Unavailability of Credit Could Signal Next Downturn in Economy

Online, May 7, 2010 (Newswire.com) - While many optimistic individuals would like to believe the economy has hit bottom on its downward trend and is now climbing, if ever so slowly, upward again, noted financial advisor Dennis Tubbergen asks us to take another look at the availability of credit before jumping to that particular conclusion. Tubbergen, CEO of USA Wealth Management LLC, a federally registered investment advisory company, reminds us that economic growth is dependent upon credit being available to businesses and consumers, and according to a recent article and chart published in the Wall Street Journal in April 2010, lending is at its second lowest dip since the 1940s.

As Tubbergen notes, "Credit contracting at that rate typically is not good for future economic production. Taking a look at the availability of credit over the past year might give us an indication as to what we can expect as far as future economic growth is concerned."

Reductions in the availability of credit usually follow careless lending, but isn't the Federal Reserve making it easier for banks to lend money? The 'mark to market accounting rules' ( the act of recording the price or value of a security, portfolio or account to reflect current market value rather than book value) have been suspended and we are seeing interest rates at all-time lows. So, Tubbergen questions, why are banks not lending?

The answer lies in the default rate. Again according to the Wall Street Journal, 16% of all U.S. credit card loans are in default, 12% of all U.S. real estate loans are in default and 10% of total U.S. loans are in default.

But how is this 'economic recovery' occurring if banks are not lending?

Tubbergen believes the answer is simple.

"The government continues to borrow against future production by continuing to spend far more than it is taking in," he states. "In my opinion, we're really not growing - we're spending future production and it can't continue long term - maybe not even short term."

In his financial blog, Tubbergen has been making the argument for over a year that government intervention will make the eventual landing harder and more painful than it would be if the government simply did nothing. He adds, "Last year we borrowed $1.5 trillion from the future production of our children and grandchildren and have little to show for it."

According to Tubbergen, the last economic collapse occurred because consumers spent too much of their future production, and when the spending stopped, the economy ground to a halt. "Currently, the government is the only entity spending future production and when the federal spending stops, another halt could occur," Tubbergen warns. "At that point, the next phase of the downturn may begin."

For more information on 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. Information obtained from third party resources is believed to be reliable but the accuracy cannot be guaranteed.