The whole idea of bailing out Wall Street was to get the credit markets working again. For that to happen, banks would have to lend.
This strategy has failed.
David Rosenberg from Gluskin Sheff said lending has fallen by over $100bn (£63.8bn) since January, plummeting at an annual rate of 16pc. "Since the credit crisis began, $740bn of bank credit has evaporated. This is a record 10pc decline," he said.
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The M3 broad money supply – watched by monetarists as a leading indicator of trouble a year ahead – has been contracting at a rate of 5.6pc over the last three months. This signals future deflation. The Fed's "Monetary Multplier" has dropped to a record low of 0.81, evidence that the banking system is still broken.
No matter how much liquidity the Fed and Treasury pump into the system, they can't seem to get the banks to lend.
(MarketWatch) -- U.S. banks are reducing their lending at the fastest rate on record, tightening the credit squeeze and threatening to leave many otherwise viable businesses unable to borrow money to expand their businesses, meet their payroll or refinance their maturing debts.
According to weekly figures provided by the Federal Reserve, total loans at commercial banks have fallen at a 19% annual rate over the past three months, while loans to businesses have dropped at a 28% annualized pace.
Even after the trillions of dollars in bailout money, credit is contracting at a record rate.
During the September 2nd week, U.S. commercial banks cut back on their commercial & industrial (C&I) loans by $10.3 billion; their real estate credit by a huge $15.3 billion; and their lines to consumers by $6.4 billion. In sum, $32 billion of banking sector lending evaporated during the week, bringing the total contraction to over $200 billion since the end of July. Not only is that unprecedented, but it is also a record decline in percent terms — down at over a 12% annual rate on a 13-week basis. Indeed, we have massive government stimulus that is still just patching a leaky boat, and the consensus economics community is trying to “sell” this idea to investors that credit typically lags the cycle.
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