Monday, February 2, 2009

Is The Obama Administration Largely Misguided

Is anyone else getting tired of all these headlines about how Obama and his learned senators will only give aid to banks (and bail out the Western financial system) if the latter increase lending to consumers and companies? With all due respect, this is really dumb for two reasons: consumers actually don't want debt (kinda goes against the whole increasing savings concept) and companies actually have easy access to credit.

The second issue first: investment grade debt issuance hit a record in January and even the high yield primary market is spewing bond after bond (we wrote about that here). As for U.S. consumers, the data indicates that finally this group is trying to save, not to spend. Providing easy credit is a mechanism to facilitate spending, which will not happen while consumers are concerned about the economy, jobs, housing values, the stock market, etc. In other words consumer loans have a supply and demand component: Obama is purely focused on fixing the supply, which one can argue is not necessarily broken, but it is the demand side that is in major need of an overhaul.

Instead of trying to shove more credit cards down the average American's throat the administration should focus on shifting the prevailing mindset away from a savings-focused one. When that happens, increased consumer borrowing will follow promptly. Sphere: Related Content
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Cynde said...

I'd love to have back my tax credit for credit-card interest!