EXCERPT FROM THE DAILY RECKONING AUGUST 14, 2008

"Anyone waiting for the financial industry to return to the glory days of 2006 may have a long wait. As a credit-fueled boom turns into a bubble, it takes more and more lending to produce an additional increment of GDP growth. In the real boom years after WWII, it took about $1.40 worth of credit to produce $1 worth of GDP growth. The ratio rose sharply after the Reagan Revolution...and now stands at about $6 of credit to every extra dollar of GDP. Of course, that is why Wall Street made so much money – it was selling credit. But it’s also why that story is history; that show is over. As the cost of growth – in terms of credit – rises, so does the cost in terms of debt service. Even at 5%, the cost of $6 of credit is 30 cents per year. If it produces $1 of GDP growth, that extra output would need a 30% profit margin to break even. Not very likely."