Skip to comments.Financial Repression: Banks Increase Treasury Purchases, Deposits Up, Banks Still Not Lending
Posted on 03/12/2012 8:27:46 AM PDT by whitedog57
In advance of the U.S. bank stress test report on Thursday, the following story was released this morning about banks purchases of Treasury and related debt.
March 12 (Bloomberg) U.S. banks bought more government and related debt in the first two months of 2012 than they did in all of last year, an endorsement of Federal Reserve Chairman Ben S. Bernankes assessment of the economy thats boosting demand for bonds even with yields near the lowest on record.
This is an endorsement? What it says to me is that banks simply invested part of their staggering reserves in Treasuries rather than leave them languishing in cash. I would say that it is the opposite. Banks are NOT seeing lending potential in the private sector, so are content will lending more to Uncle Sam (or Uncle Ben).
True, bank deposits have grown making the funds available for lending to consumers and businesses larger. However, the FDIC and The Fed are watching banks like hawks (or vultures) encouraging them to NOT make risky loans. So before you raise the pitchforks and torches, think about the regulators contribution to a lack of recovery in lending.
The lack of bank lending can be termed as financial repression [See Carmen Reinhart's piece at the link.]
Are the regulators going to wait until The Feds rosy forecasts for the economy come to fruition BEFORE they release the clamps on bank lending?
Some lending has increased, but not to previous levels. And residential mortgage lending has declined for the same reasons. What we are likely to see on Thursday is the stress tests being most aggressive in terms of writing new consumer exposures.
(Excerpt) Read more at confoundedinterest.wordpress.com ...
Since only government bonds are ever purchased by a central bank, quantitative easing is a de facto subsidy to banks for lending only to the US government. It works like this: "If you buy long-dated Treasury Bonds, the Federal Reserve will come in a few months and buy them back from you at a higher price."
Every time a bank tries to do something in the private sector, it gets hammered for it by Dear Reader and the trial lawyers. On the other hand, in the guise of "quantitative easing," Bernanke is subsidizing banks for lending only to the US government.
Yup, The Fed wants banks to buy Treasuries to support the Administration’s OUTRAGEOUS spending and deficit. Banks actually get royally screwed by this.
The banks are being supported by this—they are doing the “carry trade” by borrowing short-term from the Fed, and lending long-term to the government. They collect a guaranteed interest rate spread. Their only risk is that interest rates go up, the bond principal value drops, and they are back in the hole again.
Perhaps the most fundamental aspect of “financial repression” is that net creditors—savers— are being hosed to support debtors. You can’t keep up with inflation in your savings unless you take on risk. And, the government is always there to tax your nominal earnings as if they are real. It’s a double tax on inflation.
Banks not lending. How’bout consumers not wanting loans?
Extraordinary low interest rates for housing and very few apply except for refinancing which does nothing for the housing glut.
Citizens not sure about the future with O’bummer care lurking in the dark or not sure about who is the next president and why. With companies spending a lot of time trying to figure out ever changing tax codes, can’t expect the economy to take off soon either.
The good news is, my local Walmart sells ammo now.
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