Tuesday, October 26, 2010

Bank lending update

The data initially looks good but a change in accounting rules is the reason and not more lending by the banks.

In Chart #1 you can see the recent large spike in total loans and leases at commercial banks.  New accounting rules forced the banks to place off balance sheet items back on their books.  (I thought the Enron scandal fixed all that? Guess not)

This really throws off the year over year data so don't get excited if you hear bank lending has recently surged.

Just to show you how this decline in lending is unusual Chart #2 shows the series longer term on a year over year change.  As you can see until recently serious declines in lending never happened.

In case you are wondering what the banks are buying instead of lending... they are buying US government securities.
In my opinion this lack of lending by the banks is just one reason the Fed is freaked out and is prepping the markets for QE 2.0.  They are going to flood the market with money to try to get more people to borrow money and buy stuff.  Unfortunately I don't think it will work and I'll be writing about that soon(tm)


  1. I believe that QE2 will be effective in its stated purpose: to prop up asset values. The problem is that nearly everyone had already lost confidence in the market and financial assets in general and bailed in Mar 2009.

    I'm sure you are aware that we are flat below stock index level lows of March 2009 on a gold or commodities basis. 100% of the increase off the March 09 lows is nominal gains versus hard assets, and zero gain on a real basis.

    Yes the market has doubled, but in reality the value of currency has been halved at the same time.

    QE2 will continue the trend of propping up the major indexes but will also raise prices on needed goods and likewise raise the number of people below the poverty level.

    Hope this finds you otherwise well my friend.

  2. It's also the reason I bought gold and silver. B52 Ben's money printing is raising asset prices, just the assets that will not help the US economy. Until the debt is written off / paid down / inflated away there's nothing easy to do. Politicians like to hit the 'easy button' but there's nothing they can do that's 'easy'