Economic News
The Bear on Sep 23 2009 at 7:45 am | Filed under: Economy
The recession started in December 2007. For the first 18 months, bank lending remained positive. However, starting around July 1, long after the markets were up and Federal Reserve/government officials were taking credit for saving the world, loan growth started to plunge. It is a mystery to us as to why loan growth held until July 1 and then started sharply lower, but it is and could prove significant should it continue.
• Zero Hedge (Blog) Bailout Recipient Banks Lending Drops For Sixth Consecutive Month
It was just yesterday that Tim Geithner was lying that banks are constantly increasing lending to consumers. Well, yet another lie refuted. Banks, and not just any banks, but those receiving government bail outs and subsidies, continued constricting lending in July, with total average loan balance outstanding declining by $54 billion from $4,295 billion to $4,241 billion, a 1.3% decline, following a 1.1% decline in June. As for the reason why loan originations in July declined a whopping 10% after posting a 12.7% increase in June, the government simply noted that this was due to “decreased demand from borrowers.” And so the circular lie continues: the government claims lending is increasing, when in fact, it is not, and when confronted with this fact, the government claims this is due to lack of interest. Furthermore, with retail sales reportedly higher, the consumer is allegedly spending more, with average wages declining, meaning consumer need to borrow to finance purchases, or else eat into their meager savings. Yet all this is occurring on the foreground of a rapidly increasing savings rate. So consumers are not borrowing, they are saving more, yet somehow sales are increasing: the lie is so circular that if there was a Kudlowbot, its head would explode trying to “spin” this null argument.
• Naked Capitalism (Blog) – Lending Is Taking a Dive, Oh My!
Team Obama has taken to trumpeting the idea that the recession is over. As Ed Harrison likes to point out, the fact that we will see inventory restocking will produce a statistical recovery, at least in reported GDP. But the US in 1931 and Japan after its bubbles burst both featured a period in which the economy stabilized, and pundits for the most part concluded the worst was over. And in both cases, the economy resumed its slide. The data have moved from bad to mixed, which is a relative but not absolute improvement. But one of the negative developments, highlighted by Ambrose Evans-Pritchard, is ugly indeed. Despite massive bailouts and liquidity supports, credit is contracting, and at a very rapid clip. If we are lucky, this may be a short-lived aberration. But if this pattern persists for any length of time, the prospects are not good at all.
US credit shrinks at Great Depression rate prompting fears of double-dip recession
Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.
The Bottom Line – Until credit is available to small businesses who are the backbone of the American economy, the economy will remain stagnant and recovery is not possible and along with that hiring for jobs will remain nil.
The CBO estimates that unemployment in the fourth quarter of 2010 will still be north of 9%.
The banking system is clogged and what we are seeing is a ‘credit freeze’ in the small business sector that most needs help to lead the country back on positive growth path. There are many reasons why this ‘credit freeze’ is happening but one of the main reasons is the big (too big to fail banks) banks that received government bailouts are hoarding cash. They can borrow at the Fed discount window for 0% and buy treasuries that pay interest and make a profit. This is idiot proof.
Additionally, the problem small business men face beyond the credit crunch is the future ‘unknowns’ that Washington will pass or not pass in certain key areas which will affect their bottom line.
What will be my future energy costs if some form of “Cap and Trade” Passes?
What future increase taxes are they going to face?
What is going to cost per employee for health care?
All of these ‘unknowns’ as to what Washington will do lead to a wait and see attitude about hiring new employees or in short…Economic Stagnation.
Meanwhile, as the economy goes overboard it’s every man for himself!
More related Economic News
Chrysler Says September Car Sales (no more Clunker Program) Are A Disaster
Chrysler Group LLC, the U.S. automaker run by Fiat SpA, said nationwide industry sales are off 19 percent so far this month after a government purchase- incentive program ended. “We are going to see harsh reality in September,” Sergio Marchionne, the chief executive officer of Fiat and Chrysler, said at the Frankfurt Motor Show. He described the U.S. industry results as a “disaster.” Fritz Henderson, CEO of General Motors Co., said the market is “very weak” this month. Chrysler sales are being pinched beyond the industry decline because of a lack of cars and trucks on dealers’ lots, Peter Fong, the Auburn Hills, Michigan-based automaker’s lead sales executive, said today in an interview. Fong, who gave the percentage decline, said Chrysler dealers currently have 83,000 vehicles on hand, about one-quarter of what they had a year ago.
Source: Bloomberg.com
The Wall Street Journal – The Stimulus Didn’t Work
Is the American Recovery and Reinvestment Act of 2009 working? At the time of the act’s passage last February, this question was hotly debated. Administration economists cited Keynesian models that predicted that the $787 billion stimulus package would increase GDP by enough to create 3.6 million jobs. Our own research showed that more modern macroeconomic models predicted only one-sixth of that GDP impact. Estimates by economist Robert Barro of Harvard predicted the impact would not be significantly different from zero. Now, six months after the act’s passage, we no longer have to rely solely on the predictions of models. We can look and see what actually happened. Consider first the part of the package that consists of government transfers and rebates…Consider first the part of the chart pertaining to the spring of this year and observe that disposable personal income (DPI) the total amount of income people have left to spend after they pay taxes and receive transfers from the government jumped. The increase is due to the transfer and rebate payments in the 2009 stimulus package. However, as the chart also shows, there was no noticeable impact on personal consumption expenditures. Because the boost to income is temporary, at best only a very small fraction was consumed.
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