Since then, mortgage lending standards have been tightened considerably and bank capital requirements have been raised steeply. Banks and mortgage lenders may be safer today, but the system is not.
Meanwhile the Fed is raising interest. It’s undertaking QE in reverse by reducing its balance sheet and contracting the base money supply. This is called quantitative tightening, or QT.
Credit conditions are already starting to affect the real economy. New cracks are appearing in emerging markets, as I mentioned. I also mentioned that student loan losses are skyrocketing. That stands in the way of household formation and geographic mobility for recent graduates.
Losses are also soaring on subprime auto loans, which has put a lid on new car sales. As these losses ripple through the economy, mortgages and credit cards will be the next to feel the pinch.
It doesn’t matter where the crisis begins. Once the tsunami hits, no one will be spared.
The stock market is going to correct in the face of rising credit losses and tightening credit conditions.
No one knows exactly when it’ll happen, but the time to prepare is now. Once the market corrects, it’ll be too late to act.
That’s why the time to buy gold is now, while it’s cheap. When you need it most, once the crisis hits, it’ll cost a fortune.
