But/and there’s the other half of the liquidity trap going on here:
If you were a banker, would you want to lock your balance sheet into pitiful yields on your loan portfolio at today’s lending rates? You know, deep in your guts, that today’s low yields cannot last forever. You’re thinking “If we can just hold out long enough for rates to go back up, so we’re not committing ourselves to making a couple pennies on the dollar of lending for 5 to 30 years... we could conceivably double our returns if we just wait for rates to go back up to 5% on consumer/home lending.”
This is the other half of the problem the Fed has created: banks don’t have lots of uncommitted capital, but what they do have they want to sink into something with a better cash flow.
It’s my understanding that you won’t normally have inflation until you full employment, as something like 60% of inflation pressure comes from higher wage demands.
I think the only recent exception was in the 70’s when we had “stagflation”.
You're right. There is a small local bank that hasn't made 30 year mortgage loans for the last few years, at least.
It’s a cash crunch. There isn’t enough capital being put into the marketplace. People want to borrow, good deals exist, but they can’t. Bernanke is pushing on a string.