Although the Troubled Asset Relief Program (TARP) has launched several initiatives aimed at restoring general credit availability, the Panel found little evidence that the TARP has spurred small business lending...With results like these it's surprising that that the populist outrage in this country is as minimal as it is.Small business credit remains severely constricted. Data from the Federal Reserve show that lending plummeted during the 2008 financial crisis and remained sharply restricted throughout 2009. Although Wall Street banks had been increasing their share of small business lending over the last decade, between 2008 and 2009 their small business loan portfolios fell by 9 percent, more than double the 4 percent decline in their overall lending portfolios.
TARP has done little to restore stability to the smaller banks that provide the bulk of small business credit.
The situation appears to be one in which irresponsible lenders (Goldman, Citi, etc.) get bailed out by the taxpayer while irresponsible borrowers (individuals with mortgages they had no hope of paying) do not. As if the arbitrariness of this state of affairs wasn't galling enough, now responsible firms and individuals find it difficult to access the reasonable credit they need to conduct business.
9 comments:
The data shows that credit did not fall at all until precisely the moment bailouts were announced. (Can be found in Tom Woods, Meltdown.) Of course, it is only by miracle that the banks have discovered enough common sense to STOP lending in the face of massive, unprecedented TRILLIONS of inflation from the Federal Reserve. The fact that these banks are not lending is the only thing between our happy depression and hyperinflation.
Understand inflation is very simple. It is and must only be defined as an increase in the money supply. Ceteris paribus, this increase in the supply of dollars while everything else remains constant is what accounts for the necessity of more dollars to make purchases, since we all understand the foundation of Price, which is the intersection of supply and demand. Rising prices, ie) the necessity to use ever more valueless dollars for purchases, is the obvious and inevitable consequence of increasing the money supply.
It is a shame that small businesses cannot get loans. However, this is entirely the fault of central and fractional-reserve banking. Credit can only come from the savings of others, for just as we cannot consume without producing, we cannot spend without saving. Until people accept this truism, populist nonsense against private companies that are not guilty of anything instead of the real culprit, government, will continue unabated. Kudos to every bank who has enough common sense to realize that trillions of new dollars in circulation spells the end of the dollar.
"private companies that are not guilty of anything"
How about rent seeking? I realize there wouldn't be any without a meddlesome government, but that doesn't absolve individuals and individual firms from the consequences of their own bad behavior.
Jerry,
I agree. However, I don't think we can talk about the issue without acknowledging the role government plays. It's nice to say that companies shouldn't engage in A, but if companies could not engage in A *save for government involvement* then we have our priorities wrong. People respond to incentives. That is an immutable fact.
Again, I agree. Companies that went along with the inflation game should be punished. Again, the free market would have taken care of this; these poor stewards of wealth would have been on the street, while the assets would have been purchased by better stewards.
Today's top fallacy revolves around 'too big to fail,' when in fact there is no such thing. Bankruptcy is stimulus in and of itself. It frees up the resources and capital inputs that were used for an unprofitable venture to be bought and moved to industries or companies that actually are profitable.
It seems that the 'new economists' forget that the world is not and cannot be reduced to equations; and in their zeal to confuse everyone with numbers, they forget the basics of economics. Good point Jerry.
"Understand inflation is very simple. It is and must only be defined as an increase in the money supply"
http://www.ustreas.gov/offices/domestic-finance/debt-management/interest-rate/yield.shtml
I guess the market doesn't agree with you.
I do love the Mises people "Jerry".
Strupp,
It's true, my given name is Jeremy, but generally I just go by Jerry.
You can drop the quotation marks.
PS - Do you think the Mises people have anything useful to tell us about the most recent crisis? I do, but not as much as D would like to believe.
No.
Ignoring the role that over/under capacity plays in inflation/deflation is misguided. Expansionary monetary policy does not always cause inflation. No other period in history is better proof of this than the period of history we live in right now.
Assuming that our current woes are the product of Fed. policy is misguided and unproductive in resolving our issues.
Assuming that the government is the only party responsible for creating this mess and/or any other financial crisis for that matter, is just flat out ignoring history. The free market jungle of the Gilded Age was a bloody, manic, ineffecient mess that I do not think we should be romanticizing about as the Mises folks seem to do quite often.
Sorry Jeremy, while I respect their passion (they're never short of passion), their opinions aren't based in reality.
Increasing the money supply IS inflation. We can see this empirically in the fact that areas that are left alone (computers, eye surgery, the general trend of all prices up until 1913) see downward pressure in price. Why? Because of capital accumulation and innovation. Why is is that eye surgery sees downward prices while the heavily regulated rest of the healthcare industry sees steadily rising prices?
For what reason would prices naturally rise? There is no economic principle purporting this claim.
That being said, prices NOT rising does not mean there is no inflation. Most people commit the #1 economic fallacy of ignoring what is unseen. Steady price levels during monetary inflation can come about by increased production, as we saw during the 1920's.
You must explain how, ceteris paribus, increased money supply does not raise prices. What other reason than increasing scarcity would cause a general price level rise? How can you ignore the laws of supply/demand when it comes to money?
Now, please explain your theory of the business cycle. Keynesians, Supply-siders, and Chicago schoolers don't even have one. You cannot have a situation in which previously efficient and accurate stewards of wealth ALL find themselves in dire straits ALL at the same time and blame market actors. The source comes from outside
Most importantly, why is it that only the Austrians have consistently and accurately 'called' the bust phase of the business cycle before they happened? Why has no other 'school' been able to accomplish the same? How come, when Bernanke and Paulson were saying everything was fine in 2007, we were reading Ron Paul's statements about the looming housing bubble from 2002? Why was Peter Schiff laughed at, only to be vindicated? Why didn't the 'new prosperity' of the 20's last, while Mises was warning about the coming bust? Why can't Keynesians explain stagflation?
All the evidence points in one direction.
“Increasing the money supply IS inflation.”
“You must explain how, ceteris paribus, increased money supply does not raise prices.”
I shouldn’t have to. It’s happening right in front of your face if you’re paying attention:
http://www.clevelandfed.org/Research/data/US-Inflation/chartsdata/index.cfm?DCS.nav=Local
"What other reason than increasing scarcity would cause a general price level rise?"
Inflation/deflation expectations.
"How can you ignore the laws of supply/demand when it comes to money?"
I'm not. Neither is Bernanke.
“Most importantly, why is it that only the Austrians have consistently and accurately 'called' the bust phase of the business cycle before they happened? Why has no other 'school' been able to accomplish the same?”
Bob Schiller
Karl Case
Dean Baker
Paul Krugman
Not Austrians.
“Why was Peter Schiff laughed at, only to be vindicated?”
Because Schiff is a stopped clock. He’s been saying the same thing for over a decade. There’s a difference between guessing right and being right. Schiff also threw all of his followers into oil, gold and other commodities, a couple years ago which promptly tanked (gold is underperforming at about 20% in the last couple years) and out of U.S. treasuries and equities. Evidently, he has a difficult time reading the yield curve too. He’s wrong because the foundation of his whole argument is flawed.
“Why can't Keynesians explain stagflation?”
They do all the time. A severe oil supply shock, coupled with a politically weak Fed. Reserve which didn’t put the containment of inflation as a high enough priority in the 60’s, allowed entrenchment of inflation expectations thereafter. A more powerful Fed. of the late 70’s/early 80’s (Volcker’s Fed.) put an end to this episode in short order.
Post a Comment