Financial Advisor Explains Debt and its Effects

Online, August 31, 2010 (Newswire.com) - While recent financial news has been concentrating more frequently on the excessive amounts of global debt and its adverse effects on the economy, noted financial advisor Dennis Tubbergen has been warning that a true recovery in the United States will be difficult until the debt problem here is resolved.

Tubbergen, a noted financial advisor and CEO of USA Wealth Management, LLC, a federally registered investment advisory company, believes excessive debt is the reason for the economic mess we now find ourselves in and offers his opinions in his economic blog and monthly newsletter Moving Markets. In his July 2010 issue of the newsletter, Tubbergen explained why economic activity remains weak even though the U.S. government has pumped massive amounts of money into our economy in an effort to stimulate production and spending. Even though prior efforts have failed, our government continues to "push the spending button" and now our financial system is ridden with debt.

"In order to better understand this, it is necessary to have a general understanding of our banking system, known as a fractional reserve banking system," states Tubbergen. Tubbergen quotes the website of the Federal Reserve Bank of New York with the following:

Reserve requirements affect the potential of the banking system to create transaction deposits. If the reserve requirement is 10%, for example, a bank that receives a $100 deposit may lend out $90 of that deposit. If the borrower then writes a check to someone who deposits the $90, the bank receiving that deposit can lend out $81. As the process continues, the banking system can expand the initial deposit of $100 into a maximum of $1,000 of money.

"In other words, every dollar deposited into the banking system has the potential to be 'multiplied' into $10," explains Tubbergen. "The problem? Banks are simply not lending. If lending doesn't take place, the process of $1 becoming $10 can't take place either and economic growth is stunted."

Tubbergen also refers to the July 6, 2010 Market Watch in which Richard Fisher, president of the Federal Reserve Bank of Dallas, noted S&P 500 companies have over 1.8 trillion dollars in cash, above their cash flow needs, and that banks who keep their reserves at the Federal Reserve currently have over a trillion dollars in excess reserves.

"In the past, politicians pushed the spending button and money was pumped into a fractionalized banking system that leveraged each of those dollars to as many as $10, aka newly-created debt," concludes Tubbergen. "Now, that leveraging has all but stopped."

Not a good sign for economic recovery.

For more information on Dennis Tubbergen's views, visit www.dennistubbergen.com.

The opinions expressed herein are those of the writer and not necessarily those of USA Wealth Management, LLC. This update may contain forward-looking statements, including, but not limited to, statements as to future events that involve various risks and uncertainties. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause actual events or results to differ materially from those that were forecasted. Therefore, no forecast should be construed as a guarantee. Prior to making any investment decision, individuals should consult a professional to determine the risks, costs, benefits and fees associated with a particular investment. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.