Thursday, May 21, 2009

Is the economy being stimulated?

The average total of loans held at the top 21 US banks fell for four of the past five months, according to a US Treasury Department report last week (on Friday, 15 May). The banks included in the survey account for more than half of loans held by U.S. depository institutions.

In spite of the US government's $700 billion financial rescue fund, average loan balances at the largest bailout recipients dropped to $4.38 trillion, down 0.9 percent from February. The average total of loans had fallen 0.4 percent in February, though new originations had increased marginally in March (partly due to the 3 more working days).

This demonstrates that the so-called "stimulus" spending is, at best, "stability" spending and that it is failing to stabilise lending - as expected, because "stimulus" spending tries to dodge the real issue, which is leveraged speculation and the resulting "toxic assets".

Most worryingly, the report showed ALL categories of CONSUMER loans increased in March.

The existing level of consumption in the US is being still bolstered by loans rather than on the basis of money earned - even though savings are up, many US consumers are still spending more than they are earning. Sphere: Related Content

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