As shown in the graph below, courtesy of Clusterstock – Business Insider, the latest figures from the St. Louis Fed show that commercial and industrial lending is still declining.
The dilemma is that US banks can borrow for almost nothing and lend money to the government by buying 10-year Treasury Notes and 30-year Treasury Bonds with yields of 3.8% and 4.6% respectively. “Thus, the banks are thriving on the ‘yield curve’ while the poor slob on the street gets nothing for his savings (assuming he has any savings at all). And when you think about it, why should the banks make risky loans to the poor goof on Main Street when they can play the yield curve with almost zero risk?, remarked Richard Russell, author of the Dow Theory Letters.
It goes without saying that lending needs to expand before a decent economic recovery can get under way.
Source: Clusterstock – Business Insider, January 4, 2009.
