Thursday, April 2, 2009

A drop in overall bank lending!

Bloomberg - "Bank of America Corp. and JP Morgan Chase & Co. led banks in providing $79.6 billion of syndicated loans in the three months ended yesterday, a 61 percent drop from $203.2 billion a year earlier, according to data compiled by Bloomberg. The volume has dropped from $446.4 billion in the first quarter of 2007, before credit markets seized up amid the worst financial crisis since the Great Depression."

Let's break this down to the perspective of a lender. What is the one thing that a consumer MUST have before lending can occur? Income.

If inflation-adjusted wages have remained stagnant since 1975 and the only thing that has kept people from feeling the actual effects of that reality has been this massive infusion of credit, is the introduction of more credit going to solve the problem? What's the real problem here? Income.

Either wages must go up or costs must come down. Bottom line. End of story. More lending is NOT going to get us out of this.

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