LP asks a very good question about my five percent failed deposit figure:
I thought your book on the return of the great depression was great. But since the 545 banks in trouble represent 295 billion of assets (ratio of about 55-to-60%), compared to 140 failed banks with 139 billion of assets this year (ratio of about 1/1), would it not follow that the 545 banks have less assets and that the subsequent resultant asset loss would be less than your graph projections show? This I interpret to mean that 5% of the bank failures shown on the graph would represent closer to 3% of the 2010 asset value. This may mean that the 16.8 decline in commercial banks loans would drop closer to about 10%.
Also some of the stronger businesses may be able to transfer barrowing to other banks which may mitigate the credit affect. This may let the govt get away with one or two more stimulus packages in 2010 that would result in a worsening economy than we have now and preserve the total economic catastrophe until 2011. Or a different scenario, maybe the continued economic slump will snowball in 2010 as everyone will continue to curtail their spending when the last half of 2010 shows unemployment still rising with business activity declining. Is my basic reasoning correct?