US Bank Lending Slumps by Most on Record in Final Weeks of March (yahoo.com) 39
US bank lending contracted by the most on record in the last two weeks of March, indicating a tightening of credit conditions in the wake of several high-profile bank collapses that risks damaging the economy. From a report: Commercial bank lending dropped nearly $105 billion in the two weeks ended March 29, the most in Federal Reserve data back to 1973. The more than $45 billion decrease in the latest week was primarily due to a a drop in loans by small banks. The pullback in total lending in the last half of March was broad and included fewer real estate loans, as well as commercial and industrial loans. Friday's report also showed commercial bank deposits dropped $64.7 billion in the latest week, marking the 10th-straight decrease that mainly reflected a decline at large firms.
The slide in lending follows the collapse of several firms including Silicon Valley Bank and Signature Bank. Economists are closely monitoring the Fed's so-called H.8 report, which provides an estimated weekly aggregate balance sheet for all commercial banks in the US, to gauge credit conditions. The recent bank failures have complicated the central bank's efforts to reduce inflation without sending the economy into a recession.
The slide in lending follows the collapse of several firms including Silicon Valley Bank and Signature Bank. Economists are closely monitoring the Fed's so-called H.8 report, which provides an estimated weekly aggregate balance sheet for all commercial banks in the US, to gauge credit conditions. The recent bank failures have complicated the central bank's efforts to reduce inflation without sending the economy into a recession.
Be brave (Score:5, Insightful)
Isn't this how Fed tighting pulls money back out of the economy, to slow inflation? Raise interest rates, which drives up bank loan costs, which slows borrowing?
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The path to slowing inflation is clear, tested, and well-known. It just is easy for politicians to make hay over it because it can cause a recession.
Reagan: Richard "Wage and price control" Nixon, Gerald "WIN: Whip Inflation Now" Ford, and Jimmy "Americans have a malaise, I don't get it" Carter couldn't get stagflation under contol. Raise interest rates.
Hack pols, including echo chamber regurgitators: That will cause a recession!
Reagan: Stay the course!
Hacks: This is bad!
Reagan: Stay the course!
Reagan, 2
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Incredible that Reagan got Volcker to start rasing rates 8 months before he was inaugurated
Re:Be brave (Score:5, Insightful)
Carter couldn't get stagflation under contol.
Carter was the president who ended stagflation, by appointing Paul Volcker as Fed chair. And it wasn't a case of a fortunate accident; Volcker was a well-known inflation hawk, and Carter appointed him specifically because Carter saw inflation as the biggest problem the economy had, and knew that Volcker would attack it head-on. Volcker did, and the first resulting recession likely cost Carter the presidency even though he did exactly what needed to be done.
Reagan: Stay the course!
Hacks: This is bad!
Reagan: Stay the course!
Reagan, 2 years later: My fellow Americans, I am happy to report inflation is under control. Indeed, last month, we had deflation.
Reagan had no choice. Carter appointed Volcker in 1979, and the Fed chairmanship is a four-year term, so Reagan couldn't have changed course until 1983, by which point the second Volcker recession was ending, inflation was done and the economy was back on track, indeed tremendously energized by Carter's Great Deregulation of airlines, energy, trucking, railways, telecommunications, finance, and more.
Reagan got the credit for Carter's deregulation, too.
Re:Be brave (Score:5, Interesting)
Isn't this how Fed tighting pulls money back out of the economy, to slow inflation? Raise interest rates, which drives up bank loan costs, which slows borrowing?
Yes, this should be expected. Every quarter borrowing is more expensive, so every quarter borrowing will likely go down. This is the only weapon the Fed has to slow economic output.
If only Congress would step up and start targeting the larger drivers of inflation such as corporate consolidation and supply chain restructuring. But fat chance of that happening.
Re:Be brave (Score:4, Informative)
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Or the fiscal policy (aka the budget deficit)
The budget deficit hardly registers on a list of our largest current economic problems. The US spends about 2% of its GDP on financing its federal debt, and only about 0.67% of GDP is paid to foreigners each year to finance the federal debt. Total household net worth in the US is nearly $150 trillion. We can borrow a lot more without being insolvent, or without potential creditors feeling the country could default. On the other hand current politicians using a federal default as a bargaining chip is one of
Re:Be brave (Score:4, Informative)
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A budget deficit is a form of economic stimulus that drives inflation.
A budget deficit may be slightly inflationary, but it isn't like how the Fed increases money supply. It is only dangerous if they increase the money supply to pay for the deficits (like Germany did in 1920s and Zimbabwe in 2000s) . If they simply maintain the deficit and pay interest on it, it won't have a strong effect on the money supply.
While I couldn't find anything online confirming this, my personal assumption is that federal deficits funded by foreign entities could be inflationary though. Because it
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Exactly. The only thing I can think is that some banks didn't change their lending practices even in the face of higher Fed rates. That's just a bad idea and maybe now they are finally adjusting like they should have been all along. But the Fed largely can't just magically make banks not do nonsensical things, all they can really do is raise the rates until the banks pay attention. Maybe different reserve requirements would make it more clear, but that's not even necessarily true. Also many of these "b
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Yes, the Federal Reserve who doesn't take orders from the President or the Congress on its decisions. (Granted they can be fired by these officials, and replaced by appointment) But a key part of their job is to be an apolitical safety valve on the economy.
By making money more expensive it lowers the amount of spending and lowers inflation.
For the past 25 years or so, Interest Rates were at a historic low, so Money was super cheap, and in my opinion they should had started raising the rates back in 2013 or
Nothing to see here (Score:5, Interesting)
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Yet folks around here still believe the financial crisis is being manufactured and not a result of the past 3 years of remarkably stupid fiscal policy.
Granted, the decades before that weren't rosy either, but we really kicked the retarded policy into high gear under the cover of covid.
Re:Nothing to see here (Score:5, Insightful)
Yet folks around here still believe the financial crisis is being manufactured and not a result of the past 3 years of remarkably stupid fiscal policy.
3 years? Try closer to 10. Interest rates were kept near zero for seven years after the recession started, and never rose above 2.5% until 2022. We arguably should have already been seeing 5% fed rates 5 years ago.
No one was paying attention to the asset inflation which drove the S&P 500 from 1300 at the end of 2011 (over 2 years after the recession ended) to around 4600 at the end of 2021 (a 250% increase in 10 years). Even if you generously assume a 10% annual growth from legitimate economic growth, the stock market still needs to drop another 15-20% to fully correct after the valuation bubble of that last 10 years.
No one noticed the inflation until the pandemic caused the government to start giving some of this free money to regular people. People notice milk being inflated more than their Apple stock being inflated. They mistakenly view the latter as being a good thing while it is happening.
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Re:Nothing to see here (Score:5, Interesting)
Remember, near-zero interest rates are good when your guy is president but bad when the president is not from the party with whom you identify. Sigh.
Well, "my guy" has been president for about 10 of the 14 years interest rates have been kept so low, and I don't consider the low rates good. Well it was a great idea for a few years after the 2008 recession started, just not in perpetuity.
Also, I think most people want to see their stock market portfolio grow no matter who is in the white house. They also like to see 3% mortgage rates no matter if their guy is in power. So your average person wants to see low interest rates all the time, considering your average person is more of a spender than a saver. My mom on the other hand loved the interest rates of the early 80's, but my parents put me to shame on their level of savings through their life. She bragged just yesterday at Easter about the 13% annual 20 year CDs they got in the 80's (because we were talking about today's interest rates).
Re:Nothing to see here (Score:5, Insightful)
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Yes everybody would love low interest rates and low inflation all of the time. Also stimulus checks. You totally have me there. But since you can't simultaneously have all three, you can always blame whoever you dislike for whichever one isn't to your liking.
Well said. Except one small correction would be that you can have all three for a short period of time (we enjoyed it for nearly 15 years). But you always pay up eventually.
Actually, one additional small theoretical correction. Modern monetary theory claims you could have all three as long as taxes are high enough. So I would amend your statement to the following (which I'd assume you agree with):
Everyone would love low interest rates, low inflation, stimulus checks, and low taxes at the same time. But you cannot have all four at the same time for extended periods, and even three out of four is unlikely.
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Is there a reason you cited 250% instead of the 50% change in the S&P 500's P/E ratio over the same time period? Or failed to note that the starting point at the "end of 2011" saw a P/E ratio among the lowest we've had since the 80's recovery? Perhaps because it makes your point look way, way less compelling?
Listing the P/E ratio isn't much different than listing the total valuation, considering it tells a similar story. Both show a massive overvaluation of stocks over that time period. If anything it shows that even in 2011 the stock market was overvalued in historical terms, since its approximately 15 P/E ratio would be considered high over the past 100 years. Only in the 90's tech bubble and the early 2000's did it stay above 20 for a significant period of time, like it has for the past 9 years. Today's curr
Fed R. should have paused (Score:5, Insightful)
The boom & bust cycle seems an inherent part of capitalism, at least we haven't found a sure fix.
The problem is that human reaction is unpredictable, and the WebTubes complicate that analysis even further, because rapid run-away bank runs (panic withdrawals) can happen fairly easily as news & rumor spreads fast.
Perhaps the Fed Reserve should have paused rate hikes until the bank situation stabilized. Inflation may be the least evil compared to risking a mass banking panic.
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We seem to survive it over and over... maybe it's acceptable.
Humans survived the age age. Europeans survived the bubonic plague. Native Americans survived smallpox. Our species is quite capable of surviving nearly any calamity. Just being able to survive something is a poor reason to conclude it is acceptable.
I'd argue the current level of boom and bust cycles are the result of unregulated capitalism. The 2008 recession gave us a glimpse at how well we learned to prevent a 1930s style depression when facing similar dangers to our economy. The Trump administration sho
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> If we put our minds to ending the boom & bust cycle of our global economic system I think we could do it.
We may be able to lessen the bumps with something like the Balanced Budget Amendment, but with previsions for recessions and emergencies (like pandemics & wars). Then Congress would be forced to sock some away during good times instead of hand out favors. But in return we could have juicy stimulus during slumps. Keynesian Done Right.
It would probably have to be written to kick in after 4 ye
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Perhaps the Fed Reserve should have paused rate hikes until the bank situation stabilized. Inflation may be the least evil compared to risking a mass banking panic.
banking panic may be a PIA, but it's relatively short-lived.
inflation, on the other hand, has potential to do tremendous long-term damage to a country... even kill it, if left unresolved.
if inflation continue to be stubborn, and the fed is truly committed to bringing it down (which it appears it is), we're in for more pain, but it's worth it.
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> banking panic may be a PIA, but it's relatively short-lived.
If it dominos into bigger banks and/or other financial institutions, then the entire econ may go under.
And I'm not saying skip the rate hikes entirely, only pause them temporarily. When the banks prove relatively stable, then start hiking again, if still warranted.
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Employees were getting too uppity with their wages and demands. Working from home is causing office leases to decrease in price. Those in power demand the plebs be punished for their misbehavior and here we are.
P-hacking (Score:2)
Please pay no attention to the layoffs and bank crisis. All is well. /s
Yes, but... is it?
The article tells us that lending dropped by $105 billion in 2 weeks, and boy oh boy that sounds really bad, don't it?
Banking crisis? What about interest rates? (Score:5, Insightful)
Our industry can manage itself! (Score:3)
Those failed banks in 2008 were too big to fail. Mid-sized banks don't need that kind of regulation and would never require Federal intervention.
Oh, wait. Never mind.