While central banks give us the (false) impression that they flood the markets with as much commercial paper as needed to counter the global liquidity crisis, the real credit squeeze is coming. Not many have noticed this extremely relevant internet headline: Global debt markets fall 45% in fourth quarter - amid fears of rising defaults and widespread economic fallout from the credit-market turmoil.

Easy money has the same effect as cocaine addiction. When the consumption of drugs decreases dramatically, there is a withdrawal. In monetary terms, it is called a ‘contraction’ aka: recession or worse the ‘D’ word. The problem is that the system being itself a ‘debt pyramid’, the dominoes start falling one after another. That is precisely why central banks are not able to print money as fast as it should. In banking jargon, the unexpected consequences are also called ‘moral hazards’.
Additionally there are new worries for the Banks: credit cards and commercial construction loans may be the next trouble spots as strained financial markets constrain credit, CNBC explained as of 03/04. This is precisely why, early this week, Bernanke’s speech mirrored the groundwork for nationalization of Fannie Mae, Freddie Mac! So there we go: in other terms what we’re seeing is a ‘backdoor bank bailout‘ as defined by Dean Baker, and of course financed by the taxpayers.
One way or another - and as usual - the taxpayers are caught in a ‘bind’. Again they will pay for the lack of transparency and/or frivolous regulations. And this will translate into more loss of purchasing power.

Maybe after having read the next paragraphs will you concede the time has come for a major political clean up.

(AP-03/06) Federal Reserve: Homeowner Equity Falls Below 50%… Moody’s Economy.com estimates that 8.8 million homeowners, or about 10.3% of homes, will have zero or negative equity by the end of the month. Even more disturbing, about 13.8 million households, or 15.9%, will be “upside down” if prices fall 20% from their peak… Homeowners’ percentage of equity slipped to a revised lower 49.6% in the second quarter of 2007, the central bank reported in its quarterly U.S. Flow of Funds Accounts, and declined further to 47.9% in the fourth quarter — the third straight quarter it was under 50%. That marks the first time homeowners’ debt on their houses exceeds their equity since the Fed started tracking the data in 1945….

In the same time, we ought to tell you about the latest Federal Reserve Report which is indeed very factual and cannot be dismissed:

(MarketWatch - 03/06) … Considering the impact of higher prices, a bigger debt burden and sagging home prices, Americans were poorer at the end of 2007 than they were the year before, the Federal Reserve reported Thursday. Fed reports household net worth down 3.6% in fourth quarter or $533 billion …

…. The real credit squeeze has started.