Skip to comments.When Will Monetary Policy Jump-start Bank Lending and Economic Growth?
Posted on 02/15/2013 4:05:33 PM PST by whitedog57
Like many Americans, I keep wondering when the US economy will received a kick-start and get back on its feet. The Federal Reserve has certainly been quite active since 2008 in attempting to revive the economy, but has it worked?
Here is a chart of The Conference Boards Leading Economic Indicators (blue) and the 10 year Treasury rate (green). While the LEI have been increasing with declines in the 10 year Treasury rate, it is a pale recovery compared with the 2001-2007 (Q3) under President Bush.
Part of the problem with the inability to recover as quickly which we did following the 2001 recession is the crashing money velocity. For example, here is the MZM velocity which crashed due to slow GDP growth and a massive increase in the money supply since 2008.
And the M1 Money Multiplier crashed in Q4 2008 and remains in a slump.
So we are not seeing a robust economic recovery as we had hoped.
Austrian economists argue that inherently damaging and ineffective central bank policies, including unsustainable expansion of bank credit through fractional reserve banking, are the predominant cause of most business cycles, as they tend to set artificial interest rates too low for too long, resulting in excessive credit creation, speculative bubbles, and artificially low savings.
We can see the declining savings rate that increased in The Great Recession. And has wandered around since.
And we know that both the Carter and Clinton Administrations encouraged banks to make risky loans and lots of them. That is the unsustainable expansion of bank credit. nhsdream2
Where do we sit now? Fannie Mae and Freddie Mac have tightened credit requirements, as has the FHA. But with mortgage purchase applications still in a rut (much like M1 Multiplier), we are not having a credit-driven recovery.
And with the massive mortgage putbacks from FHA, Fannie Mae and Freddie Mac coupled with the stifling Dodd-Frank and Consumer Financial Protection Bureau edicts, I sometimes wonder why banks lend on mortgages at all.
When money velocities and multipliers start increasing again, we will have better economic growth.
But if those money velocities and multipliers start to increase, watch out for inflation if The Fed doesnt manage the excess reserves at depository institutions.
I’d say, “Mission Accomplished!” The gap between the rich and poor is larger than ever before. More and more people fall out of the Middle Class every minute.
Get used to this ‘new normal,’ and count on it getting much, much worse.
All by design, Comrades. All. By. Design.
Transparent cash dumps don't create economic growth.
Envision for a moment a Bernanke Airlines dropping trillions of dollar bills all over America. Would that generate economic growth? No! It would merely disrupt actually productive behavior.
Money volume doesn't cause growth. Period.
Productivity increases and returns to absolute values of capital investment create growth.
Here is a chart of The Conference Boards Leading Economic Indicators (blue) and the 10 year Treasury rate (green):
...here is the MZM velocity which crashed due to slow GDP growth and a massive increase in the money supply since 2008:
And the M1 Money Multiplier crashed in Q4 2008 and remains in a slump:
We will all take a vow of poverty, and the gubbermint will be there to enforce it.
Let’s see, the fed is taking money from the lower classes through inflation and giving it to foreign banks. I don’t get how this is supposed to stimulate the US economy.
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