The horizon is not so far as we can see, but as far as we can imagine

Lowest Bank Lending since

Whoever would have expected? (h/t Agonist)

U.S. banks posted last year their sharpest decline in lending since 1942

Of course, this is exactly what we warned would happen.

Can you say Japanification?  Sure you can.  Banks are impaired.  Badly.  So they don’t want to lend.  To get lending going again it was necessary to take over bankrupt banks, to siphon off bad loans, to force both bondholders and stockholders to take their losses.

Larger banks are doing better than smaller banks, which should be no surprise as they’re the ones the Feds concentrated on bailing out because if you bailed out small banks they couldn’t be bought up for cents on the dollar by Geithner and Bernanke’s friends in the financial industry.

Refusing to do the right thing has consequences.  This is one of them.


America’s Future: My Baseline Scenario


The Beach


  1. tjfxh

    While the fact that the banks are capital-impaired is a significant factor, loan demand is in deep contraction, and creditworthy customers are in short supply with credit standards having tightened. Most Americans need to rebuild their balance sheets after a debt splurge, and it will likely be years before the debt clears.

    Moreover, the real economy is weak due to insufficient nominal aggregate demand as the public desires to save more and pay down debt, investment opportunities are scarce, ands growing exports are insufficient to turn around the persistent currency account deficit. Only government can make up the difference, but government stimulus is not robust enough to close the output gap, as structural unemployment looms for years. In addition, the political climate is tilted toward tightening due to the fiscal scolds, ridiculous concerns about non-existent “inflationary pressures,” and public ignorance about fiance due to the erroneous government-household budgetary comparison.

    Deflation is the threat and spiraling deflation is still a specter. The prospect of global depression is increasing with instability in the EU and China’s economy over-heated. Bernanke, Summers, and Geithner don’t seem to have a clue, Obama has trapped himself in the WH bubble, and lobbyists are swarming over Congress.

  2. anonymous

    And who knows what the bank balance sheets look like in China? At least they will get the satisfaction of knowing their bankersters will take a bullet to the back of the head, at least the biggest losers. But even so, I don’t think that sort of disincentive is especially effective.

    This economy seems like a game of Jenga, where they are crudely trying to shore the tower up, even as the banksters continue removing pieces.

  3. jawbone

    Small editing note: The 2 is missing from 1942…unless that was deliberate to get everyone to actually go to the link?

  4. Forty2

    I’d aver that banks are back to traditional lending, e.g. only make loans to people who present an excellent risk profile.

    I got pre-approved for a modest mortgage within 24 hours this week, but then I have no debts, make a decent income, have saved 20% down, and am not trying to buy 10x more house than I can afford or need, etc. I have not had any problems getting credit in years, but this time I was a little antsy because it’s been about six years since I applied for any kind of loan other than a car lease. Look, I’m not trying to be a dick about this, but banks shouldn’t loan to anyone who represents more than a slight risk factor, and charge accordingly in interest if not. It took me years to get out of debt and I’m damned happy that once again prudence pays off instead of sitting on the sidelines while Joe Blow the Debt Addict gets approved for half a million and wondering what the hell is going on.

    Lending as we knew it in 2004 is dead; the “if you have a pulse you can get a $500,000 loan! at!” i/o option-arm alt-a subprime toxic loan days are long gone.

  5. as long as we’re using anecdotes, Forty2, let me offer a countering one. my sis and her hubby have Perfect Credit. always have. their credit is so good, they got a (huge) mortgage on their new home, even though they hadn’t sold their old house yet. (they did, lucky for them they got it sold right before the worst of the housing bubble burst) they would like to start their own business, and applied for a small biz loan. their banker, whom they’ve done biz with for many years, basically said to them, “you can fill out the paperwork, but don’t expect anything.” this biz effort on their part would’ve initially employed at least two additional people if they’d been able to go forward with it.

    i doubt they are the only business people to be turned down like this.

  6. TJFXH —

    “Only government can make up the difference, but government stimulus is not robust enough to close the output gap, as structural unemployment looms for years.”

    The government has been trying to make up that difference…, in earnest…, since 9-11. As you are well aware, I contend that George Evil Bush rushed us into Iraq…, under irrefutably false pretenses…, for purely economic reasons. The Afghanistan Invasion went too well and wasn’t going to provide near enough economic stimulus to forestall a recession that would cost him re-election. And even that new “war” wasn’t enough…, he instituted a whole new government jobs program. Homeland Security. Government spending (stimulus) in the form of jobs, office space, desks, furniture, computers, phones, cars and gas cards. NSA jobs with all those aforementioned accoutrements…, Border Patrol agents on The Olympic Peninsula put to work setting up check-points and stopping all traffic on highways. Maybe you read about it? : ) And plans to build a new facility to handle 24 agents to help out the 3 agents that were previously stationed here in this hot bed of illegal immigration and terrorist threats. Yeah…, build a new facility, add desks, computers and cars…, it all stimulates the economy and satisfies a lack of private demand…, right? And it looks like all those new hires built new houses with government guaranteed loans. It was all working fine until the “stimulus” ran out. Now we just need more stimulus?

    Sorry ole buddy (we really miss you over at The Agonist) but I don’t trust our government to make the right decisions with all the money you want to give them. Even if…, as you say…, “…a monetarily sovereign government is not financially constrained in currency issuance and doesn’t need to “fund” its disbursements with taxes or “finance” its deficits with borrowing, unlike currency users, like households, firms and states in the US (and countries in the EU).”

    Erie moment…, Phil Collins just came on the radio with, “I Can Feel it Coming (In the Air Tomight). Time to sign off.

    And…, write more. You still haven’t convinced me that MMT can work !!!! : )

  7. Hillsfar

    Hi. I don’t know if you’ve read this guy, but he’s has a blog called the Archdruid Report. Writes REALLY insightful stuff. He and you, I take both you writings seriously and thoroughly appreciate the thinking behind it. If you’ve never read his work, I highly suggest it.

    This one is called, “Becoming A Third World Country”.

  8. Thanks Hillsfar —

    I liked that very much…, especially this.

    “The United States has played its recent hands in the game of empire very badly indeed, and responded to each loss by doubling down and raising the stakes even higher. If, as a growing number of perceptive commentators have suggested, the US government has been reduced to borrowing money from itself in order to pay its bills – the theme of last week’s Archdruid Report post – the end of that road is in sight. It’s hard to see this as anything but a desperation move on the part of a political and economic establishment that sees no other options for short-term survival and thinks it has nothing left to lose.”

    Sums up my feeling pretty well. I plan to check out the blog further…, thanks again.

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