Away from the too-pig-too-fail bailouts and subsidized sectors of the economy, the credit crunch is getting worse, not better.

Year-on-year percentage growth in Commercial and Industrial loans, the main source of financing for small business, is at negative 10 percent, the worst during the sixty years in which records have been kept.

For the large weekly reporting banks, the beneficiaries of federal assistance, the numbers are much worse:

Given that large banks’ customers often have access to the credit markets, some of this doubtless reflects the substitution of corporate bonds for bank loans.

Holdings of government securities, by contrast, are growing at a 20% annual rate, as the Fed provides cheap reserves to the banking system and banks buy Treasury debt, indirectly monetizing more debt.

Are we clear? The Obama administration has run the federal deficit up to 12% of GDP, handing out money to favored projects. The banks shift their balance sheet away from risky small business to riskless Treasuries. And the grassroots economy gets crushed.

It’s all going to get worse. The personal savings rate is back up from 0% to around 3%, but it needs to go back to 10% and stay there indefinitely, which means that consumer spending has to drop by 7% or more, more or less permanently.

This entry was posted on Wednesday, October 28th, 2009 at 2:22 pm and is filed under General. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.