This chart appeared in today's IBD. Commercial and industrial loans issued by commercial banks has been declining for the past 8 months and is down $583 billion from the peak according to IBD.
As the federal government pumps stimulus into the economy it is being siphoned off, this should be a concern.
In addition the money supply as measured by M2 is shrinking in spite of the Fed's soft money policy:
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Worse, key monetary indicators signal a steep plunge in money supply growth, despite the Fed's printing of well over $1 trillion in new money in the past year and a half.
M2 money supply, the most frequently used gauge for measuring the economy's demand for money, has fallen from solid 8% to 9% growth just last summer to growth of less than 2% since the start of the year. This level is often seen just before recessions, and thus may augur another downturn. Despite two quarters of GDP gains, no rule says we can't have a double dip.
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Investors.com - A Bad Time For Fed To Tighten?
Now the Fed is signeling to the market a shift in posture to tighten the money supply and "easy credit" in spite of virtually no inflation:
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The Federal Reserve Board sent its most explicit signal yet that the emergency supply of liquidity to financial markets is done and the most aggressive monetary policy easing in its 96-year history will eventually reverse.
Chairman Ben S. Bernanke and his colleagues at the Board of Governors raised the rate charged to banks for direct loans by a quarter-point to 0.75 percent, effective today. It was the first increase in the discount rate since June 2006.
The Fed portrayed the decision as a “normalization” of lending that would have no impact on monetary policy, repeating in a statement in Washington yesterday that its benchmark federal funds rate would stay low for an “extended period.” The assurances didn’t stop investors from increasing bets that the Fed would tighten policy in the fourth quarter. The dollar rose and U.S. stocks fell.
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Fed Discount-Rate Move Signals End to Emergency Steps (Update1) - Bloomberg.com
No inflation:
Quote:
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The cost of living in the U.S. rose in January less than anticipated and a measure of prices excluding food and fuel fell for the first time since 1982, indicating the recovery is generating little inflation.
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U.S. Economy: Consumer Prices Increase Less Than Anticipated - Bloomberg.com
The Obama administration and the Fed are not in sync and one of the major problems affecting job creation, the availability of credit, goes unaddressed. Liberal or conservative, what we need is a concerted effort to turn the economy around on a long term basis. Right now we are seriously at risk of another down-turn given a shrinking monetary supply, strengthening dollar, higher interest rates, higher taxes and deflationary pressures.
I hope the President is having a good time in Vegas campaigning for Reid.
