The View From 1776

Keynesian macroeconomists, who dominate the Obama administration’s economic policies, believe that they can control the entire economy with toggle switches.  Click a money switch one way and consumers automatically begin to spend more.  Click another switch and banks pour more loans into the economy to support business expansion triggered by the first toggle switch.

In the real world nothing is so simplistic.  In hard times people become more prudent and less inclined to gamble with debt.

A recent Forbes article explains what is really happening.

Quote:

Bank loan officers must feel like Marriner Eccles, the Depression-era Federal Reserve chairman who famously equated the Fed’s stimulus efforts with pushing on a string. Bank of America is in its strongest capital position ever (thanks in part to timely assistance from the U.S. Treasury and the Fed’s interest-lowering activities), but customers in its commercial lending division aren’t biting. Loans outstanding dropped steadily all year while commercial deposits rose 24% to $133 billion, says Laura Whitley, the executive in charge of lending to businesses under $5 billion in sales.

“As they cut their expenses, they’ve gotten more profitable, and they’re using that cash first, instead of borrowing,” Whitley says. Even the Treasury’s plan to lend $5 billion to parts suppliers against receivables from bankrupt Chrysler and General Motors resulted in only $413 million in loans and will be shut down in April. That doesn’t bode well for the government’s $30 billion plan to stimulate small-business lending, announced in February.