Friday FY08 Week 49: Quote of the week: Every tree and plant in the meadow seemed to be dancing, those which average eyes would see as fixed and still. – Jalāl ad-Dīn Muhammad Rūmi

Here are four thoughts to trip over as we round yet another sharp corner on the path to economic recovery.

1) The perfect world arrived last summer.

Deregulated US banking, housing and financial sectors led to a world of no credit.

This is the era for which a vocal financial publishing crowd has been begging. No regulations. No credit. No borrowing. No more extra debt.

So, how are you enjoying their world… is it the paradise as outlined in the millions of pages in books penned by our betters who sniffed because hoi pathetic polloi lived on credit?

Of course, you know we’re about to wreck this beautiful Eden with a big bite out of the borrowing apple.

Me, I can’t wait to realize Eve is naked.

And, I sure wish the publisher John Wiley and Sons was publicly traded, because its presses are going to be cranking overtime.

2) As you’ll see, we don’t have this problem here at IDE, but here’s a huge economic truth, one that’s created a lot of hypocrisy lately.

If you buy a corporate bond, you are a creditor. You have lent a company your money – commercial paper, secured debt, unsecured debt, senior debt and subordinated debt – you hope you’ll be repaid at a tasty profit.

That’s different from when you buy a stock – a share. In that case you buy a share of the company.

A bond must be repaid, usually at an agreed upon amount.

If the company goes bankrupt – defaults on its repayment to you – you get in line, somewhere near the back, and hope to get some of your money back, while most shareholders are S.O.O.L.

This is the world of credit.

What the hell is wrong with that?

Even better, today, we’re told that corporate bonds are one of the world’s safest investments. Here at IDE, Steve McDonald has, what I am told, a great bond trading program.

You should check it out because to heck with Polonius, I want to be the lender… as long as the return is high.

But, while hypocrisies are delicious, you need to be aware that if you buy bonds you will need to cut the crap when it comes to credit and borrowing rhetoric.

You buy a corporate bond… you tout corporate bonds… then you can’t strut around and complain about a credit-wrecked US economy.

That’s more than okay with me. I’d rather hear you talk about your fat profits than listen to complaints about that which is out of your control.

Ohhh, the prospect of sweet silence – quick, everyone go see Steve McDonald. The line starts here.

3) I do not care what the Debtors of Doom… or the Doomsters of Debt say… credit makes the world go round.

This is a centuries-old reality that somehow evaded a bunch of cranky two-century-ago Austrians.

They probably couldn’t get credit… thus, they couldn’t get hot chicks… thus they wanted everyone to spend cash to level the playing field when it came to chasing hot frauleins who swooned over bankers and barons and not pfennig-less economic geeks.

Honest, maybe there was no Federal Reserve, but credit is really old… the world revolved around it years before revolving credit.

Do you actually think Christopher Columbus put up his own cash to explore the New World?

4) While the Doomsters of Debt will choke on it, the indisputable truth is that credit will lead the globe out of its economic crisis.

You see, borrowing is good.

Next year will prove it.

During the past few months, we’ve seen some amazing – unprecedented – coordination between governments and central bankers that should pay off with some seriously revived growth. That’s all because virtually every country in the world will have low (and lowering) interest rates.

Under those circumstances, it is absolutely inconceivable that the combined power of global economic stimulus won’t work.

Sometime during the first four months of 2009, the creaky 2007-08 economies will be overwhelmed by an age-old force – cheap money and credit.

President Obama’s jobs program will start to take shape. He will force bankers to be bankers again and start lending all those government bailout dollars.

Low interest rates will heat up the housing market.

Homebuilders will crank things up a bit (hint: sometime in January or February take a good look at homebuilders’ stocks or a homebuilders’ ETF, then thank me around Christmas).

The stock market will heat up by March…

We’ll start blowing the bubble again… a huge one this time, because people will be in a race to make it all back.

Banking profits will start to soar and they’ll pay back Uncle Sam.

Homeowners will once again refinance to pay off other debt.

Suburbs and exurbs will expand farther from job centers.

The federal debt will be crazy.

People will be happy and employed.

Medicare and Social Security will still be a mess.

My generation will emulate its parents and steal from its children.

All will be right with the American world.

This is just the way it is now… a much larger scale of the way it’s always been… credit is one of the world’s oldest professions.

The seasons will go round and round… the Debtors of Doom will sell more “open-your-stupid-eyes” bad-news books…

The rest of us will dream of the trappings that make us look more upper class. We’ll pop beers, toss steaks on the grill and flinch at the thought of how close the end is.

Tell me different and I’ll tell you that you’re probably someone who enjoys it when bad things happened to good people.

But that’s not me, man. I not only know my place, I revel in it.

Fairways and greens, baby… and maybe a just hint of an illegal smile.

See you next week… seven days closer to full economic health.

Make Money, Not War
Andy

Source: Good Credit Cures A Bad Economy

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