Despite the Administration’s herculean efforts to spend us into prosperity, banks are not loaning, businesses are not hiring, and consumers are not spending. Let’s look at each of these and see if we can figure out why.
First, banks. Obama and his minions are apparently flustered over banks’ refusal to loan more money, especially local banks. Talk to your banker sometime and ask why. You may find out that despite the hue and cry for help to small businesses, bank regulators are on them like white on rice. And what is a bank regulator’s job? To make sure he/she cannot be blamed if anything ever goes wrong. The solution? Take all the risk out of lending! In other words, loan money only in cases where the borrower does not need it.
One of our local banks was sold to a larger competitor on the premise that it was “too heavy into commercial real estate,” a strategy they had pursued successfully for twenty years. Apparently the regulator could not tell the difference between Bloomington, IL and Detroit, MI. By arbitrarily raising the bank’s reserve requirements from 10% to 13%, they effectively destroyed it. It was sold before the bank could even respond to other allegations it claimed were demonstrably false. Think the other local banks were paying attention? You bet. And if they are smart, they will avoid loaning on so much as land for a lemonade stand.
Businesses. If you own a business, you already know why you are not hiring. If you do not, let me fill you in. Business decisions are often made with a time horizon of years. While no owner expects to know the future perfectly, some level of predictability is required in order to make rational investments, including human resources. In less than two years, we have allowed Congress to pass two 2000-page-plus bills, the contents of which not one member understands. Health care has mandated insurance coverage, we think, somehow. At what cost for employers? Hell if I know. You don’t know either, but if you are offered a bet on “a lot,” take it. Ditto for financial regulation, by the way. Businesspeople are, quite rationally, hoarding cash and waiting for the next Beavis and Butthead-inspired idea to break free from Foggy Bottom and wreak havoc on the economy.
Last, consumers. This is a cute one. Years ago, I remember seeing a news article that consumers were hurting the economy by saving too much money. That made absolutely no sense to me. Aren’t we better off when we save a goodly portion of our income? It took me years to understand why that is not the case under a fiat, debt-based monetary system. Our money IS debt. When we rein in our spending and stop buying all those jet skis and motorcycles on credit, we reduce the money supply. (If this is confusing, it is meant to be. Government does not want us to understand how money actually works. If the public were to figure it out today, there would be a revolution tomorrow.)
So there we have it. Banks won’t loan and businesses won’t invest because no one can figure out what the rules will be in a month, much less five years. Consumers won’t spend because they are afraid of a layoff due to reasons #1 and #2. Doesn’t look like much of a recovery to me. Tomorrow, we’ll look at why the problem is much more serious than a lackluster recovery.