Credit Convulsions

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Martin D. Weiss, Ph. D. explains how now more so than any other time in U.S. history the U.S. is a debt addicted society. In this issue of Money and Markets, Dr. Weiss goes on to discuss that as soon as the debt dosage is reduced, the U.S. economy will continue to suffer withdrawal pains.

Martin D. Weiss, Ph. D. explains how now more so than any other time in U.S. history the U.S. is a debt addicted society. Dr. Weiss goes on to discuss that as soon as the debt dosage is reduced, the U.S. economy will continue to suffer withdrawal pains. And if it's cut off completely, the affected industries go into convulsions. It's precisely the drama that is currently unfolding.

Currently, credit markets are choking, sales are collapsing, companies are folding and Jobs are vanishing. Look at how Washington has panicked; Congress has decided to pass the most radical, most grandiose and most expensive financial rescue package of all time. This unprecedented rush to judgment wasn't just to help members of Congress run back to their election campaigns; it was driven by the utter force of the credit market convulsions.

Specifically, companies are getting cut off. Large corporations regularly issue commercial paper, short-term IOUs, to raise the cash they need to finance their day-to-day purchases, meet payroll, and even pay the electric bill. Before the crunch, in the three years through 2006, they raised an average of $223 billion per year in new money with these IOUs and similar kinds of paper, according to the Fed's latest quarterly estimates. But now, their access to that instant cash has virtually vanished: In the 12 months ending June 30, not only were they unable to get any new money from this source, but they actually had to pay back $361 billion more than they could raise.

In this kind of credit implosion, virtually unheard of in modern times, the only choice for many companies is to promptly lay off workers, shut down operations or make a beeline to the bankruptcy courts.

Home equity loans are virtually extinct. Not long ago, consumers could go to almost any bank, borrow on their home equity and walk off with a wad of cash to spend. In 2005, for example, they took out $1 trillion in home equity loans. In the second quarter of this year, the pace of new home equity lending plunged to an annual rate of only $80.8 billion, down by a whopping 92% from its 2005 level. And this credit shutdown is a disaster for all companies that do business with consumers directly or indirectly.

Local governments are getting shut out. State and municipal governments typically have easy access to credit because of their tax-exempt status. Not anymore, now they're being forced to pay more or are dropping out, sending shock waves of local budget cutting across the country.

"These convulsions from the debt-addiction withdrawal are hitting small businesses, schools; churches and charitable organizations. They're sweeping through urban communities, suburbs and farms. They're slamming everything from Hugh Hefner's Playboy to London's 2012 Olympic Village. But we've been ready for this for quite some time," Dr. Weiss states.

To read this issue online, please visit:


Martin D. Weiss, Ph.D., founder and president of Weiss Research, Inc. and a leading advocate for investor safety, is a nationally recognized expert on domestic and international financial markets. With more than 35 years of experience, including many years in Latin America and Asia, Dr. Weiss has helped empower millions of investors to make better financial decisions through his monthly Safe Money Report and daily Money and Markets.

Dr. Weiss' keen understanding of foreign markets and the global economy has earned him a reputation for thoughtful, in-depth analysis that investors can rely upon to make informed financial decisions. Regularly called upon by the media for his independent investing guidance, he has been featured in publications nationwide, including The Wall Street Journal, The New York Times, Chicago Tribune, Investor's Business Daily, and Forbes and has also appeared on CNN and CNBC.

Throughout his career, Dr. Weiss has been an advocate for consumers and investors in the insurance, banking and brokerage industries, dedicating his time and resources providing analysis and data for Congressional testimony, constructive proposals for reforms in the securities industry and legislation for full financial disclosure as well sound accounting and fiscal policy. In November 2004, he launched the Sound Dollar Committee, a nonprofit organization dedicated to building a network of investors seeking to protect the nation's future by demanding honesty in government accounting, a balanced budget and sound economic policy.

Dr. Weiss is author of The New York Times best-seller, The Ultimate Safe Money Guide, which gave baby boomers a road map to grow their wealth safely. It was listed on the New York Times Business, Wall Street Journal, and BusinessWeek best-seller lists, as well as the Barron's Roundup for 2002.

Dr. Weiss holds a bachelor's degree from New York University, a Ph.D. from Columbia University and is fluent in eight European and Asian languages.

Money and Markets ( is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit


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