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September 15, 2009


Ambrose Evans-Pritchard, Telegraph, UK - Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14 percent in the three months to August. "There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness.". . .

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9 percent annual pace, the M2 money supply shrank at 12.2 percent and M1 shrank at 6.5 percent.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

It is unclear why the US Federal Reserve has allowed this to occur.

Chairman Ben Bernanke is an expert on the "credit channel" causes of depressions and has given eloquent speeches about the risks of deflation in the past.

He is not a monetary economist, however, and there are indications that the Fed has had to pare back its policy of quantitative easing (buying bonds) in order to reassure China and other foreign creditors that the US is not trying to devalue its debts by stealth monetization.

Mr Congdon said a key reason for credit contraction is pressure on banks to raise their capital ratios. While this is well-advised in boom times, it makes matters worse in a downturn. . .

US banks are cutting lending by around 1pc a month. A similar process is occurring in the eurozone, where private sector credit has been contracting and M3 has been flat for almost a year.


Anonymous Anonymous said...

But the financial 'experts' who led the charge into the valley of the shadow of insolvency assure us daily that the recession is over . . . while unemployment grows, and consumer purchasing drops through the floor . . .

Who to believe? Who to believe?

September 16, 2009 2:40 AM  
Anonymous Anonymous said...

At this point, Banks are only enriching themselves, and it seems that their executives are sharing in the "profit taking" that corporate executives have been doing over the past few years. And really, why should they invest more money in loans? After all, corporations are now investing 'overseas' - maybe banks will also begin investing 'overseas' too.

The question I have is why Banks should have Profits to begin with? Aren't they a "Service" industry? Unless their large bonuses are more of a "bribe" for being "honest".

Ya, that worked well...

We really should have let banks go bankrupt, and have the FDIC pay off individuals. Maybe we would have found out who was doing what in the banking industry.


September 17, 2009 12:12 PM  

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