Decline in Bank Lending: Business Investment in America is almost at a Standstill

Economics / Economic Recovery
Apr 20, 2010 - 05:01 AM

By: Bob_Chapman

One of the reasons for less bank lending is the almost non-existent market for securitized bonds. Investors have so many bad loans on their books that they refuse to commit to further risky investments. This means banks are forced to hold this toxic paper on their books and that inhibits them from lending at higher levels. If the Fed had not purchased $1.7 trillion of this toxic junk many banks would currently be in bankruptcy. Thus, there still are trillions in these bad loans on the books of many financial institutions and they cannot be sold and they are clogging up the system, and there is no end in sight for the problem.

At the same time there is no effort to reduce federal debt, because if government does so it will absorb more funds needed for investment and to fund newly occurring debt. This reduces money supply and further crowds out business investment. This is truly being in a box with no way out. The Fed has been accommodating via monetization and will have to continue to do so, but the result of that is inflation and perhaps hyperinflation. As you can see this is a never-ending debt trap, and nothing that has been done is permanently solving the problem. Business understands. They are raising as much money as possible at the lowest rates since the 1930s. They may be flush with cash, but can they employ it. Unemployment at 22-1/8% means less buyers for their products. They cannot expand because the demand isn’t there. They cannot invest because they are unsure of recovery and they continue to lay off to cut their biggest cost, labor, and remain profitable. You could call this a vicious circle.

Government tells us they are going to cut spending. If they do so that will increase unemployment as spending falls and that in turn will slow business and business development. That means less business spending and more lay offs.

As these events unfold the likes of the Council on Foreign Relations and others in and out of government, want to cut Social Security payments in the worst possible environment. Government cannot fund their debt, so under the new medical reform they cut benefits. They are now contemplating an attempt to grab individual retirement plans to pay bills for a bankrupt government. While these efforts go forward Americans are fast loosing all, or almost all, the equity in their homes. This is where most Americans had their savings for the future. Government is so desperate they want to start guaranteed annuities or retirement accounts to be funded by your wages. The real reason for the accounts is that government needs the cash flow to fund operations, because they haven’t been able to get enough investors for sometime to buy their bonds. They may even have a voluntary plan where workers can pledge their retirement, or parts of it, to government guaranteed annuities. This way government can collateralize their debt issuance. Now you can see why it is so important that government manipulate the stock market and show bogus values. A mandatory savings plan is just another scam to fund a bankrupt government. This is money you will not be able to access until retirement if that ever comes, and, of course, if government defaults, which we believe they will, you will get nothing. If the funds were privately managed instead of by government, this would be a bonanza for Wall Street. Is it any wonder so many Americans are lining up to leave the country? Already Blackrock Financial is managing $100 billion in government employee retirement funds. Of course, the managers are members of the C.F.R. In fact under the FSP half the assets are “investedâ€