Wednesday, February 24, 2010

Just as it is no surprise that consumer confidence is low, bank lending has fallen at what the Wall Street Journal refers to an 'epic pace'.

Banks lend when (1) they have customers wanting to borrow money, (2) they think they're going to be repaid and (3) the return on loans exceeds the return from using the funds elsewhere.

And when consumer confidence is low, there aren't a lot of would-be borrowers who can be counted on to repay the loans. Consumers, even those with steady jobs, are understandably nervous and aren't looking to make purchases that require borrowing. Business doesn't see growth opportunities, so they're not looking to borrow money to finance that non-existent growth.

There are plenty of would-be borrowers, but they're the ones who can't be counted on to repay the loans. Consumers already in over their head and businesses who are losing money all would love to get their hands on more cash, but they're not finding anybody stupid enough to loan them money.

The lack of lending is not, as the clueless Obama and Congress think, a cause of our economic problems, the lack of lending is a symptom. Improve consumer and business confidence and the lending will pick up, just as spending and hiring and investment will pick up.

But as long as Obama and Congress continue with their confidence sapping efforts, lending and hiring and investment and spending will continue to remain at low levels. It's pretty simple and straightforward, it is just every unfortunate that Obama either just doesn't get it or that he gets it and just doesn't care.