Best of the Net - Monday August 11, 2008

Chris Puplava talks about the ongoing tightening credit markets in Fed Senior Loan Survey Confirms Credit Crisis isn't over.

Kevin Depew continues his theme of socioeconomic change with Five Things You Need to Know: Word of the Moment - Frugality

Mike Shedlock talked about credit markets in Europe and the US in Lending Standards Tighten Again in US and Eurozone

Paul Kasriel of the Northern Trust talks about the same loan officer survey, but with some different charts and interperetations in his daily analysis

John Mauldin looks ahead at what he thinks will be an emerging asset class, when the western economies are ready to recover in a two part series The Rise of a New Asset Class, Part 1 The Rise of a New Asset Class, Part 2

John Hussman gives his weekly outlook and describes market traders in the current environment aptly in Nervous Bunny

If you're wondering why I've posted 3 articles (Kasriel, Shedlock, Puplava) that essentially talk about the same thing, it's because it is extremely important. Central Banks around the world have acted in co-ordination over the last year to support asset prices by making credit cheaper and easier to access for large banks. This survey says that it hasn't been working to its intended result. Banks have not been lending the money out into the economy, and are instead using it to increase their own loan loss reserves. As they write down the value of their assets, the 'money' essentially disappears.

This is the definition of deflation. A contraction in the overall supply of money and credit. Kevin Depew's theme of "it's cool to be frugal" is a manifestation of deflation in our society. These manifestations serve to exacerbate the condition as we become a culture of savers, driving asset prices down further. A viscious cirlcle only to be resolved by time and price.

Time and price. Remember that. It is the solution to our problems.