Perhaps because of the egg-linked salmonella outbreak eggs are much on my mind this morning. It may be that the signs posted in my local grocery store announcing that their egg suppliers aren’t implicated in the outbreak might have something to do with it. This morning I encountered in a Wall Street Journal op-ed the same balderdash I’ve been seeing about bank loans for some time:
What’s missing in these times is a strong desire among businesses and consumers to take on new debt, low rates notwithstanding. Corporations can’t even decide what to do with all the surpluses their businesses are generating; they are sitting on vast amounts of cash even though it is earning them minimal investment returns. Because business’s “animal spirits” are suppressed by caution, private-sector hiring is weak, which means the unemployment rate is likely to remain high. As the New York Fed report shows, householders on balance are struggling to pay off the debts piled up during the 2003-2007 credit binge and are building up savings. Consumer spending is relatively flat.
Are the rates low? Or are they merely lower? Unless economics has changed since I was in school as long a good remaining on the market means that the market clearing price has not been reached. To me that would mean that banks are asking too much for loans as much as businesses are reluctant to borrow.
A purchase is a transaction between a buyer and a seller. Attributing a reduction in the number of purchases to buyers alone is promulgating a falsehood by telling only half of the truth. At this point bankers are being paid not to make loans since they can make money with very little risk by borrowing from the Fed, buying Treasury notes, and pocketing the difference between what they pay and what they earn. Why make loans?
In my view a key challenge to righting our economy lies in adjusting our expectations to the new reality at hand. But homeowners continue to believe that their houses are great investments, retailers continue to believe that the glory days of the Aughts will return, bankers continue to believe that they will continue to reap riches beyond the dreams of avarice by the same means that have worked so well for a generation or more, and policy-makers encourage them in those beliefs by pouring money down every available rathole, secure in the conviction that they will be able to uncrack the egg.