Less Debt, Less Borrowing, More Saving (second in a series)

by Laura Ehrenberg-Chesler on May 5, 2009

in Credit Crisis

Much of the controversy surrounding the TARP government program, designed to encourage banks to make more loans, has been that banks are not lending that money.

They are being cautious.  It can be said that they should have been this cautious all along.

Regardless, it is important to note that credit contracts during a recession, and credit does not drive the economy, the economy drives credit.

In that vain, a recent paper published by Robert Albertson of Sandler O’Neill &Partners, reminds us that “We are over –levered.  We need to de-lever.  We do not need encouragements to borrow.  We need encouragements to save.  Consumers are wisely and responsibly trying to reduce their borrowings.”

Credit and taking on more debt do not create growth.  Growth creates demand for credit and borrowing.  By encouraging the individual to de-lever their balance sheet we can have a sustainable and healthy economy in the future.

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