guzzler and they might even throw in a tax credit.

The guardian of our currency, the Fed. Well they’re busy trying to get the “shadow banking system” up and running. Free money and lots of it just as long as you show up with some student loans, credit cards, commercial real estate loans, small business loans … have I forgotten anything. Just find borrowers and the Fed will find a way to take it off your balance sheet and make you rich.

Now surely the banks aren’t in on this con game. Fat chance. They may no better than to lend money right now but they’re like Paul Newman in “Cool Hand Luke.” Remember when he had to go off the side of the road to relieve himself and had to keep yelling out “Shakin down here, boss.” Pandit, Dimon, Lewis and the rest are just like that. Every time someone in Washington says what are you guys up to you the answer is making loans — “Shakin down here boss.”

And then there is the bid daddy of all borrowers, Uncle Sam. If no one else is going to borrow then damn he’ll show them how a man does it. No prospect of generating the revenues to pay off the debt, no problem, it will all work out.

China may have all of this figured out and that may be why they’re as nervous as a nun in a whorehouse. They’ve seen this movie before and know the outcome. The problem is they got greedy and went all in too early so all they can do is nag and hope some window lets them out before it’s too late.

In the end, politics is driving all of this. Those in power know that you don’t get elected by delivering austerity to the constituents and nothing will deliver austerity like real deleveraging. So they dance around the edges, make sure that nothing drastic really happens while they artificially keep the ship afloat and wait for everyone to forget about prudence and return to the punch bowl.

They’re craven individuals but they know human nature and they’ll probably prevail.