We Interrupt This Panic

I have nearly total confidence when people like Ben Bernanke (but not Tim Geither!) explain that we need to do this, that and the other thing in order to unclog the credit markets and get banks lending again.

However, I also have nearly total confidence that the St. Louis Fed is not just generating random numbers to produce their charts.

Let's see - commercial and industrial loans at all commercial banks spiked upwards last fall; it has since tailed down, but remains higher than the levels in the summer of 2008.

And the struggling consumer?  Lending flattened out last fall but has since resumed a brisk upward march. 

I can suggest an explanation for the divergence between the message and the numbers - the loan growth we are seeing is in response to the many policy steps taken so far but is not sustainable without further dramatic Fed and Treasury action.  OK, maybe.  The good news, assuming the St. Louis Fed numbers are meaningful, is that the current actions seem to be taking hold.

A parting thought - last fall the commercial paper and asset-backed securities markets died.  That is not bank lending, but reviving them would be helpful.  One might wonder why, since these markets effectively disintermediated banks, that they can only be revived by reviving banks.  Beats me.

We now resume our regular panicked blogging.

Comments

[Jim Ryan]

You keep hitting them out of the park, TM.

A thought: If they go Emily Litella on bank bailouts, maybe the public will start to think the other $10T they want to spend in the next few years is also ready to be Emily Litella-ed?

[Charlie (Colorado)]

What, you mean something happened last fall that loosened the credit markets?

Wow, I wonder what that could have been?

[Fat Man]

The growth in bank loans is corporations drawing on their bank lines of credit, because they can no longer access the commercial paper market.

The consumer loan growth is folks borrowing grocery money on their credit cards, until their unemployment checks come in.

The light at the end of the tunnel is a freight train heading right towards us.

[Daddy]

Mt Redoubt is erupting as I type. It is now Code">http://www.avo.alaska.edu/activity/Redoubt.php">Code Red. I know nothing further. It is just coming up on midnight and unfortunately visibility is reduced from huge snowfalls all through the day. Will keep you advised.

[Walter]

Does anyone have a measure/estimate of M-3? Meyer and Greenspan decided it was worthless back in 2006 and the Fed has steadfastly refused to update their charts since then.

I've got a bet at the office that it is now approaching GDP.

Of course, with velocity so low, the argument has been that the overall money in circulation is not historically high. I'm just so old and set in my ways that I have this weird idea that inflation is around the corner.

Now that thought, like the odd theory that equity/home values decrease as easily as increase, could only occur to those of us who recall $0.25/gallon gas.

What's that you say? I only recall because I was pulling my red flyer wagon filled with cans up to the gas station so that I could cut lawns with my gas&oil-guzzling 2-cycle mowers. In my scout uniform. As a fundraiser for our campouts. Honestly.

Off-topic: Tom, we may be in vehement agreement over the tax benefits of bonuses. I will agree that the bonus structure is driven by business considerations if you will concede that the fact that bonuses tend to be issued around the ides of March is not unrelated to the accelerated deduction granted to payments made in that time frame. In other words, a timing-related tax subsidy exists, but it may not be material relative to the other factors driving the bonus vs. salary decision.

[Daddy]

Current height of the eruption is 50,000">http://www.avo.alaska.edu/activity/Redoubt.php">50,000 feet. Don't know how they can tell that from a spotter plane but maybe some variety of radar. It is still dark, 10 minutes to midnight, but out the kitchen window I can see the lights of an airplane in Redoubt's direction, so I assume that is the spotter plane, as everybody else would probably be being diverted or ordered away from the volcano by ATC. I keep foolishly dashing to the window with binoculars hoping to see I don't know what, but the general direction of Redoubt remains dark and invisible and without any horizon. We live about 1,000 feet up the hillside so I can still see the lights of Anchorage all clear and spread out below just to the north a few miles. Whatever, sorry to get anyone excited. You guys will probably know much more about it than I do by the time I wake up tomorrow.

[AL]

Big deal. Corporations and individuals are maxing their borrowing to compensate for dwindling profits, increased cost of corporate debts (due to ravaging downgrades), or to pay mortgages after loss of employment. Hardly investments to expand business and create jobs.

[jimmyj]

Yes, that spike last fall was businesses rushing to draw on pre-existing loan commitments, not new lending by banks.

But it does seem we're at a point where a shortage of credit is not the problem. Proving once again the adage about monetary policy being like a string: you can pull it and tabk the economy, but poshing on it doesn't get the economy going again.

[PMII]

In 10 years we will be able to look back and know what happened and how to fix it. Too bad we can't do that now.

But I do know that trashing businesses including wall street doesn't help in the least bit.

[jimmyk]

poshing=pushing
jimmyj=jimmyk

(The hazards of posting from a Blackberry.)

[PeterUK]

Daddy,
So you will be getting a huge influx of environmentalists protesting about the volcano's carbon footprint? No?

[Jim Lindgren]

A lot of lending, esp. in the mortgage market was done by private mortgage companies and other private equity, not banks.

So bank lending is UP, but overall lending is DOWN.

[Old Lurker]

Kim has been telling us we are cooling, not warming. Pretty pictures to that effect on Powerlin today. See LUN

[RichatUF]

More panic. Obama met secretly with Gorbachev?

Wouldn't it be helpful if Obama knew who was running Russia at this time (I'm kidding). Wonder if they mourned the passing of the evil empire, while Obama got some pointers on how to bring down a superpower.

[steve sturm]

You can give a bank lots of money, but you can't make them want to lend... especially if they're worried about (1) both the present and future creditworthiness of the borrower and (2) whether it's smarter to hold on to the cash in case there's a more pressing need for the money later. And you can make money available to borrowers but you can't make them want to borrow... especially if (1) they're concerned about losing their job (and with it, the ability to repay) and (2) they don't think there's anything worth borrowing to buy right now.

Catch 22 or chicken or egg (not sure which works best), Geithner, like Paulson before him, isn't going to restore sanity to the markets until he stops viewing this solely from the bank's perspective... they need to start considering the consumer... and a good start would be for Geithner's boss to stop scaring people.

[bad]

Obama met secretly with Gorbachev?

He's just using the Chicago Way. You know, gettin' the dirt for a little leverage...

[RichatUF]

steve-

Why would Obama want to stop scaring people? It is all a part of the Cloward-Piven strategy and his public private partnerships are only going to be open to those politically connected so that the "private" profits will be redirected into dem controlled foundations and campaign coffers.

Geithner said (a promise from a liar-ha) compensation rules won't apply to the partnerships because they know the people who are going to aply won't even need to be told where to "invest" those profits.

[Charlie (Colorado)]

Steve, you left out (3): if the banks believe there's deflation, it makes more sense to keep the money than lend it with interest less than the rate of deflation. Holding deflating money has a return with no risk.

[Charlie (Colorado)]

Walter, there's "Shadow Statistics". He's one of those folks who has been making a good living for years predicting economic collapse in six months, so keep the salt shaker handy.

One interesting thing on his chart is that M3 is actually down quite a bit from mid-2008.

[steve sturm]

Charlie: I stand amended.

Richard: at some point he has to stop trying to scare people and get them to buy into the theme that life with him will be better than without somebody / anybody else.. and while he's still playing the fear card in order to get public support for whatever it is he is doing, he runs the risk that the public will soon see the problem existing not despite Obama but because of Obama (and if the GOP had a clue, they'd be running with this... and not in the haphazard incoherent way they've been trying to do so).

[Uncle BigBad]

Obama met secretly with Gorbachev?

Well, why not? He's sending letters to Chirac, promising to work with him during the next four years. (Thank God he didn't say "eight years.")

[matt]

one of the factors entering into the spike in loan activity was that November was the last month where companies could really exercise lines of credit. Around then, the banks started withdrawing them wholesale for just about everyone.

[RichatUF]

steve-

Why? Obama has made it pretty clear that his agenda and his fascist army are on track to ram through his health care, education, and "energy" (ie, radical environmentalism) agenda. The worse the banking sector and equity investment is, the better government and municipal bonds do. And by Obama's political allies seizing control of health care, education, and environmentalism the Obama Administration will be able to breakdown economic life, civil society, and international relations (trade) in such a way as to reform it to Obama's peculiar vision.