Wolf
Richter www.testosteronepit.com www.amazon.com/author/wolfrichter
For a while, rumor had it that banks weren’t
lending, and that this was the reason the recovery has been so crummy
and that businesses weren’t expanding and that jobs weren’t being
created fast enough. There was no demand for loans, and banks were
too tight with their lending standards. Or so the story went.
Turns out, banks have been lending. Not only
that. They’ve been lending more than ever before. They have been
lending even more than during the last credit bubble, when too many
easy loans were made helter-skelter by loosey-goosey loan officers
while the Fed’s spigot was wide open, which helped blow up the
financial system.
Note the beautiful big-fat bank credit bubble
that emerged in 2002, picked up speed as it went, and took off in
earnest in 2007, when the chart begins. And note how it soared
exponentially in 2008. At the time, the banking system was coming
apart at the seams, the housing market was tanking, Bear Stearns got
cooked, and stocks were skidding. Nothing stopped the bank credit
bubble. Nothing until Lehman Brothers went belly-up in September.
Bank CEOs worried about being next. And that finally punctured it.
So the peak was reported in October 2008. Loans
and leases outstanding at all commercial banks in the US (black line,
left scale) hit $7.28 trillion and all bank credit (red line, right
scale) maxed out at $9.56 trillion. Then the great cliff dive began,
hitting bottom in February 2010 – outstanding loans and leases at
$6.5 trillion, all bank credit at $8.9 trillion.
Now
we’re back! Only this time, the bank credit bubble is even
bigger.
Last month, outstanding loans and leases reached $7.52 trillion and
bank credit $10.3 trillion. Halleluiah!
But wait…. November last year, they started
soaring. Because this is the biggest credit bubble in history, and
it’s time to pick up speed, in a move that is reminiscent of the
jump in mid-2008, even as all heck had already broken loose.
The
underlying idea is simple – an idea that has morphed into a special
sort of higher religion at the Fed that everyone has to believe in
and that no one is allowed to question: the US economy can only grow
if debt grows even faster. So total bank credit rose 3% in 2013, for
example, and US gross national debt soared
by $883 billion,
or 5.4%. But GDP rose only 1.9%.
This is what a credit bubble looks like: piling
on debt and more debt at all levels while producing only anemic
economic growth, so that the debt burden, relative to the economy,
gets more and more onerous, and only the Fed’s zero-interest-rate
policy can keep the whole construct from collapsing under its own
weight, which it will do anyway even with ZIRP, but later and only
after even more debt has been piled on so that the damage will be
even greater.
This is how the Fed envisions our debt-fueled
economy where leveraging everything up to the hilt is the norm, where
nearly free money is required at all times to keep the machinery from
seizing up, and where inflation, the Fed’s preferred solution to
this debacle, will ultimately eat into the wealth of all those who
hold this debt.
And
those yield-desperate investors, driven to near insanity by the Fed’s
interest-rate repression, hold their noses and close their eyes to
scrape up even the crappiest debt just to get a little extra yield.
“On the way in, there’s insatiable demand.” Alas, “it’s
going to be a disaster on the way out.” Read…. Biggest
Credit Bubble in History Runs Out Of Time
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